The last few months have been relatively busy for Knight Ridder (NYSE:KRI), the nation's No. 2 newspaper publisher. In early August, the company sold its Detroit publishing operations to industry leader Gannett (NYSE:GCI), effectively ending a long-standing joint agreement in that market. Several weeks later, the company acquired Gannett's interests in three newspapers in the Pacific Northwest in exchange for the Tallahassee Democrat and an undisclosed amount of cash.

Thanks to those transactions, Knight Ridder was able to book a hefty $208 million third-quarter gain, which helped net income more than triple to $253.2 million, or $3.56 per share. Unfortunately, growth elsewhere was hard to come by, and earnings from continuing operations sank sharply to just $0.61. While the results weren't exactly front-page material, they did come in a shade ahead of recently lowered guidance and a penny ahead of estimates on an adjusted basis.

Not surprisingly, circulation figures dipped slightly lower on both a sequential and year-over-year basis, as readers continue to migrate to online news sources. With the much-anticipated rebound in advertising stuck on hold, revenues for the quarter only edged up 2.2% to $723.8 million.

Like others in the industry, Knight Ridder continues to see healthy double-digit growth rates in revenues generated from employment and real estate, particularly in smaller markets. However, prolonged weakness in the auto sector has weighed on recent classified advertising, which together with retail was characterized as "the softest we have seen all year." Meanwhile, revenues from large national advertisers did rise fractionally, but ad spending in the technology, entertainment, and airline categories remains restrained.

Overall, Knight Ridder only managed to grow its newspaper advertising revenues by a modest 3%, slightly better than the thin 1.1% improvement reported last week by Gannett, but trailing the respectable 6.3% gain at rival E.W. Scripps (NYSE:SSP). Unfortunately, that increase was outpaced by rising operating expenses, which spiked 7% for the quarter. The company trimmed its newsprint consumption by around 4%, but it wasn't enough to offset prices, which have climbed another 11% over the past couple months.

However, the unexpectedly sharp uptick in expenses resulted from a combination of factors that probably won't recur next quarter. Furthermore, while print advertising is in the doldrums, the company's Internet operations -- which include the popular site -- continue to generate solid results, with online ad revenues jumping 54% so far this year. Finally, an aggressive stock repurchase program has reduced the outstanding share count by nearly 10 million year to date, to accompany a generous 2.6% dividend yield.

Still, with 96% of the company's revenues coming from core newspaper publishing operations, few have more direct exposure to this sluggish business than Knight Ridder. Until the industry's deteriorating fundamentals show improvement, or the company finds alternate sources of income, I'd read the fine print closely before becoming a subscriber.

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Fool contributor Nathan Slaughter owns none of the companies mentioned.