(GCI) Gannett to Slash Headcount

Gannett Company Inc. (GCI) grappling with sluggish economic recovery and a slump in advertising demand plans to lower its headcount by 700 employees or 2% of its work force at its U.S. Community Publishing division, Associated Press reported.

In the past five years, Gannett has reduced its headcount by 20,000 through job cuts and other measures, including the sale of a Hawaii newspaper.

The publishing industry has long been grappling with sinking advertising revenue and the recent global economic meltdown has worsened the situation. This downturn followed a longer-term secular decline as more readers choose to get news online for free, making the print-advertising model increasingly redundant. Moreover, print ad rates are more than on the web.

In an effort to offset declining revenue and shrinking market share, publishers are slashing costs, and Gannett remains no exception. The below expectation economic recovery has also been adversely impacting Gannett’s financial results.

Gannett Company, the publisher of one of the nation’s largest-selling daily newspaper, USA Today, posted lower-than-expected first-quarter 2011 results, reflecting soft publishing advertising demand.

The quarterly earnings of 41 cents a share missed the Zacks Consensus Estimate by a penny and fell 16.3% from last year’s 49 cents. Gannett’s total revenue dropped 3.7% to $1,251.3 million from the prior-year quarter due to fall in revenue across Publishing and Broadcasting segments, partially offset by gain at the Digital segment.

Gannett, the publisher of 82 U.S. daily newspapers, said that after dropping 5.9% in the fourth quarter of 2010, publishing advertising revenue fell further by 7.3% to $601.7 million from the year-ago quarter.

Gannett is taking initiatives to diversify its business model by adding new revenue streams in an effort to make it less susceptible to economic conditions. The company is also adapting to the changing face of the multiplatform media universe, which currently includes Internet, mobile, social media networks and outdoor video advertising in its fold.

To curb shrinking advertising revenue and seek new revenue avenues, the publishing companies contemplated charging readers for online content. News International, the subsidiary of News Corporation (NWSA), started charging readers for the online content of The Times of London and Sunday Times of London from June 2010.

In March, another media giant –– The New York Times Company (NYT) –– launched a pricing system similar to that of the Financial Times’ metered system, whereby after browsing a certain number of free articles, readers will be asked to subscribe to enjoy full access to its articles on phones, tablet computers and the Internet.

Given a slow economic resurgence and soft advertising spending environment, we continue to maintain our long-term ‘Neutral’ rating on Gannett. Moreover, Gannett holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation.

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