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Gannett Meets Earnings Target as Newsprint Costs Rocket

Gannett (GCI - Get Report), the nation's largest newspaper publisher, said Wednesday that it had met Wall Street's estimates for third-quarter earnings, crediting "solid" advertising growth.

Gannett stock, which has slumped badly over the last year amid broad weakness in the media sector, inched up in midday trading, rising 31 cents to $52.

Gannett, which owns 99 newspapers including flagship USA Today, reported earnings of 79 cents a share, a 13% jump over the 70 cents reported for the same period a year ago. The company said that pro forma ad revenue had inched up 2% at its newspapers, while newsprint costs rose 30%.

Gannett's announcement comes as slowing ad sales and rising newsprint costs have combined to temper investors' enthusiasm for newspaper stocks. Gannett has also been hit by the outlays associated with its $4.6 billion acquisition spree and a $1 billion stock buyback. The stock has tumbled around 34% since the beginning of the year.

On Tuesday, Gannett competitor E.W. Scripps (SSP - Get Report) beat analysts' expectations with its third-quarter earnings, mostly on the strength of the performance in its Food Network and Home and Garden cable TV businesses. The company's pro forma total newspaper revenue rose just over 2%, while newsprint costs jumped 17%.

Peter Appert, who follows the newspaper business for Deutsche Banc Alex. Brown, downgraded the entire sector last month due to slowing ad growth and rising newsprint costs, and he recommends an underweighted position in newspapers.

Gannett, along with other publishers, has begun converting many of its newspapers to a smaller format to save newsprint.

Knight Ridder (KRI), the country's second-biggest newspaper chain, is expected to report earnings next week.

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