May 21, 2008 - Gannett Co. Inc. (GCI-NYSE) satisfies news junkies with a stash of daily US papers. The company is the top newspaper publisher in the US with about 85 daily papers boasting a total circulation of 6.9 million. Its flagship USA TODAY, with a circulation of 2.3 million, is the nation's largest newspaper. Some other major papers in Gannett's holdings include The Arizona Republic and the Detroit Free Press. The company also owns about 900 non-daily publications, as well as about 300 papers in the UK (through subsidiary Newsquest). In addition, Gannett owns 23 television stations in 20 markets, publishes periodicals and inserts (including USA WEEKEND), and operates Web sites for many of its papers.

Hard to believe that as revenues decline across the board. In the first quarter of 2008, newspaper sales were down 8.6% compared to the same quarter in 2007. Ad revenues were off 16%, pummeled by a 30% drop in real estate ads and a 26% slide in employment ads. The only real positive was USA Today where revenues were up 2%. Even the broadcasting side of the business saw a 7% decline. Costs were down somewhat with newsprint expense lower, thanks to lower amounts used as well as pricing.

Unfortunately the rate of decrease in revenues was accelerating in March, the last month of the quarter, boding ill for this quarter and perhaps next. Not surprising when the real estate market is in the tank with no signs of an uptick. Oil is going higher which might cause price increases in newsprint.

Cost cutting helps, but it can't overcome all of the lower revenues. Management has already cut the size of some of its newspapers and uses lighter paper. What's needed is more revenues. They should come from the Olympics and the presidential election campaigns. If the primary spending is any indication of the final campaign, this election may break all records for spending as both candidates get their message out in every medium possible.

The numbers: Analysts see earnings growing at 3.5% a year, on average, over the next 5 years while sales climb by 6% a year, on average, in the same time period. Sales will most likely dip this year to $7.275 billion, down from $7.439 billion. Analysts predict an uptick to $7.550 billion next year. Net profit margin was 13.8% last year. Look for 12.8% this year and 13.1% next year. Return on equity was 11.4% last year with expectations of 10% this year and 10% next year. Market cap is $6.7 billion.

Don't think of Gannett as only a newspaper publisher. It has strong Web investments such as CareerBuilder where ad revenues should only increase as the economy recovers. As advertisers migrate toward the Web, expect Gannett to make more investments in the digital medium. There are still plenty of profits and a high cash flow to make those investments and pay the attractive dividend.

- Company Web site: www.gannett.com

- Ted Allrich