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TheStreet Open House

Newspaper Stocks Surge As Their Own News Improves

If that happens, newspaper profits should surge because publishers have lowered their costs dramatically by jettisoning thousands of workers, slashing wages and closing offices. Less advertising also means smaller print editions, reducing the need for newsprint ¿ the industry's second-highest expense after labor.

Gannett, for instance, has shed nearly 5,500 workers since 2007 and imposed other cost-cutting measures that already appear to be saving more money than people outside the McLean, Va.-based company expected.

That explains why Gannett's third-quarter profit will be so much higher than analysts estimated even though revenue continued to disappoint, said Ken Doctor, a media analyst with Outsell Inc.

Excluding one-time charges, Gannett said it will earn 39 cents to 42 cents per share when it reports the results Oct. 19. The average analyst estimate on the same basis had been 29 cents per share, according to Thomson Reuters.

Gannett said its revenue for the period will be $1.31 billion or $1.32 billion ¿ below the average analyst target of $1.38 billion and 20 percent less than what Gannett reported at the same time last year.

Investors scrambled to adjust for the profit miscalculation Tuesday as the stocks of Gannett and its industry peers soared. In many cases, investors who had been selling newspaper stocks "short" ¿ betting that the shares would fall even further ¿ were pressured to buy to minimize their losses, said analyst Edward Atorino of the Benchmark Co.

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