Gannett expects 3Q earnings to top estimates

NEW YORK — Gannett Co., the largest newspaper publisher in the U.S., said third-quarter earnings should far outpace expectations despite a narrow shortfall in revenue, as layoffs and falling newsprint costs help offset weak advertising sales.

Tuesday’s announcement gave a sharp boost to Gannett’s and other newspaper stocks.

Gannett, which publishes 84 daily U.S. newspapers including USA Today and operates 23 television stations, anticipates earnings of 25 cents to 31 cents per share when it reports results Oct. 19. That would mark a sharp drop from 69 cents in the year-ago period, but expectations for newspaper publishers have declined drastically.

Adjusting to exclude $26 million to $32 million for severance expenses and other special charges, the company says earnings per share should fall between 39 cents and 42 cents. On that basis, analysts project 28 cents per share, according to a Thomson Reuters poll.

In a statement, Gannett Chief Financial Officer Gracia Martore said advertising declines have moderated but she did not offer specific figures.

The McLean, Va.-based company expects sales of $1.31 billion to $1.32 billion, a drop of at least 20 percent from the year before, when Gannett reported sales of $1.64 billion. Analysts expected $1.38 billion, on average.

Gannett’s newspaper advertising revenue, which accounts for more than half of overall sales, had been down 32 percent in the second quarter compared with the year-ago period.

Despite continued revenue declines, Gannett appears able to achieve a better-than-expected profit in the third quarter by slashing costs even more drastically.

This summer the company decided to cut about 3 percent of its staff, or 1,400 positions, less than a year after chopping its work force by 10 percent. Gannett has also imposed wage freezes and unpaid furloughs for U.S. workers.

Newsprint costs have also declined as prices fall and newspapers print fewer and narrower pages.

“Our continued efforts to achieve efficiencies and further consolidations companywide along with significantly lower newsprint expense resulted in another substantial decline in our operating expenses,” Martore said.

Gannett also said it whittled its borrowings during the quarter to $3.31 billion, from $3.51 billion, though the company said separately Tuesday that it will offer $400 million in senior notes.

The borrowing at Gannett, as with many newspaper companies, has cropped up as a potential issue. The company is likely to be paying higher interest after refinancing, said Mike Simonton, a media analyst with Fitch Ratings.

And even after “impressive” cost cutting, he said, Gannett could have trouble paying its debt off or finding buyers for its notes as revenue continues to erode over the next few years. Already, several newspaper publishers have sought bankruptcy protection because of extensive borrowing over the past few years.

“It’s not clear if the company can continue to get such dramatic cost cuts to keep up with the relentless revenue pressure,” Simonton said.

Gannett shares jumped $1.63, or 16 percent, to $11.61 in morning trading Tuesday. The New York Times Co. rose 51 cents, or 6.4 percent, to $8.50; Lee Enterprises Inc. soared $1.01, or 47 percent, to $3.15; Media General Inc. rose 98 cents, or 12 percent, to $8.88; and The McClatchy Co. was up 15 cents, or 6 percent, to $2.65.