Dow Jones Presses Forward

The publisher's results show progress in its diversification plan.
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Updated from 9:34 a.m. EDT

The first-quarter results from

Dow Jones

(DJ)

on Tuesdayshowed progress in the financial news conglomerate's attempts to forge through the current malaise that is wearing down the U.S. newspaper industry.

The company posted a sharp drop in net income for the period, but that resulted from a one-time accounting gain that boosted profits in last year's first quarter. On an adjusted basis, the results beat Wall Street's expectations, sending shares of Dow Jones up $1.50, or 4.3%, to $36.61 in recent trading.

Excluding slight declines in ad revenue at the U.S. edition of its flagship newspaper,

The Wall Street Journal

, and its group of local newspapers, the company's overall results shined in an industry that has been mired in gloom and doom.

"When

Dow Jones CEO Rick Zannino came into the job last year, he said he would diversify the company away from the traditional print business, and these results show that he is executing on that plan," says Morningstar analyst James Walden.

Dow Jones said it earned $22.6 million, or 27 cents a share, for the quarter, down from $61.5 million, or 74 cents a share, a year earlier. Last year's results included a one-time gain of 60 cents a share mostly related to litigation over the company's former Telerate data-delivery service.

Excluding special times in both periods, the company's earnings rose 80% to $20.5 million, or 24 cents a share, from the comparable $11.4 million, or 14 cents a share, a year ago. On that basis, analysts expected earnings of 19 cents a share for the latest quarter, according to Thomson Financial.

On its top line, Dow Jones reported an 18% gain in revenue to $507.2 million, just shy of Wall Street's expectations of $508.2 million. Most of the increase came from Dow Jones' acquisition of the other half of the Factiva news database business that the company didn't already own.

The deal inflated the company's top line growth. On a pro-forma basis, which assumes Dow Jones owned all of Factiva last year, revenue increased only 2.6%.

Revenue from the consumer media business, which includes

The Journal

, Barron's and MarketWatch, rose 1.7% to $280.4 million, with ad revenue up 2.2% and circulation and other revenue up 0.6%.

Ad revenue from Dow Jones Online jumped 30%.

The U.S. edition of

The Journal

reported a 1.8% decline in advertising revenue, while its ad volume fell 3.1%.

Meanwhile, revenue from Dow Jones' local media business fell 3.5% to $55.5 million, hurt by a 4.6% decline in ad revenue.

Excluding the one-time gain from the Factiva deal, Dow Jones' enterprise media group posted a 5.2% increase in revenue thanks to strong growth at Dow Jones Indexes, which publishes the famous blue-chip stock index, the

Dow Jones Industrial Average

.

The company said the number of paid subscribers of

The Wall Street Journal Online

rose 20% to 931,000. That was the result of an offer that allowed new subscribers to receive both the print and online Journal, as well as a change in the methodology used to count paid and registered online Journal subscribers.

Zannino attributed the adjusted profit growth to the Factiva acquisition, strength in its online and indices business, as well as cost cuts.

"This is the latest indicator that our transformation plan -- aimed at diversifying our heavy reliance on traditional print revenue -- is working," he said in a press release.

On a conference call with analysts, Zannino said more acquisitions aimed at expanding into digital media may be in store. He said most of the "pure play" opportunities that exist in online financial news are too expensive, but he pointed to last week's deal to acquire the closely held U.K. media company eFinancial News Holdings as a sign that some reasonably priced opportunities still exist.

"The print

Journal

remains the company's crown jewel, in our view, but we think Dow Jones has done an excellent job traversing the changing media landscape lately," says Walden.