Gannett: The Press Is Still Running

During the past couple of years, there have been few industries uglier for investors than the newspaper business. I thought the advertising slump of 2001-2002 was bad, but that was nothing compared to this carnage. Its one thing to have a few magazines close their doors (as I experienced firsthand with Bloomberg Personal Finance magazine in 2003); it's quite another to have major media companies going belly up, or being on the verge. But as Tim Melvin pointed out in early May, there will be survivors of this mess and probably plenty of money to be made if you have an iron stomach and a little vision.

Gannett (GCI - commentary - Trade Now), publisher and provider of USA Today, 85 other daily papers, 850 other publications, 23 television stations and a website that had more than 27 million unique visitors in January, is one company that will survive this brutal mess. It certainly has not been fun being a Gannett shareholder in recent years. While fetching more than $90 in 2004, shares can now be purchased for $3.30, down more than 80% in the past year and 58% year-to-date.

A major issue for Gannett is the amount of debt on the books. At the end of March, that amounted to $4.3 billion, $563 million of which represented the maturity of floating rate notes due this past May. The company dodged that bullet, at least in the near-term, by using funds from its revolving credit agreement to settle that debt. The bulk of the remaining debt, nearly $2.5 billion, is a revolver that expires in March of 2012. There was another $1.08 billion which was scheduled to mature in June and July 2011 and April 2012, but the company recently pushed $260 million of that into 2015 or 2016 through a private exchange offer.

While the company is not in any immediate danger on the debt front, it's still quite a heavy load (2008 interest expense alone was $191 million) that could ultimately sink the company without an economic recovery, something reflected in the current stock price.

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At the time of publication, Heller was long Gannett.

Jonathan Heller, CFA, is president of KEJ Financial Advisors, a fee-only financial planning he recently launched. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.