NEW YORK (Reuters) - Gannett Co Inc posted a 60 percent drop in quarterly profit because of lower advertising revenue, but cost cuts helped it beat some downtrodden expectations for struggling U.S. newspapers.
Shares of Gannett, which have fallen 87 percent in the past 12 months, were up 2 percent in early afternoon trading.
Gannett reported a 34 percent drop in publishing ad revenue. U.S. publishing ad revenue, which includes the country’s top selling newspaper USA Today, fell 28 percent.
Those declines are some of the steepest yet for the U.S. newspaper industry as the recession prompts advertisers to slash their budgets. Other publishers that will report in the coming weeks, include Media General Inc, McClatchy Co and The New York Times Co.
Gannett reported net income of $77.7 million, or 34 cents a share, down from $191.8 million, or 84 cents a share, a year ago. Revenue fell almost 18 percent to $1.38 billion.
“It wasn’t a total disaster,” said Benchmark Co analyst Ed Atorino. “They’re not going out of business.”
Excluding gains relating to a union pension plan and a charge for layoffs and consolidation costs, Gannett’s profit was 25 cents a share, beating average analyst estimates by a penny according to Reuters Estimates.
Gannett cut expenses 10 percent to $1.2 billion. It has been working on a number of ways to modernize its news-gathering and adapt to the Internet. In the meantime it has been laying off and furloughing employees.
Gannett also is experimenting in other ways, including cutting the number of days it home-delivers print editions at the Detroit Free Press.
Chief Executive Craig Dubow, during a conference call with Wall Street analysts on Thursday, declined to say how much of the company’s advertising decline is permanent and how much is because of the financial crisis.
He offered a rare ray of hope, however, for the newspaper business. “Our belief is, if things are leveling a bit hopefully some time the end of the year... we may begin to see some advertisers poking back into this in some pretty significant ways,” he said.
One of the biggest problems Gannett is facing is a drop-off
in classified ad revenue, which is flowing to free websites. First-quarter classified ad revenue fell 46.5 percent, and included a 62 percent drop in job classified revenue.
At USA Today, total ad sales fell 33.5 percent. USA Today’s paid circulation also likely will fall after Marriott International said this week that it would no longer automatically deliver the paper to its guests.
Gannett continues to work with Marriott, and executives said on Thursday that the publisher signed a contract with a hotel chain that they would not name. They said the chain has a larger USA Today circulation than Marriott.
Gannett, which owns local TV stations, said broadcasting revenue fell to $143.5 million from $170.2 million last year because of lower automotive and retail ad sales. TV revenue likely will fall in the second quarter too, the company said.
TV ad sales benefited a year earlier from $5 million in political ads, which were virtually nonexistent this year, Gannett said. But Gannett’s NBC stations benefited from Super Bowl advertising this year.
Shares of the company have risen and fallen in dramatic arcs in the past few days.
Last week, Ariel Investments, a major investor, boosted its stake, contributing to a 40 percent share rise in one day. Many investors also began covering their bets that Gannett’s stock would fall, causing further gains.
The market also welcomed Gannett’s news that it plans to swap some of its debt for new debt with payments due later than 2012. Most of the company’s debt was due in 2012. The company plans to offer more information about the offer next week.
It also said it will use most of its free cash flow this quarter to pay debt. Gannett cut its dividend by 90 percent in February to use that money to pay debt.
Gannett also said that newsprint prices — a key expense for the business — likely will decline through the second quarter, and possibly beyond. The company said it is not clear how Thursday’s bankruptcy filing by North America’s largest newsprint maker, AbitibiBowater Inc will affect it.
Analysts worry that a bankruptcy court judge might order AbitibiBowater to keep its mills running to generate cash. That would flood an already over-supplied market with yet more newsprint, and lead to a collapse in already weakened prices.
Gannett shares were up 7 cents to $3.56 on the New York Stock Exchange after climbing as high as $4.20 earlier in the session.
Reporting by Robert MacMillan. Additional reporting by Euan Rocha in Toronto; Editing by Derek Caney and Tim Dobbyn