Earnings Preview: Gannett

Gannett Company, Inc. (GCI), the publisher of the nation’s largest-selling daily newspaper USA Today, is scheduled to report its first-quarter 2011 financial results on April 18, 2011. The current Zacks Consensus Estimate for the quarter is 42 cents a share. For the quarter under review, revenue is $1,247 million, according to the Zacks Consensus Estimate.

Fourth-Quarter 2010, a Synopsis

Gannett posted better-than-expected fourth-quarter 2010 results, buoyed by effective cost-cutting measures and improved advertising demand. Operating expenses, excluding one-time items, dropped 3.4% from the prior year.

The quarterly earnings of 83 cents a share came ahead of the Zacks Consensus Estimate of 81 cents and soared 18.6% from last year’s 70 cents.

Gannett’s total revenue grew marginally by 0.4% to $1,461.6 million from the prior-year quarter aided by strengthening economies and advertising gain across the Broadcasting and Digital segments. However, revenue fell short of the Zacks Consensus Estimate of $1,473 million.

First-Quarter 2011 Zacks Consensus

Analysts considered by Zacks, expect Gannett to post first-quarter 2011 earnings of 42 cents a share. The current Zacks Consensus Estimate reflects a decline of 16% from the prior-year quarter earnings. The current Zacks Consensus Estimate for the quarter range between 41 cents and 45 cents.

Zacks Agreement & Magnitude

Out of the 8 analysts following the stock, three analysts have revised their estimates upwards, whereas as one analyst lowered the estimate in the last 30 days, resulting in an upward movement of the Zacks Consensus Estimate by 2 cents to 42 cents a share for first-quarter 2011. In the last 7 days, none of the analysts revisited their estimates leaving the Zacks Consensus Estimate unchanged.

Positive Earnings Surprise History

With respect to earnings surprises, Gannett has topped the Zacks Consensus Estimate over the last four quarters in the range of 2.5% to 22%. The average remained at 12%. This suggests that Gannett has beaten the Zacks Consensus Estimate by an average of 12% in the last four quarters. Given the past performance we expect the company to outperform the Zacks Consensus Estimate.

Gannett in Neutral Lane

Gannett is diversifying its business by adding new revenue streams to make it less susceptible to economic conditions. The company is also streamlining its cost structure, strengthening its balance sheet and rebalancing its portfolio. The company is witnessing higher broadcasting and digital revenues.

Consequently, the company posted better-than-expected fourth-quarter 2010 results. Moreover, with advertisers gradually returning to the market, Gannett hinted that the rate of fall in advertising revenue is decelerating. However, the company’s high dependence on advertising revenue, which is driven by the health of the economy, remains a potential threat.

We have a Neutral rating on the stock, given a sluggish economic recovery and a soft advertising spending environment. Moreover, Gannett, which competes with The New York Times Company (NYT), holds a Zacks #3 Rank that translates into a short-term ‘Hold’ recommendation, and correlates with our long-term view.

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