What Will This Deal Mean for Gannett Earnings?

Gannett (GCI) will release its quarterly report next Monday, and investors are unusually enthusiastic about the company's prospects. Although a big acquisition raised awareness of Gannett's businesses outside the struggling newspaper industry, it's still unclear how much of a boost it will produce for Gannett earnings growth in the future.

Gannett is the company behind USA Today, and a host of other newspapers and magazines. But the company is also aiming at broadening its media exposure, with its digital and broadcasting segments potentially being larger sources of growth going forward. Let's take an early look at what's been happening with Gannett over the past quarter, and what we're likely to see in its quarterly report.

Stats on Gannett

Source: Yahoo! Finance.

Why earnings aren't the key for Gannett this quarter
Analysts have reined in their expectations on Gannett earnings recently, cutting their estimates for the June quarter by $0.02 per share, and taking $0.01 per share off their views for next year's full-year results. The stock, though, has gone wild, soaring more than 25% since mid-April.

The main catalyst for Gannett's rise was its June announcement that it would acquire television broadcaster Belo (NYSE: BLC) in a $2.2 billion deal. The purchase will add Belo's 20 television stations to Gannett's existing broadcasting portfolio, nearly doubling Gannett's station count to 43, and giving it nine more stations in key top-25 markets. Even though the company paid a 28% premium for Belo, Gannett's stock also soared on the news, rising as much as 35% on hopes that diversifying its media exposure will prevent it from suffering the fate of a declining newspaper industry.

Still, Gannett faces the challenges of keeping its newspapers relevant in a digital world. With its "For The Win" website, USA Today hopes to tap into social-media demand for sports-related news and commentary. But the dominance of Disney's ESPN in both broadcast and mobile sports coverage is a big barrier to entry for Gannett. Moreover, when you consider numerous upstarts focusing on key niches within sports, Gannett's move seems like a longshot that likely won't move the needle much on its earnings prospects.

Competitive pressures throughout the newspaper industry are forcing Gannett's rivals to consider big strategic moves of their own. Chicago's Tribune made its own $2.7 billion purchase of 19 television stations earlier this month, and that company is making an active attempt to move away from its traditional print business by trying to sell off its newspaper operations. New York Times accepted bids for its Boston Globe newspaper in late June, even though it expects to get only a tiny fraction of what it paid for the division 20 years ago.

In the Gannett earnings report, watch for the company to give the latest details on where its Belo acquisition stands. If the media company can truly expand its reach, and make the most of its TV opportunity, then Gannett earnings could see the long-term benefits for years to come.

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