Gannett 2Q profit falls by 36 percent

MCLEAN — Gannett Co., the nation's largest newspaper publisher, on Wednesday reported a 36 percent drop in second-quarter earnings as the newspaper industry's woes caused a sharp decline in revenue. Its shares fell more than 4 percent.

The profit of $233 million, or $1.02 per share, compared with a $366 million, or $1.56 per-share profit in the year-ago quarter. The earnings matched expectations of Wall Street analysts surveyed by Thomson Financial.

The company's shares dropped 78 cents to close at $16.57 Wednesday, after reaching a 21-year low of $14.62 earlier in the day — a level not seen since the stock market crash of October 1987. Gannett stock has lost more than two-thirds of its value in the last year.

Gannett — publisher of the nation's largest newspaper, USA Today — sold several newspapers in the year-ago quarter that added 32 cents per share to earnings. Excluding the sale, profit fell by 18 percent.

Revenue fell 10 percent to $1.72 billion in the quarter.

The company announced last month that it plans to take an accounting write-down of $2.5 billion to $3 billion to reflect the company's declining market value. In a press release issued Wednesday, the company said the exact amount has not yet been determined, but narrowed the range slightly, to between $2.6 billion and $2.9 billion.

The write-down will be included in the second quarter in an amended statement to be filed before Aug. 8.

The company did include a $29 million gain, or 13 cents per share, connected to its announcement last month that it was freezing its pension plan, affecting about 25,000 U.S. workers. But the gain was offset almost entirely by a charge of $26 million, or 12 cents a share, resulting from severance payments and staff reductions.

For the year, Gannett has so far earned $424.5 million, or $1.85 per share. That's down 26 percent from the first half of 2007, when it earned $576.2 million, or $2.45 per share.

The vast majority of lost revenue in the quarter stemmed from a 14 percent drop in advertising revenue in the company's publishing business. Retail advertising fell 8 percent, and classified advertising fell 19 percent.

At flagship USA Today, advertising sales fell 17 percent in the quarter.

Newspapers across the country have struggled not only with the generally weak economy but with eroding circulation and a migration of advertising dollars to the Internet. Newspaper Web sites are seeing increased ad revenue, but not nearly enough to offset losses on the print side.

Publishers, including Gannett, have responded in part by cutting staff through buyouts and layoffs.

One Gannett paper, The Honolulu Advertiser, said Wednesday it plans to cut 54 positions because of lagging advertising revenue and a weakening local economy. The newspaper said the cuts include three full-time and one part-time newsroom staffers but did not provide a breakdown in other departments.

In a conference call with analysts, Gannett Chairman and Chief Executive Craig Dubow said that "our results, frankly, reflect all the difficulties weighing on the media sector ... but we have been in down cycles before and know how to manage through them."

In the coming months, though, Dubow said he expects a bump from Olympics advertising and political advertising. Presidential ads are already running on 13 of the 23 television stations owned by Gannett.

The company projects that revenue will post a gain of about 5 percent to 9 percent in the third quarter.

Gannett's broadcasting segment, which accounts for about a tenth of the company's overall revenue, reported a 6 percent drop in revenue, to $193 million.

Gannett owns 85 U.S. dailies with a combined circulation of almost 7 million. Its Newsquest division in the United Kingdom is the second-largest newspaper publisher in the U.K.

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