The shares of Gannett Co., Inc. (GCI) rallied after the news of its better-than-expected third quarter profit hit the market. The shares of Gannett rocketed to close at $11.74 on Sep 29, 2009 , up nearly 17.6% from the previous day’s close.

Gannett, the largest newspaper publisher in the U.S., notified that it now expects third quarter earnings in the range of 39 cents to 42 cents a share, which far outpaced the Zacks Consensus Estimate of 29 cents. However, this marks a sharp decline from 76 cents delivered in the prior-year quarter.

On a reported basis Incorporatedluding special charges like facility consolidations and workforce restructuring, EPS is expected to be between 25 cents and 31 cents.

The stringent cost-cutting measures and lower newsprint expenses have helped to drive the bottom-line results. After trimming its work force by 10%, Gannett revealed plans to further slash 3% of its staff — 1,400 more jobs — from the current work force of 41,500. The company’s other initiatives include salary reduction and furloughs.

Gannett, the publisher of 84 daily U.S. newspapers, also declared that it expects third quarter revenue to be between $1,307 million and $1,320 million, well below the $1,637.3 million reported in the year-earlier quarter.

Although the decline in publishing advertising revenue narrowed for the third quarter compared to the first and second quarters, no real strength was witnessed in the advertising environment. The newspaper industry has long been grappling with plummeting advertising revenue due to economic headwinds. Although murmurs about advertisers returning to the market are gaining ground, the positive effects have yet to be realized in the current financial results.

Gannett said that its operating cash flow for the third quarter is expected to be between $241 million and $252 million in the third quarter. During the third quarter, the company also lowered it debt to $3.31 billion down from $3.51 billion from the previous quarter. Since the end of fiscal year 2008, debt balance has declined by $504 million.

With the intention to pay off further debt, the company had also announced plans to sell $500 million senior notes in two parts — 8.750% senior notes of $250 million due 2014 (issue price of $98.465) and another 9.375% senior notes of $250 million due 2017 (issue price of $98.582).

Management expects its leverage ratio in the range of 3.04x to 3.07x at the end of the third quarter, well below the required ceiling of 3.5x under its credit agreement. The company indicated that its leverage ratio will remain below the ceiling for the rest of the year.

Gannett is expected to report its third quarter earnings on Oct. 19, 2009 before the market opens.

Zacks Investment Research
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