Gannett Co., Inc. Reports Second Quarter Results

Gannett Co., Inc. Reports Second Quarter Results

Gannett Co., Inc. (NYSE:GCI) reported today that 2007 second quarter earnings from operations per diluted share were $1.25 including income from discontinued operations of 1 cent per diluted share. Diluted earnings per share from continuing operations, on a GAAP (generally accepted accounting principles) basis were $1.24 for the second quarter compared to $1.28 in the second quarter of 2006.

“We achieved some positives in the quarter despite a very challenging advertising environment. Earnings growth was posted by Newsquest in the UK as the critical employment and real estate classified categories showed positive growth and we benefited from Newsquest’s restructurings of the last few years. As well, the stronger exchange rate positively impacted results. Our domestic community newspapers, however, faced softening ad demand in part due to the real estate slowdown that has affected a number of our markets. Revenue from television station acquisitions in the broadcasting segment and positive results from Captivate helped offset substantially lower politically related ad demand in the quarter. The performance of our online initiatives and Internet investments and partnerships also were positives,” said Craig A. Dubow, chairman, president and chief executive officer.

“There are a significant number of efforts going on at Gannett as we execute our strategic plan, continue our transformation and focus on potential opportunities. It is still early but we are convinced this is the right direction as we position Gannett for the future,” he added.

During the quarter the company completed its sale of the Norwich (CT) Bulletin, the Rockford (IL) Register Star, the Observer-Dispatch in Utica, NY, and The Herald-Dispatch in Huntington, WV. In addition, the Chronicle-Tribune in Marion, IN, was contributed to the Gannett Foundation. Operating results for the second quarter and year-to-date exclude results from the former Gannett properties which have been reclassified to income from discontinued operations. Income from discontinued operations totaled $2.0 million in the quarter, or 1 cent per diluted share and $6.2 million or 3 cents per diluted share year-to-date. These transactions resulted in a second quarter after-tax gain of $73.8 million or 31 cents per diluted share which is also included in discontinued operations. Therefore, diluted earnings per share, including both the income and the gain from discontinued operations, were $1.56 for the quarter.

Reported results for the current quarter and year-to-date include KTVD-TV in Denver and WATL-TV in Atlanta which the company acquired in the third quarter of 2006.

CONTINUING OPERATIONS

Total operating revenues for the company were $1.93 billion in the second quarter compared to $2.0 billion in the second quarter of 2006 reflecting lower advertising demand at our domestic newspaper properties as well as the absence of politically related advertising demand that benefited the second quarter a year ago. Total operating revenues would have been 4.0 percent lower on a pro forma basis assuming Gannett owned the same complement of properties in the second quarter of 2007 and 2006. Operating cash flow (defined as operating income plus depreciation and amortization) was $555.1 million. Net income was $289.9 million in the second quarter of 2007 compared with $304.5 million in the second quarter of 2006.

Reported operating expenses totaled $1.44 billion for the quarter, a 1.6 percent decline from $1.47 billion in the second quarter a year ago. The decline reflects continued cost control efforts and lower newsprint expense offset partially by the television station acquisitions, severance and accelerated depreciation expenses related to a number of efficiency efforts in the U.S. and the UK, and the higher exchange rate for the British pound. On a pro forma basis, total operating expenses were down 2.0 percent. Corporate expenses declined 8.1 percent to $18.7 million from $20.3 million in the second quarter of 2006.

Average diluted shares outstanding in the second quarter totaled 234,605,000 compared with 237,767,000 in 2006’s second quarter. During the quarter, approximately 1.5 million shares were repurchased.

NEWSPAPERS

Newspaper segment operating revenues totaled $1.72 billion for the second quarter compared to $1.79 billion in the second quarter a year ago. Advertising revenues totaled $1.28 billion for the quarter, a decline of 5.3 percent. Local advertising revenues were 4.0 percent lower, national advertising revenues declined 2.8 percent and classified revenues were down 7.5 percent. Results for Newsquest, our operations in the UK, were better than our U.S. operations in the second quarter of 2007 versus the second quarter last year. In the UK, advertising revenues were down 2.5 percent on a constant currency basis while in the U.S. pro forma advertising revenues were 7.7 percent lower. Operating cash flow for the total newspaper segment, which includes USA TODAY and our UK properties, was $474.0 million in the second quarter.

Total newspaper operating expenses declined 2.0 percent for the quarter reflecting continuing expense control and efficiency efforts, and lower newsprint expense. On a pro forma, constant currency basis, newspaper segment operating expenses declined 3.3 percent. Reported newsprint expense fell 7.8 percent in the quarter. This reflects lower volume partially offset by slightly higher newsprint prices resulting from increased year-over-year prices in the UK and the higher exchange rate.

At USA TODAY, advertising revenues were down just over 1 percent in the quarter compared with the second quarter of 2006. However, in June we achieved higher ad revenues reflecting strong growth in a number of categories. Paid advertising pages totaled 1,034 compared with 1,098 in the year-ago quarter.

BROADCASTING

Broadcasting segment results for the quarter include WATL-TV (acquired in August 2006) and KTVD-TV (acquired in June 2006).

Broadcasting revenues (which include Captivate) were $204.7 million in the second quarter compared to $205.4 million in the second quarter of 2006, a 0.4 percent decline. The slight decline reflects revenue from the acquired television stations and revenue growth of 33.5 percent and 12.3 percent in online and Captivate, respectively. This was offset by softness in television advertising demand and substantially lower politically related advertising versus the over $9 million achieved in the second quarter of 2006.

Broadcasting revenues would have been 6.5 percent lower if Gannett had owned the same group of stations in both the second quarter of 2007 and 2006. Reported broadcasting expenses increased 4.6 percent in the quarter. However, on a pro forma basis, broadcasting costs would have been 1.9 percent lower. In the second quarter operating cash flow was $95.9 million for the broadcasting segment.

Reported television revenues were $197.5 million in the second quarter compared to $199.0 million in the same quarter a year ago.