UPDATE 3-Gannett forecasts earnings beat; shares jump

Tue Sep 29, 2009 1:13pm EDT

 * Sees Q3 non-GAAP profit 39-42 cents per share
 * Wall St. forecast Q3 profit 29 cents per share
 * Sees Q3 rev $1.31-1.32 bln vs estimate $1.37 bln
 * Announces $400 million offering of senior notes
 * Shares rise nearly 19 pct
 (Adds prior layoffs, background on newspaper industry, updates
share price)
 By Paul Thomasch and Robert MacMillan
 NEW YORK, Sept 29 (Reuters) - Gannett Co Inc (GCI.N)
forecast stronger-than-expected quarterly results, sending
shares up nearly 19 percent, as cost cuts helped the largest
U.S. newspaper publisher soldier through a tough ad market.
 The announcement, which comes three weeks before Gannett
plans to report third-quarter financial results, is rare for a
U.S. newspaper publisher, and comes on the same day that the
company said it was raising $400 million in debt.
 The anticipated results pleased Wall Street, which scooped
up newspaper shares that have been battered in recent years as
investors bet that print newspaper publishers face a bleak
future in the 21st century wired world. It also forced traders
who sold short the company's shares to cover their positions,
which pushed the share price even higher.
 Still, the bright earnings report was the result of severe
cost cuts. Advertising sales, the lifeblood of newspaper
revenue, remain weak, leaving the companies in the unenviable
position of trying to find more ways to cut costs to keep
pleasing Wall Street.
 Gannett's forecast suggests that newspapers' third quarter
results may look much like the second quarter when publishers
counted on slashing jobs, salaries, travel and every other
expense to scrape together better-than-expected profits.
 "Gannett beat the number by a yard, all on cost-cutting,"
said Benchmark Co analyst Ed Atorino. "Revenues are
 Investors bought newspaper stocks on Tuesday, hoping for
more positive profit surprises. New York Times Co (NYT.N) rose
10 percent, McClatchy Co (MNI.N) climbed 9 percent, and Lee
Enterprises (LEE.N) jumped 55 percent, making it the top
performer in the Standard & Poor's 500.
 Gannett in October plans to report a third-quarter profit
of 39 cents to 42 cents a share, excluding items, compared with
the 29 cents a share that analysts polled by Reuters Estimates
 Revenue is another matter. The publisher of USA Today
projected revenue of $1.31 billion to $1.32 billion, short of
the $1.37 billion Wall Street expected -- a sign that ad
spending remains below what analysts had hoped. The forecast
came as Gannett announced a $400 million debt offering.
 A tough period for print advertising, lower revenue from
its digital division, and a broadcast business trying to get by
without the help of political and Olympic spending are weighing
on Gannett, Chief Financial Officer Gracia Martore said.
 But she trumpeted Gannett's cost-cutting prowess. "Our
continued efforts to achieve efficiencies and further
consolidations company-wide along with significantly lower
newsprint expense resulted in another substantial decline in
our operating expenses," she said in a statement.
 This summer, Gannett laid off around 1,400 workers, after
several thousand layoffs last year. Other newspaper publishers
have made similar reductions.
 Revenue remains stubbornly depressed. Industrywide, ad
sales for print and online combined fell nearly 30 percent in
the first and second quarters, compared with the year before,
according to the Newspaper Association of America.
 The declines have led many experts to predict the demise of
newspapers, and some publishers, including Tribune Co
(TRBCQ.PK), filed for bankruptcy. More recently, however,
newspaper stocks have rallied, as their executives have seen
declines easing in coming quarters.
 Gannett's share run on Tuesday also reflects traders trying
to balance out holdings in the stock, analysts said. Traders
have sold short 49 million shares, or 21 percent of the shares,
making it the most-shorted U.S. newspaper stock.
 That means many traders have borrowed shares and sold them
short, anticipating that Gannett's stock would fall and they
could make a profit on their bet. Those same traders, seeing
that Gannett's shares would rise after its earnings forecast,
now have to cover their bets.
 Gannett shares were up $1.86 or 18.6 percent at $11.84 on
the New York Stock Exchange on Tuesday afternoon.
 (Reporting by Paul Thomasch and Robert MacMillan, editing by
Maureen Bavdek, Derek Caney and Matthew Lewis)

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