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Gannett Wins In Losing Industry

Posted: Jul 17, 2009 10:00 AM by Greg Sushinsky

Filed Under: Recession,Stock Analysis,Stocks

Tickers in this Article: GCI, MNI, NWS, NYT, WPO

When the Associated Press referred to Gannett Corp. (NYSE: GCI) as the "perhaps most financially sound newspaper company," one need not get too excited about this "praise". Consider the battered industry, with major players undergoing shrinkage in their operations and revenues, and with some in peril, and you get the picture. It's into this environment that Gannett, publisher of the USA Today, gave its quarterly earnings report.

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Though Wall Street cheered Gannett's second-quarter earnings of 46 cents per share excluding charges, the theme is still declining advertising revenues and declining earnings, as last year's comparable quarter earnings excluding charges were $1.04. While beating the quarterly earnings expectations of 36 cents a share boosted the stock on the day to over $4, it's really a case of The Street making more of less.

Gannett Not Alone
Gannett is not unique in this growing winter of the newspaper business. Major newspaper companies continue to struggle with the deep cultural changes affecting the industry. The New York Times (NYSE: NYT) has a plan to charge $5 per month to subscribers for access to its website, which given the way internet users are averse to pay-to-see for websites seems a dubious way of making up for vanishing print revenue. The Washington Post (NYSE: WPO), with a slightly more diverse portfolio of properties, can count Slate as a mildly successful internet operation. News Corp. (Nasdaq: NWS), Rupert Murdoch's vanity company, has taken a dreadful beating with its MySpace, as Facebook continues to mash it into the canvas.

Whether these internet ventures will eventually be the industry's salvation, or even pay off in terms of big revenue, is uncertain. On a more glaring issue, the nation's third-largest newspaper chain, McClatchy Co. (NYSE: MNI), which has attempted to address its considerable debt problems, may be in danger of bankruptcy, according to one analyst's report.

Doom and Gloom or Merely a Down Cycle?
There is a mild debate about where Gannett and the print/newspaper industry is right now and where it's headed. While there is no debate that advertising has been migrating to the internet, and that the recession has slashed Gannett's earnings and battered the industry, the question is how much of this is cyclical and how much is a foretaste of the future, a possible permanent marginalization, or even the death of a once critically important industry. Some members in the investment community have suggested that the damage is largely cyclical and that advertising revenues will rebound, yet this seems to ignore the advertising war being won by the internet. Others call for the very modest hope that the carnage will be staunched at some point. But for Gannett and the others, the falling circulation, falling ad rates, falling ad booking, and most importantly, falling revenue, do not paint a promising picture.

What They Can Do
While we don't want to belabor the doom-and-gloom scenario, the print/newspaper industry is more vulnerable than even the severely wounded auto industry. The fact that the newspaper industry has not been well-run for decades prior to the birth of the internet merely exacerbated the situation. Such proposed internet related solutions as Circulate, a new content consortium, may eventually give newspapers a respite, but no single change alone will provide a solution. Gannett has been trimming its costs, laying off staff, as this is a traditional way to meet the problems, but its platforms in digital and broadcast remain necessary, and no doubt need to be bulked up. The days for the stand-alone print newspaper companies are surely numbered, so diversifying into other media has become more of a requirement, not merely an option.

The Bottom Line
Gannett's stock had been pummeled down to under $2 from more than $21 in the last 52 weeks, and although the company remains profitable, with shrinking earnings the stock is a trade, not an investment. Only the boldest seers who can envision something beyond what's on the horizon might want to speculate on Gannett or some of the other newspaper stocks,hold them for a few years. (For more, read the Top 6 Ways To Recession-Proof Your Job for tips on how to avoid the axe.)

By Greg Sushinsky

Greg Sushinsky is a passionate independent investor, who has done his own research, analysis and investing for 20 years. One of his earliest investing memories was when he first saved and bought U.S. Savings Bonds with his own money as a small child. From there, he studied investing on his own and made small stock purchases as he grew as an investor.

Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.

Filed Under: Recession,Stock Analysis,Stocks

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