Gannett Management Discusses Q2 2012 Results - Earnings Call Transcript

Gannett (GCI)

Q2 2012 Earnings Call

July 16, 2012 10:00 am ET

Executives

Jeffrey Heinz - Director of Investor Relations

Gracia C. Martore - Chief Executive Officer, President, Director and Member of Executive Committee

David T. Lougee - President of Broadcasting Division

Analysts

Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

John Janedis - UBS Investment Bank, Research Division

William G. Bird - Lazard Capital Markets LLC, Research Division

Craig Huber

Douglas M. Arthur - Evercore Partners Inc., Research Division

James C. Goss - Barrington Research Associates, Inc., Research Division

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

Presentation

Operator

Good day, everyone, and welcome to Gannett's Second Quarter 2012 Earnings Conference Call. This call is being recorded. [Operator Instructions] Our speakers for today will be CEO, Gracia Martore; and Jeff Heinz, Director of Investor Relations.

At this time, I'd like to turn the call over to Jeff Heinz. Please go ahead.

Jeffrey Heinz

Thanks. Good morning, and welcome to our conference call and webcast to review Gannett's second quarter results. Hopefully, you have had the opportunity to review this morning's press release. If you've not seen it yet, it is available at www.gannett.com.

As we get started, I need to remind you this conference call and webcast include forward-looking statements. Our actual results may differ, and factors that might cause them to differ are outlined in our SEC filings.

This presentation also includes certain non-GAAP financial measures. We have provided reconciliations of those measures to the most directly comparable GAAP measures in the press release and on the Investor Relations portion of our website.

With that, let me turn the call over to Gracia.

Gracia C. Martore

Thanks, Jeff, and thanks all of you for joining us today. This morning, I'm going to be discussing our second quarter results and further updating you on the growth strategy we announced at our Investor Day in February. As you also know, we provided a comprehensive update, both on our strategy and the quarter, at our presentation to the media and entertainment analysts of New York in late June. The transcripts and other documents from that presentation are available on the Investor Relations section of our website for those who would like to do a little bit of a deeper dive. So we'll be a little bit briefer today.

Also today joining us is Dave Lougee who, as you know, heads Gannett Broadcasting. He'll be commenting and discussing Broadcasting's strong quarter and the outlook for the second half of the year.

So now let's jump into it. It's been a busy quarter, but I believe a very productive one for our company. To start with, we continue to make strong progress on our strategic initiatives, including our new all access content subscription model. As of the end of the quarter, the program was up and running in about 38 of our markets and delivering as expected. In fact, the plan, though we are in the very early innings, helped deliver our first uptick in circulation revenue at U.S. Community Publishing literally in years. It goes without saying that we are extremely pleased with results thus far and much more to come. We rolled out 11 more markets in the last 2 weeks, and now, as they say, past performance is no guarantee but we are expecting larger total USCP circulation revenue gains going forward as the rollout continues.

We're making good progress as well in our push into new businesses like Digital Marketing Services and sports that leverage our hometown and brand advantages. These advantages put Gannett in a unique position to succeed in the digital age. We are the trusted source of news and information in the 100-plus local markets we serve. The important role we've played has helped us build deep actionable relationships with both consumers and businesses. And in a world where more and more voices are fighting to be heard, we have seen that brands really matter. Our strong local and iconic national brands are not only recognized and trusted, they give us an important leg up over the competition.

Digital Marketing Services is now fully operational in all of our TV markets and our top 35 publishing markets. We know that our business customers need and want these services, and they want them from a trusted partner like Gannett. Demand for our Digital Marketing Services is strong and is attracting significant new client relationships. It continues to generate new revenue growth for Gannett, and we're looking for revenue of $75 million to $100 million for the year from DMS and much more to come over the next few years.

Thanks in part to DMS and the impact of the all access subscription model, our Digital revenue continues to climb. Digital revenues now account for nearly 1/4 of our total revenue company-wide.

Our USA TODAY sports franchise is strong and getting stronger. We're working to make all of our assets work more effectively together and building a presence across all platforms. The USA TODAY Sports Media Group is now consistently ranked in the top 5 digital sports properties. We're moving ahead with a stronger, more pronounced voice that will be read, seen and heard across multiple platforms. And of course, as we do that, we're giving advertisers and marketers new opportunities to reach and engage with their customers.

And of course, at Gannett, we're optimizing assets wherever we can. The Gannett Publishing Services team continues to find ways to operate more efficiently, drive costs out of the business and look for revenue opportunities. They're also improving the return on our assets, particularly our print capacity. And in June, we entered into an agreement that will enable us to reduce our costs for all of our third-party printing by over $60 million over the next 5 years. This agreement will also enable Gannett to place all of our printing and distribution assets into this vendor's network, enabling us to more effectively and efficiently market our excess manufacturing, packaging and distribution capacities. We're extending our commercial printing and distribution sales channel across their customer base. All in, GPS is on track to deliver a positive impact and contribution of approximately $40 million.

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