April 25, 2017 Last Updated 10:09 am

Gannett grows revenue thanks to acquisitions, but shows a loss of $2.1M in its first quarter report

Thwarted in its effort to acquire Tribune Publishing, Gannett has nonetheless managed to acquire more newspaper properties, leading to overall revenue growth, but for now few profits

The publisher of USA Today and other daily newspapers today reported its Q1 2017 earnings. Revenue increased dramatically – 17.3 percent – but this was due to recent acquisitions. On a ‘same-store’ basis, publishing segment operating revenues declined by 10.7 percent.

The publisher also reported a loss for the quarter of $2.1 million, though the company did raise its guidance for the year.

Reporting a loss might normally lead to Gannett’s stock tanking today, but that is unlikely as the market continues to rise two days after the French election results proved encouraging. Also, investors generally react to the forward guidance more than the numbers presented to them (numbers are hard, you see).

But some investors may be starting to worry that the roll-up strategy that Gannett is employing, while leading to revenue growth, may not lead to greater profits. At the same time, the company is growing in other areas that are not so positive, such as severance costs, as Gannett continues to buy properties, then layoff staff.

Gannett at this time last year was still trying to acquire Tribune Publishing, now called tronc. That effort ended up being a comedy of errors. But tronc, while successfully beating off Gannett, now finds itself in a shareholder battle.

Both tronc and Time Inc. may well end 2017 with new ownership. We will see if Gannett ends up with new leadership.

Here is Gannett’s first quarter earnings statement:



MCLEAN, Va. — April 25, 2017 — Gannett Co., Inc.  today reported first quarter 2017 results of operations.

Recent highlights include:

  • GAAP net loss of $2.1 million; adjusted EBITDA of $69.7 million.
  • Full Year adjusted EBITDA1 guidance range increased $30 million to $355 to $365 million.
  • Total digital revenues were $234.7 million or 30.3% of operating revenue.
  • Local U.S. markets reported second sequential quarter of same store digital advertising revenue growth, up 3.7% in the first quarter.
  • Mobile digital advertising revenue (a component of digital advertising revenues) were up 39.2%.
  • Digital-only subscriptions grew 72.6%; total digital only subscriptions, including acquisitions, are over 250,000.

Operating revenues for the first quarter were $773.5 million compared to $659.4 million in the prior year first quarter, an increase of $114.1 million or 17.3%. Excluding $11.4 million of unfavorable foreign currency exchange rate changes and $1.8 million of selected exited operations, revenues increased $127.2 million, or 19.3%. The increase in revenue was primarily attributable to acquisitions2 partially offset by ongoing declines in print advertising and circulation demand.

GAAP net loss for the first quarter was $2.1 million, including $17.8 million of after-tax restructuring, acquisition, severance, asset impairment, facility consolidation and other related costs. Approximately $8.8 million of these charges were non-cash asset impairments, accelerated depreciation and facility consolidation charges. Adjusted EBITDA for the quarter was $69.7 million, compared to $80.4 million in the prior year first quarter. Adjusted EBITDA in the first quarter was unfavorably impacted by $3.0 million of foreign exchange rate changes as well as declines in print advertising revenues partially offset by growth in local digital advertising, the impact of contributions from acquired businesses2 and ongoing operating efficiencies.

Robert J. Dickey, president and chief executive officer, said, “Operating performance in the first quarter of 2017 trended better than our original guidance, with seasonal softness in revenues early in the year more than offset by continuing cost improvements leading to better than expected adjusted EBITDA and strong cash flow from operating activities.”

Publishing Segment

Operating revenues in the publishing segment were $694.9 million, an increase of $36.9 million or 5.6% compared to the prior year first quarter. Excluding $11.4 million of unfavorable foreign currency exchange rate changes and $1.8 million of selected exited operations, revenues increased $50.1 million, or 7.6%. This increase primarily reflects contributions from acquisitions2 and a 3.7% increase in digital advertising performance in local U.S. markets, partially offset by a 17.7% reduction in print advertising. On a same-store revenue basis, publishing segment operating revenues were down 10.7%.

Digital advertising revenues of $94.6 million were up 8.3% compared to the prior year first quarter, due primarily to acquisitions2,improved local performance in the U.S. and strong mobile growth. Excluding acquisitions2 and the impact of a 26.6% reduction in the employment category, digital advertising revenues increased 2.3%. The increase was driven by a 39.2% increase in mobile display and a 14.3% increase in other sources of digital advertising revenues such as digital marketing services.

Adjusted EBITDA for the quarter was $91.7 million compared to $97.5 million in the prior year first quarter, a decrease of $5.8 million, including $3.0 million in unfavorable foreign currency exchange rate changes. Pressure from declines in print advertising and circulation revenues in the U.S. and U.K. were largely offset by contributions from acquired businesses2, ongoing cost reductions and efficiency gains in operating expenses, and increases in local digital advertising revenues, particularly mobile display.

ReachLocal Segment

Operating revenues for the first quarter were $77.6 million and adjusted EBITDA was $3.1 million. ReachLocal continues to perform in line with our expectations, showing continued growth in the number of clients, penetration of subscription products and sales of its recently-launched Facebook solution. ReachLocal’s entry into Gannett’s markets started ahead of schedule, incurring more expense in the first quarter to ramp up; however, this will accelerate revenue and margins in the second half of 2017.

As described in Gannett’s press release dated April 20, 2017, the company acquired SweetIQ, which will be operated as a part of ReachLocal’s portfolio of products. In its first full year of operations, we expect this acquisition to be modestly dilutive to earnings per share and neutral to earnings per share by the second full year.

“Businesses want to work with one company that they can trust to help them with all of their digital marketing efforts,” said Sharon Rowlands, chief executive officer of ReachLocal. “This acquisition adds strong product offerings in local listings and reputation management to our suite of digital marketing solutions and strengthens our value proposition with multi-location and national brands. By adding SweetIQ to our portfolio, we can further provide our customers with data-driven insights that drive real-world results.”

Cash Flow

Net cash flow from operating activities for the quarter was approximately $31.1 million compared to $17.3 million in the first quarter of 2016. Capital expenditures were approximately $15.0 million, primarily for technology investments and real estate projects. During the first quarter, the company paid dividends of $18.2 million. The company did not repurchase any of its outstanding common stock during the first quarter.

At the end of the first quarter of 2017, the company had a cash balance of $89.5 million and a balance on its revolving line of credit of $385 million, or net debt of $295.5 million.

Outlook

The company maintains its original revenue guidance for 2017 of $3.15 billion to $3.22 billion. Revised adjusted EBITDA guidance1 for the full year 2017 is increased to $355 to $365 million, an increase of $30 million from the midpoint of the company’s original adjusted EBITDA1 guidance of $330 million. The $30 million increase is made up of the following components: $19 million for the full year impact of the pension accounting change (see Table 2), $8 million of first quarter operating over-performance relative to expectations, $5 million for improved operating performance for the balance of 2017, and negative $2 million of adjusted EBITDA dilution from the acquisition of SweetIQ for the balance of 2017.

Additionally, for the full year 2017, the company expects the following:

  • Capital expenditures of approximately $65 to $75 million, not including real estate projects;
  • Depreciation and amortization of approximately $150 to $155 million; and
  • An effective tax rate of 28% to 32%.

 

1 The company defines Adjusted EBITDA as earnings before income taxes, equity income, other non-operating items (which include interest income and interest expense, among other items), severance-related charges, asset impairment charges, depreciation and amortization. Because of the variability of these and other items as well as the impact of future events on these items, management is unable to reconcile without unreasonable effort the company’s forecasted range of adjusted EBITDA for the full year to a comparable GAAP range.
2 Acquired businesses in the last twelve months include Journal Media Group, Inc. (“JMG”) and North Jersey Media Group (“NJMG”), (both part of the Publishing segment), as well as ReachLocal, Inc. (“ReachLocal”).

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