Gannett reports record broadcasting revenue

Gannett reported earnings per share of $0.67 for the second quarter compared to $0.58 a year ago, a 15.5 percent increase. The company’s acquisition of Belo drove significant growth in the company’s Broadcasting arm while the Digital and Publishing segments also contributed to strongly profitable results for the quarter.

Gracia Martone, Gannett president and CEO:

“Our very strong second quarter results reflect the outstanding progress we’ve made in our strategic transformation, positioning Gannett to compete effectively in today’s multimedia landscape. Our expanded broadcast portfolio drove overall company margin expansion during the quarter, as we continue to transform Gannett into a higher margin, higher growth business. In fact, our Broadcasting and Digital Segments generated approximately two-thirds of our Adjusted EBITDA during the quarter. However, the pressure on national advertising across media impacted results for our Publishing and Broadcasting Segments in the quarter.

“We generated over $300 million in free cash flow during the quarter from the strength of our operations as well as the proceeds from the sale of Apartments.com. We are confident that we’ll continue to generate healthy levels of cash, which — coupled with our strong balance sheet — provide us with ample financial flexibility to continue to invest in our transformation to bolster continued growth. Looking toward the rest of 2014, we anticipate very strong political advertising demand in the third and fourth quarters and we are well positioned to capture a significant portion of that revenue opportunity.”

Continuing Operations

On April 1st, Classified Ventures completed its sale of Apartments.com. Gannett owns 26.9 percent increase in Classified Ventures and, as a result, received a cash distribution of $155 million in proceeds from Classified Ventures. On June 19, the company and Sander Media announced the completion of the sale of KTVK-TV and KASW-TV in Phoenix for $231 million. The total purchase price of the television station sales including KMOV-TV in St. Louis was approximately $408 million. The company’s previously announced acquisition of six of London Broadcasting Company’s television stations in Texas was completed on July 8th.

Total operating revenues in the second quarter were 12.1 percent higher compared to the second quarter in 2013 and totaled $1.46 billion. The increase reflects broadcasting revenue growth of approximately 88 percent, due primarily to the acquisition of Belo and 4.2 percent growth in digital revenues. Publishing revenues were 4.1 percent lower in the quarter. Total company revenue on a pro forma basis, had Gannett owned the Belo television stations during the same quarter last year and excluding results for Captivate and the impact of the sale of Apartments.com, were 1.5 percent higher in the quarter.

Net income attributable to Gannett on a non-GAAP basis was $154.6 million in the quarter, 14.4 percent higher compared to the second quarter of 2013. Operating income on the same basis grew 28.4 percent to $294.2 million reflecting primarily the expansion of the company’s television station portfolio. Adjusted EBITDA was substantially higher in the quarter, up 27.6 percent to $353.5 million compared to $276.9 million in Q2 2013.

Special items in the second quarter of 2014 include: operating charges of $51.7 million ($0.16 per share) representing primarily workforce restructuring, other transformation costs and asset impairments; non-operating income of $123.5 million ($0.39 per share) reflecting principally the pre-tax gain from the sale of Apartments.com. Special items in the second quarter of 2013 totaled $35.7 million ($0.10 per share) due primarily to workforce restructuring charges and transformation costs.

Operating expenses including the special charges noted above totaled $1.22 billion in the quarter compared to $1.10 billion in the second quarter of 2013. The 10.7 percent increase primarily reflects the Belo acquisition. On a non-GAAP basis, operating expenses were up 8.6 percent to $1.17 billion. Pro forma non-GAAP operating expenses declined almost one percent compared to the second quarter in 2013. A decline in publishing, which reflects the impact of cost control and efficiency efforts, were partially offset by increases in broadcasting and digital expenses supporting revenue growth.

Broadcasting

Broadcasting revenues of $398.3 million were almost 88 percent higher in the quarter compared to the second quarter last year. The increase reflects the impact of the Belo acquisition in addition to substantially higher retransmission revenue and political advertising across all of our stations.

Broadcasting revenues on a pro forma basis were up 13.4 percent compared to the second quarter in 2013. On the same basis, retransmission revenues were 66.6 percent higher and totaled $88.7 million. Politically related advertising revenue reached $16.6 million compared to $2.8 million in the second quarter a year ago. Pro forma digital revenues in broadcasting were 15.2 percent higher in the quarter reflecting increasing traction from digital marketing service products. National advertising trends impacted core revenue in the quarter resulting in a two percent decline compared to the second quarter in 2013. An increase of almost one percent in local revenue was more than offset by a 7.3 percent decline in national revenue.

Broadcasting non-GAAP operating expenses totaled $221.6 million in the  quarter, up 3.1 percent on a pro forma basis, due in large part to higher reverse network compensation and digital initiative investments. Non-GAAP operating income was $176.7 million while Adjusted EBITDA totaled $194.2 million, increases of 80.1 percent and 84.8 percent, respectively, compared to the second quarter last year. On a pro forma basis, non-GAAP operating income was up significantly, 29.6 percent, and Adjusted EBITDA increased 26 percent.

Based on current trends and including a full quarter of results for the former Belo stations, Gannett expects the percentage increase in total television revenues for the third quarter of 2014 to be in the high nineties compared to the third quarter of 2013. On a pro forma basis, the percentage increase in total television revenues in the third quarter of 2014 is projected to be in the high teens compared to the third quarter of 2013.

Publishing

Publishing revenues in the quarter totaled $867.4 million, a 4.1 percent decline compared to $904.2 million in the second quarter of 2013. On a pro forma basis, which excludes the impact of the Apartments.com sale, publishing revenues were 3.7 percent lower. The decline reflects continued pressure on advertising demand, particularly domestic national advertising, partially offset by higher revenue associated with digital advertising and marketing solutions.

Advertising revenues were $530.2 million, a 5.7 percent decline compared to $562.5 million in the second quarter of 2013. Pro forma advertising revenues were 5.1 percent lower. On the same basis, retail and classified advertising comparisons in the second quarter were better than the first quarter year-over-year comparisons. Employment advertising was up 1.3 percent in the quarter. Excluding national advertising, which was 16.3 percent lower in the quarter, advertising revenue year-over-year comparisons improved sequentially.

Advertising revenue at Newsquest was virtually flat, in pounds, as national advertising was 8.9 percent higher and retail advertising was unchanged. Year-over-year comparisons, in pounds, for all the major advertising categories improved relative to first quarter comparisons.

Circulation revenues were $277.9 million, down 0.6 percent from $279.7 million in the second quarter in 2013. An increase in circulation revenue at Newsquest was offset by circulation revenue declines at domestic publishing operations. At local domestic publishing sites, home delivery circulation revenue was up in the quarter due, in part, to strategic pricing actions associated with enhanced content.

Pro forma publishing digital revenues were up 6.9 percent in the quarter reflecting growth in digital marketing solutions and digital advertising. At Newsquest, digital revenues were 24.6 percent higher in local currency while digital revenues at USA Today and its associated businesses increased 13.7 percent. Pro forma digital revenues at local domestic publishing operations were up 4.3 percent.

Non-GAAP publishing segment operating expenses were up $767.8 million in the quarter, a decline of 3.2 percent due largely to continuing cost efficiency efforts.

Operating income on a non-GAAP basis totaled $99.6 million in the quarter while Adjusted EBITDA was $127.1 million.

Digital

Digital operating revenues totaled $194.4 million, a 4.2 percent increase from the second quarter in 2013. The revenue growth was driven primarily by higher revenues at CareerBulider reflecting strong sales of its human capital software-as-a-service products. Operating expenses in the Digital segment were 4.9 percent higher as CareerBuilder continued to invest in its sales staff expansion as well as technology support for its human capital software solutions. Digital operating income was $35.7 million in the quarter and Adjusted EBITDA was $45.3 million.

Pro forma digital revenues company-wide, including the Digital and all digital revenues generated by the other business segments, reached $396.9 million, an increase of six percent. Higher revenue associated with CareerBuilder, digital marketing solution products and digital advertising drove the increase.

At the end of the quarter, Gannett had approximately 120 domestic web sites affiliated with its local publishing and television markets, USA Today, Gannett Government Media and Gannett Healthcare Group. In June, Gannett’s consolidated domestic Internet audience was 57.5 million unique visitors reaching 25.2 percent of the Internet audience, according to comScore’s Media Metrix. USAToday.com is one of the most popular news sites and the USA Today app is a top news app with 20.3 million downloads across iPad, iPhone, Android, Windows and Kindle Fire. USA Today mobile visitors continued to grow in June and nearly doubled from June 2013 to approximately 40 million with a 40 percent increase in mobile visitor reach to 23 percent, according to comScore’s Mobile Metrix. Newsquest is also an internet leader in the UK where its network of websites attracted 119.8 million page impressions from approximately 17.8 million unique users in June 2014.

Non-Operating Items

The company’s equity earnings include its share of operating results from unconsolidated investees including the California Newspapers Partnership, Texas-New Mexico Newspapers Parntership, Tucson newspaper partnership and other online/digital businesses including Classified Ventures.

Equity income in unconsolidated investees totaled $156.5 million in the quarter reflecting primarily the gain from the sale of Apartments.com. Excluding special items in the quarter, equity income was $8.6 million, a 9.3 percent decline compared to $9.4 million in the second quarter of 2013.

Interest expense was $64.1 million in the quarter compared to $36.2 million in the second quarter of 2013 reflecting debt issuance associated with the Belo acquisition offset, in part, by a lower average interest rate. Excluding special items, other non-operating income in the quarter would have been $1.5 million compared to an expense of $0.3 million in the second quarter of 2013.

Interest expense was $64.1 million in the quarter compared to $36.2 million in the second quarter of 2013 reflecting debt issuance associated with the Belo acquisition offset, in part, by a lower average interest rate. Excluding special items, other non-operating income in the quarter would have been $1.5 million compared to an expense of $0.3 million in the second quarter of 2013.

Net cash flow from operating activities was $188.9 million in the quarter. Free cash flow totaled $307.1 million, a 77.7 percent increase from the second quarter of 2013. The increase reflects the sale of Apartments.com offset by $41.3 million in pension contributions during the quarter. The balance of long-term debt was $3.45 billion and total cash was $430.7 million at quarter’s end.

Source: Gannett

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