GANNETT CO. INC. (New York symbol GCI; www.gannett.com) publishes 99 newspapers in the U.S. and U.K., including USA Today, its flagship paper. It also publishes 680 magazines and weekly papers and owns 23 U.S. television stations.
Newspapers account for 70% of Gannett’s revenue, followed by TV (16%) and websites (14%).
Like most publishers, Gannett has struggled as advertisers shift to the Internet. That’s the main reason why its revenue fell 22.6%, from $6.8 billion in 2008 to $5.2 billion in 2011. However, revenue rose 2.2%, to $5.4 billion, in 2012, as the Summer Olympics and the presidential election spurred demand for TV ads.
Earnings for the company fell in 2011, to $1.81 a share (or $439.8 million) from $2.23 a share (or $583.3 million) in 2010, but recovered to $2.18 a share (or $529.4 million) in 2012.
Gannett is expanding its own Internet businesses as part of its new long-term strategy. Its plan includes installing “paywalls,” which deny users access to content if they don’t have a subscription.
So far, the company has installed paywalls on the websites of 78 of its newspapers, excluding USA Today. In most cases, Gannett is offering online access with a regular newspaper subscription, which has helped boost circulation. About half of its print subscribers now have digital access.
Gannett expands TV operations with purchase of Belo Corp.
Gannett is also expanding its TV operations. It recently agreed to buy Belo Corp. (New York symbol BLC), which owns 20 TV stations, five all-news cable channels and over 20 websites.
Gannett will pay $1.5 billion for Belo. If you include Belo’s debt, the entire deal is worth $2.2 billion. The company will have to borrow the cash it needs to complete the sale.
Belo should add $0.50 a share to Gannett’s earnings in 2014. By combining overlapping operations, the company feels it can cut its annual costs by $175 million within three years.
Even with the extra debt, Gannett plans to keep buying back its shares. In the first half of 2013, it spent $41.4 million on repurchases and expects to buy back an additional $300 million of its shares over the next two years.
The stock jumped 20% on the Belo news. The $0.80 dividend yields 3.3%.
In the latest edition of Wall Street Stock Forecaster, we examine Gannett’s deal for Belo Corp. and whether the added debt and the costs of integrating Belo will be offset by revenue from the newly acquired TV stations. We also look at whether the shares can keep rising. We conclude with our clear buy-hold-sell advice on the stock.
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