By Jennifer Saba
Oct 21 Gannett Co Inc, the largest U.S. newspaper chain and publisher of USA Today, reported a 4 percent drop in third-quarter revenue on Monday as a persistent decline in advertising sales has dogged the industry.
Gannett is considered a bellwether of newspaper companies, which have been hurt by advertisers who have shifted their dollars to digital. The New York Times Co, whose flagship paper competes with USA Today, is expected to post moderate declines in advertising revenue when it reports third-quarter results on Oct. 31.
Shares of Gannett, which also owns TV stations, were down 5 percent in afternoon trade at $26.23.
Doug Arthur, an analyst at Evercore, said Gannett's publishing division looked "weak" and that the slip in circulation revenue was "one cause for concern."
Publishing represents 63 percent of Gannett's revenue, while broadcast currently makes up 16 percent.
To counter print declines, Gannett has rolled out a digital pay model at its papers and has made a big bet on local television. Digital revenue jumped 12.4 percent to $376.1 million.
"Our strategy ... was never meant to be a short-term plan," Gracia Martore, Gannett's chief executive, said during an earnings conference call, referring to efforts to reap more revenue from digital and broadcast TV.
"It is a smarter, more strategic way of running our business that positions us to weather challenges as they come, like the secular downturn in publishing or a tepid economy."
Gannett nearly doubled its broadcast holdings to 43 stations from 23 with its agreement to buy Belo Corp for $1.5 billion. Belo shareholders approved the transaction in the third quarter, and Gannett is waiting for government approval before the deal closes.
The move to increase its broadcasting assets has prompted questions in recent months regarding Gannett's plans for its newspapers. Tribune Co, also a broadcast and newspaper operator, said it would split into two companies and many on Wall Street wonder if Gannett will follow suit.
"For the foreseeable future, certainly into 2014, our number one focus is on closing on and integrating Belo," Martore said in response to a question about a possibility of separating the newspapers into a standalone company.
"But as with everything ... we are always looking at different alternatives," she said.
Publishing revenue fell 3.6 percent to $858.1 million on a 6 percent slide in advertising revenue. Circulation revenue dipped 0.6 percent. Gannett started charging for digital content a year ago at its domestic U.S. newspapers.
At Gannett's broadcast TV station divisions, total revenue fell 15 percent to $198.5 million because of the absence of Olympic or political advertising recorded in the third quarter last year.
Total revenue fell to $1.25 billion versus analysts' estimates of $1.27 billion. Year-ago revenue was $1.3 billion.
Net income for the quarter totaled $79.7 million, or 34 cents per share, compared with $133.1 million, or 56 cents per share, for the same quarter last year.
Adjusted for special items, earnings per share was 43 cents. Analysts, on average, expected of 41 cents per share, according to Thomson Reuters I/B/E/S.