Wednesday, February 3, 2010

Gannett profit falls to 20%!!!

Another sure sign of the apocalypse for newspapers came this week when the country's largest newspaper chain reported its annual earnings. Despite the rotten economy, Gannett Inc. posted operating earnings of $219.1 million on revenues of $1.1 billion. That’s a profit margin of practically 20 percent. In its extensive broadcasting division, Gannett raked it in even faster in 2009, with operating income of $79.2 million on revenue of $183.2 million, which is a whopping 43 percent rate of return. So this is good news, right? Well, not according to investors, who punished Gannett’s stock with a one-day drop of almost 9 percent following release of its earnings. As one blogger noted, it’s all about expectations, realistic or not.
Gannett reaped $31 in EBITDA for every $100 sales in 2005 but its operating profits were only $20 for every $100 in revenues in 2009. Most companies would be tickled to have EBITDA of 20%, but that number looks fairly anemic when a business is accustomed to getting 31%.
Keep in mind that we’re talking about operating income, which shows that Gannett’s media businesses are still very profitable. However, if you take into account extraordinary, one-time charges against income, the picture becomes a bit bleaker. The company incurred restructuring costs in its recent downsizing that led it to an overall loss of $4.71 billion last year, but those cuts will help make the company more profitable in the future. Also, keep in mind that the profit measure we are using is return on revenue, which topped out at $8 billion in 2006 and have plunged 30.1 percent to $5.6 billion in 2009.


  1. We all now it's about planning ahead and adjusting for cyclical cycles.
    I think we all learned a good lesson from Merewether’s long term capital investments. Sometimes when the risks are so high it’s better to play that market more cautiously. In Merewether’s case, being more cautious and aware of the Russian market they invested in, which ignited the domino effect later on in their investments. My point being, instead of focusing on higher sales and revenues, focus more on maintaining and protecting what you have. If you can’t increase profits change your approach to decreasing losses. It’s no surprise that newspapers are taking a plunge for the worse and an 11% decrease in sales and a 30% decrease in revenues could be an indicator of what is to come.
    Yet then again EBITDA allows a greater amount of discretion as to what is and is not included in the calculation. This also means that companies often change the items included in their EBITDA calculation from one reporting period to the next.
    Right now downsizing is a good move. (Although I don’t always agree with letting go with the highest paid individuals, b/c sometimes they can be the best person for the job)(However I do believe in pay-cuts when times are toughs). – Maybe it was even time to down-size. A company so big tends to hold fat (meaning useless and under qualified people).

    ALL AND ALL .. Gannet continues to have 23 million readerships, soo its tough to think they will reach the bottom line.


  3. The concept of expectations with regards to profit reports and product costs is, to me, unnecessary. If removed, a company (say, the gas companies) would charge a fair amount for its products, and its stock would decease in value when it performs poorly and increase when it performs well. Simple. Logical. Why is it necessary to muddy the waters by giving monetary weight to expectations?