Gannett (GCI) Q2 Earnings In Line, Revenues Lag; Stock Falls

Shares of diversified publishing conglomerate Gannett Co., Inc. (NYSE:GCI) fell 9.4% on Jul 27, after the company reported mixed results for the second quarter of 2016. The company's earnings per share came in at 30 cents, in line with the Zacks Consensus Estimate but down 34.8% year over year.

On a reported basis, quarterly earnings amounted to 10 cents a share, compared with 46 cents in the prior-year quarter.

Gannett reported total revenue of $748.8 million in the second quarter, down 3% from the prior-year quarter. The top line was also below the Zacks Consensus Estimate of $767 million. Notably, this is the fifth consecutive quarter that the company’s revenues have missed estimates. Gannett witnessed a 0.2% decline in advertising revenues to $409.8 million and an 8.2% increase in circulation revenues to 287.6 million.

Adjusted EBITDA was down 7.6% to $89.7 million, while adjusted EBITDA margin contracted 130 basis points to 12%. The decline in adjusted EBITDA was primarily due to lower contribution from th CareerBuilder affiliate agreement in Aug 2015 as well as foreign currency headwinds.

Strategic Initiatives

Gannett is realigning its cost structure and streamlining its operations to increase efficiencies and safeguard its earnings and cash flows from dwindling print advertising revenues. It remains focused on improving its digital business and pursuing strategic acquisitions.

In order to strengthen its position in the newspaper industry, Gannett acquired Journal Media Group, Inc., the owner of the Milwaukee Journal Sentinel and other newspapers, for approximately $260 million.

In April, the company completed the acquisition of all of the remaining shares of JMG for roughly $261 million. In July, Gannett bought the North Jersey Media Group Inc. The buyout includes The Record (Bergen County), the Herald News, as well as their associated digital assets. Gannett, which publishes USA Today and more than 100 other dailies, is expected to be highly benefitted by the aforementioned deal. The company will now be able to generate nearly $90 million in annual revenues with the new addition to its portfolio. This deal will also solidify the company’s presence in New Jersey.

In June, Gannett entered into a deal to acquire digital marketing solutions company ReachLocal, Inc. The deal, which is expected to conclude in third-quarter 2016, will help the acquirer boost its digital offerings. Thw takeover is anticipated to be neutral to earnings per share in the first full year but will be modestly accretive to earnings in its second full year.

Other Financial Aspects

In the second quarter, Gannett paid dividends of $37.3 million. Net cash flow from operating activities was $67.1 million, while free cash flow aggregated $51.1 million. Capital expenditures incurred during the quarter totaled $16 million.

2016 Outlook

Gannett expects year-over-year revenue growth of 7%–9% in the second half of 2016. The company also expects margins to be under pressure in third-quarter 2016 primarily due to an increase in investment due to recent acquisitions and anticipates headwinds in the form of unfavorable foreign currency translations.

For the second half of 2016, the company expects capital expenditure in the range of $30–$40 million, and depreciation and amortization of nearly $65 million.

Zacks Rank

Gannett, which shares space with The New York Times Company (NYSE:NYT) , The McClatchy Company (NYSE:MNI) and New Media Investment Group Inc. (NYSE:NEWM) , currently carries a Zacks Rank #3 (Hold).