Market Overview

Gannett Earnings Preview: Flat Revenue Expected for Q2 and Beyond

Gannett (NYSE: GCI) is scheduled to report second-quarter 2012 results Monday, July 16, before the U.S. markets open. The international news and information company has seen its revenue fall over the past four quarters,

Expectations

Analysts on average predict that Gannett will report per-share earnings of $0.53 for the quarter and say that its revenue will total about $1.3 billion. In the same period of last year, the company reported $0.58 per share and $1.3 billion in revenue. Note that the earnings per share (EPS) estimate has remained the same over the past 60 days. And Gannett has not fallen short of consensus EPS estimates in the past ten quarters. The positive surprise in the first quarter was 9.7 percent.

Though the company beat earnings expectations in the previous quarter, both net income and revenue declined year-over-year because of a slump in publishing advertising demand and a marginal fall in circulation revenue. However, the company said broadcasting revenue rose 7.5 percent on robust advertising demand, including cyclical political advertising demand. The company suggested it may initiate a subscription-based model in some markets, as well as expand its USA Today Sports Media Group. Shares fell about 8 percent following the first-quarter report.

Earnings growth is forecast for the current quarter, however, with EPS up 12 percent to $0.50 per share. Revenues are expected to rise 2.6 percent from a year ago to $1.3 billion. So far, analysts expect full-year earnings-per-share and revenue to be marginally higher than in the previous year.

The Company

Gannett's Publishing segment publishes 82 U.S. daily newspapers and affiliated online sites, including USA TODAY, Clipper Magazine, NurseWeek and military and defense newspapers. The Digital segment owns and operates CareerBuilder, ShopLocal, Planet Discover and others. Its Broadcasting segment operates 23 television stations and affiliated websites, as well as a network that delivers programming and advertising on video screens located in elevators of office towers and in hotel lobbies. The company was founded in 1906 and is headquartered in McLean, Va. It is an S&P 500 component with a market capitalization of about $3.4 billion. That is greater than the market caps of competitors McClatchy (NYSE: MNI) and New York Times (NYSE: NYT), but less than that of News Corp. (NYSE: NWS).

During the three months that ended in June, Gannett named a new president and publisher of USA Today, as well as a new head of corporate communications and a new chief financial officer. Also, a series in USA Today was a finalist for a Pulitzer prize.

Performance

Gannett's long-term EPS growth forecast is a modest 6 percent, but that compares to a loss of more than 16 percent over the past five years. Its price-to-earnings (P/E) ratio is less than the industry average, and its operating margin greater than the industry average. The return on equity is almost 19 percent, which is higher than those of News Corp. and New York Times. But short interest is more than 10 percent of the float, though that is less than for McClatchy and New York Times. Of analysts who follow the stock, seven out of 12 rate it a Hold, five a Buy, and none recommend selling. Their mean price target is about 14 percent higher than the current share price.

Shares have traded mostly between $12 and $16 this year, as well as between $10 and $18 since late 2009; the stock bottomed in spring of that year. The share price is currently more than 15 percent higher over the past month, but more than 5 percent below the 52-week high. It is also above both the 200-day and 50-day moving averages. Over the past six months, the stock has outperformed McClatchy and New York Times, but underperformed the S&P 500.

ACTION ITEMS

Bullish:

Investors interested in exchange traded funds invested in Gannett might want to consider the following trades:

  • PowerShares Dynamic Media (NYSE: PBS) is more than 10 percent higher year to date.
  • Rydex S&P Equal Weight Consumer Discretionary (NYSE: RCD) is more than 9 percent higher year to date.
  • Vanguard Total Stock Market ETF (NYSE: VTI) is more than 7 percent higher year to date.
  • iShares Russell 1000 Value Index (NYSE: IWD) is more than 6 percent higher year to date.
Bearish:

Traders may prefer to consider the following alternative positions in the same industry. Note that they are all small cap companies.

  • Lee Enterprises (NYSE: LEE) is up more than 120 percent year to date.
  • Daily Journal (NASDAQ: DJCO) is up more than 38 percent year to date.
  • Journal Communications (NYSE: JRN) is up more than 21 percent year to date.
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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