Gannett 4Q earnings fall on weak ad revenue

USA Today publisher Gannett Co. reported lower preliminary fourth-quarter earnings Friday, but even those profits will be wiped out once the company takes pretax write-downs of as much as $5.9 billion to reflect the declining value of its newspapers.

Shares fell more than 16 percent Friday.

Gannett, the nation's largest newspaper publisher, said preliminary net income fell to $158 million, or 69 cents per share, in the fourth quarter, down 36 percent from a year ago, as advertising revenue continues to take a beating because of the recession.

To realign costs with reduced revenue, Gannett slashed the work force at most of its U.S. newspapers by 10 percent and cut newsroom jobs at USA Today by about 5 percent late last year. Those moves, which preceded a one-week unpaid furlough that Gannett is imposing in the first quarter of 2009, resulted in pretax charges of $56 million.

Excluding severance charges, earnings were 85 cents a share, slightly above the 81 cents a share expected by analysts.

Revenue declined 8.5 percent to $1.74 billion, below expectations of $1.79 billion.

The fourth-quarter results do not reflect the accounting write-downs, which Gannett expects to total $5.1 billion to $5.9 billion before taxes. The write-downs would reduce profits by $4.5 billion to $5.2 billion after taxes, the company said.

Companies are required to review annually the values of their various assets and record charges against earnings if those values drop. Many newspaper companies have had to take such charges because long-term revenue prospects have declined along with the companies' stock prices. Gannett's stock fell 79 percent to $8 in 2008.

Although those write-downs do not affect Gannett's cash on hand or its day-to-day operations, a write-down of that size does reflect the company's grim assessment of its newspapers.

"They are basically saying that these are not the huge, impactful institutions in their communities that they were," said Ken Doctor, a media analyst with research firm Outsell Inc.

He said the expected size of the write-down should not be interpreted as Gannett performing more weakly than its peers. Several factors determine the amount of such write-downs, including how large the company is overall and how long ago it acquired various properties. Despite the downturn, Gannett is widely regarded as among the fiscally healthiest publishers.

Like other newspaper publishers, Gannett saw ad revenue begin to tumble over the summer as the recession compounded weaknesses from the migration of readers and advertisers to the Internet.

The McLean, Va.-based company blamed the write-down on "the challenges facing the company's publishing businesses, including recessions in both the U.S. and the U.K. and their impact on advertising demand, and the decline generally in equity values and specifically its stock price."

Gannett said fourth-quarter advertising revenue in publishing fell 22.7 percent overall and 18.5 percent at USA Today, the nation's top-selling newspaper. Revenue from Gannett-owned television stations was about even, only because political ads early in the quarter offset softness in automobile, retail and elsewhere.

"Our results for the quarter reflect the unprecedented turmoil in the economies of both the U.S. and the U.K. and in the financial markets," Gannett Chief Executive Craig Dubow said. "The ongoing weakness in advertising demand had a significant impact on our results in both publishing and broadcasting this quarter."

Earlier, The New York Times Co. and St. Louis Post-Dispatch publisher Lee Enterprises Inc. also reported lower profits during the October-December quarter, and Lee's earnings may drop further after it evaluates the need for valuation write-downs similar to Gannett's.

Media General Inc., which owns Richmond (Va.) Times-Dispatch, other newspapers and broadcast stations, said it swung to a loss because of general ad reductions and the declining value of its stations.

The McClatchy Co., which publishes The Miami Herald and The Sacramento (Calif.) Bee, reports earnings next week.

During a conference call, Chief Financial Officer Gracia Martore reiterated that Gannett faces a tough first quarter, largely because its results would be compared with a relatively strong year-ago quarter, when the recession hadn't taken its toll on advertising yet and when Gannett saw one-time gains from asset sales.

Martore did not provide specific dollar guidance, though Dubow said the first-quarter percentage drop in broadcast revenue would likely be in the mid-teens.

Debt stood at $3.8 billion at year's end, a figure expected to decline to $3.7 billion by March. Martore said Gannett's board likely would review its dividend payments again in February to determine whether cuts are warranted to conserve cash. At the current quarterly dividend rate of 40 cents a share, Gannett spends about $365 million annually on dividends.

For the full year, Gannett reported a net loss of $1.78 billion, or $7.81 per share, compared with profit of $1.06 billion, or $4.52 per share, in 2007. The 2008 loss, which does not include the expected fourth-quarter write-down for assets, largely reflected similar write-downs Gannett took in earlier quarters. Revenue dropped 9 percent to $6.77 billion.

Gannett shares fell $1.13, or 16.4 percent, to close at $5.77 Friday.