APRIL 16, 2010, 12:28 P.M. ET.2nd UPDATE:

Gannett 1Q Profit Rises 51% On Lower Costs >GCI

By Nat Worden
Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--Gannett Inc.'s (GCI) first-quarter profit jumped a bigger-than-expected 51% on lower operating and newsprint costs, while advertising revenue continued to decline at the company's newspaper business.

The publisher of 83 U.S. daily newspapers, including USA Today, again was aided by its aggressive cost cutting--Gannett has cut 20% of its work force since 2007. However, concerns remain about the weak advertising market as options for further cost reductions dwindle for Gannett and its rivals.

The newspaper business continues to suffer declines from the depths of the recession in 2009 while the television industry and digital media are showing a rebound, suggesting that print media's slump will be harder to reverse as consumers and advertisers migrate to the web.

Gannett was the first newspaper publisher to report first-quarter earnings, and investors can expect similar results from its publishing counterparts including The New York Times Co. (NYT) and the McClatchy Co. (MNI) in coming weeks.

Continued top-line weakness at Gannett's publishing business drew a sharp contrast to first-quarter results reported by Google Inc. (GOOG), which has siphoned ad dollars away from publishing. Patrick Pichette, the Internet search giant's chief financial officer, said that "large advertisers have come back in force versus last year," and the company's ad business is "running on all cylinders" across all categories.

For his part, Gannett Chief Executive Craig Dubow said during a conference call Friday that the advertising market is a "very positive environment right now," and he predicted major advertisers will be returning to the market.

"The advertisers that sat on the sidelines over the last number of months here have really determined their need for mass media," said Dubow. "That's the directional change we're seeing."

First-quarter ad revenue at Gannett's U.S. newspapers fell 8.5% compared with the year-ago period, when Gannett was suffering double-digit declines in the wake of Wall Street's financial crisis.

Gannett said first-quarter revenue from real estate classifieds dropped 22.5%, another sign that the U.S. housing market remains under heavy pressure. Gannett's largest paper, USA Today, suffered a 15% drop in ad revenue as well.

In March, Gannett said publishing ad revenue fell 3.2%, so declines moderated over the course of the quarter in what could be a hopeful trend.

"We assume April may be slightly weaker than May, but the general improvement in sequential ad growth will continue as the year progresses," said Wells Fargo analyst John Janedis.

The company's publishing results were outshined by its broadcast business, which posted a 17% increase in revenue, reflecting an ad recovery bolstered by the success of the Winter Olympics broadcast on the company's NBC affiliate stations.

In March, Gannett said TV revenue, excluding political, were up in the mid-single digits, reflecting double-digit growth in automotive, retail and packaged goods advertising. It expects second-quarter TV ad revenue to be up by a percentage rate in the high teens to low twenties.

Bill Smead, the portfolio manager of the Smead Value Fund,, which built a position of about 50,000 shares in Gannett starting last fall, said Gannett's cost cutting leaves it in a good position to profit as the economy recovers.

"Revenue is going to come back, and the expense levels are going to come back very slowly in comparison to revenue," said Smead. "That's a good set-up."

The company reported a profit for the quarter of $117.2 million, or 49 cents a share, up from $77.4 million, or 34 cents, a year earlier. Excluding items, such as charges related to U.S. health-care policy changes and prior-year gains, per-share earnings jumped to 50 cents from 25 cents.

Gannett last month said it was comfortable with Wall Street's estimate of 40 cents a share.

Recently, Gannett shares were up 1 cent to $18.15. Before Friday, the stock was up 22% this year.

Total revenue decreased 4.1% to $1.322 billion, slightly below the $1.324 billion expected by Wall Street. Operating expenses fell 8.9%.

Gracia Martore, the company's chief operating officer, said she expects the company to benefit from "favorable" newsprint pricing through the second quarter of this year. Newsprint prices have started to recover from the economic downturn, but they're still at low levels, giving newspapers a much-needed financial boost.

Earnings at Gannett's print operations rose 59%, although revenue declined 7.1%. Earnings from Gannett's broadcast segment rose 55%, and its digital segment posted a revenue decline of 1.8% because of continued weakness at CareerBuilder, an employment Web site.

-By Nat Worden, Dow Jones Newswires; 212-416-2472; nat.worden@dowjones.com

(Tess Stynes contributed to this article.)

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