The first quarterly results from a major US media company has produced a surprise profit, which grabbed the headlines and chatter from analysts eager to make their mark by being bullish. Investors loved the black ink and pushed Gannett shares up more than 22% in trading, but the horrible reality is that nothing has changed from the first half. Ad revenues are still weak in the US and UK, where the company operates and the profit was driven by cost cuts. As we know you can’t cost cut your way to growth and growth was absent in the quarterly report.
The profit was wrung from cost cuts, including another 1400 jobs being cut. Revenue fell 18% in the quarter, compared with the same quarter of 2008. that was after a 17.6% fall in first quarter revenues. Revenue was lower thanks to continuing weakness in the US and UK newspaper industries; Gannett operates a major regional newspaper business in the UK.
Gannett owns USA Today, the largest selling American paper. It’s the first US newspaper group to report second quarter figures. Next week New York Times Co, Media General Inc and McClatchy Co will release their figures. All are expected to be similar.
Gannett’s second-quarter revenue fell to $US1.4 billion on a 25.% on total revenues (26.9% in the first quarter. Publishing revenues were down 32% in the latest quarter, slightly better than the 34.1% drop in the first quarter. In the US the fall was 27.2% (28.2% in the first quarter) and in the UK, the fall was a still sharp 36.9% from the 38.7% drop in the first quarter of this year.
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The company made a net profit of $US70.5 million, compared with a loss of $US2.29 billion, in the second quarter of 2008 when Gannett took write-downs and other charges. Classified ad revenue, traditionally the lifeblood of newspapers, fell nearly 45% in the second quarter, with job classifieds falling 62%. That’s a bit better than the falls in the first quarter, but not much.
Circulation revenues rose slightly in the US because of a price increase for USA Today, but it is clear from this report that the US newspaper industry is still gripped by enormous structural changes that are not easing real soon, no matter how confident Wall Street is.