Three months ago, Gannett (NYSE:GCI) posted second-quarter numbers that helped confirm the belief that a long-awaited rebound in advertising spending was well under way. The media giant reported widespread improvements, led by a 15.5% jump in ad revenues at USA Today, which drove net income nearly 10% higher. This morning, the McLean, Va.-based company released third-quarter results that reflect further indications of a sustained recovery.
Despite the impact of hurricanes, which created added expenses for both newspapers and television stations in the Southeast, Gannett announced a 14.6% jump in earnings to $1.18, a penny below estimates, on revenues that rose 11.3% to $1.82 billion. Circulation revenues at the nation's largest newspaper publisher grew 1.4% to $304.6 million, and the contents of those publications were packed with advertising, particularly classified employment and real estate.
Paid advertising pages at USA Today rose 6% to 1,082, lifting revenues at the flagship daily 10.2% for the quarter and 12% year-to-date. On a pro-forma basis (Gannett has made a string of acquisitions lately, including Clipper Magazine and NurseWeek), advertising revenues jumped 9.6%, with increases of 11.9% in classified spending, 8.7% in national, and 7.5% in local. Total newspaper revenues increased 10.3% to $1.61 billion, and despite a double-digit increase in segment expenses, operating income improved 6% to $429.5 million.
Gannett also reported strength in the broadcasting sector. The firm owns nearly two dozen television stations, which posted a 34.4% increase in operating cash flows. The April purchase of the Captivate Network -- a provider of advertising for the elevators of large office buildings -- and Olympic coverage from General Electric's (NYSE:GE) NBC-affiliated stations helped deliver strong top-line growth of 19.7%. Contrary to recent comments made by rivals Tribune (NYSE:TRB) and E.W. Scripps (NYSE:SSP), who reported disappointing political spending targeted primarily at "swing states," Gannett cited the positive impact of strong political advertising.
Gannett is the first of the major media firms to report third-quarter earnings, but at least some of its recent strength looks to be company-specific. Tribune, New York Times (NYSE:NYT), Dow Jones (NYSE:DJ), and Knight-Ridder (NYSE:KRI) have all reduced third-quarter guidance in recent weeks. Competitors have been plagued by transitory problems such as hurricanes, as well as lingering concerns over circulation scandals and non-committal national advertisers. With more than 100 local newspapers (as well as 300 more publications in the U.K. through the Newsquest subsidiary), Gannett is less susceptible to a slowdown in national advertising.
After delivering industry-leading revenue growth last quarter, Gannett is poised to repeat the accomplishment. And while competitors have trimmed their outlook, with estimates forecasting last year's median (among newspaper publishers) 11.4% third-quarter earnings gain to slow to around 5.4%, Gannett managed to grow earnings by nearly 15%.
Furthermore, the industry bellwether enjoys one of the highest operating margins in the business (28% in the latest quarter), a healthy free cash flow margin of 13% (two points above the industry average), and an ambitious stock-repurchase program (10 million shares last quarter alone). At less than 17 times this year's projected earnings, Gannett remains a compelling choice.
Fool contributor Nathan Slaughter gets more of his news from the Internet these days but still enjoys the sports page. He owns none of the companies mentioned.
