Last month, at an industry gathering sponsored by the Newspaper Association of America, Gannett (NYSE:GCI) cautioned investors to tone down their short-term expectations. The pessimistic outlook echoed earlier comments issued by both New York Times (NYSE:NYT) and Knight Ridder (NYSE:KRI). Today, we got to see the actual numbers and, as promised, they closely resemble the soft first-quarter results the company posted three months ago.

Net income slipped 4.5% to $338.6 million, but earnings were up 5% to $1.37 -- in line with reduced guidance -- thanks to continued share buybacks. Gannett repurchased 5.3 million shares during the second quarter alone, and the diluted share count is down roughly 10% from this point last year. Revenues for the quarter ticked up 3.4% to $1.94 billion, as modest gains in advertising and circulation helped offset a decline in broadcasting.

The publisher of USA Today and more than 100 other dailies reported newspaper revenues of $1.74 billion, a 4.7% improvement over last year's total, but operating cash flows in the segment only rose 2.1%. Higher costs for newsprint continue to weigh on bottom lines industry-wide, as the price of the lightweight paper has risen around 10% over the past year to levels not seen since 2001. Some publishers have responded by decreasing page size or cutting back on stock/mutual fund listings, while others like The New York Times have made the switch to cheaper paper.

The moves have helped trim expenses -- Gannett has cut its newsprint usage by 4% this year. But part of the reduced consumption can be traced back to an unwelcome source -- falling circulation. Readers are increasingly turning to online news sources and have been dropping their traditional newspaper subscriptions at the fastest rate in over a decade. Gannett has done a good job of capturing much of that audience, though, as its extensive online operations attracted over 20 million visitors last month.

The persistent falloff in circulation isn't quite as worrisome as the weak advertising environment, though, which remains in a prolonged slump. Consolidation among retailers has raised concerns, the troubles faced by the auto industry are spilling over into the advertising market (particularly at the local level), and amid a box-office slowdown, entertainment spending has also been restrained. Even one of the bright spots, classified advertising, is seeing business siphoned off by Craigslist and other popular digital alternatives.

While it's hard to get overly excited about the current state of affairs in the newspaper business, advertising demand will eventually pick back up. When that long-awaited rebound finally does arrive, Gannett -- as the industry's bellwether and consistent ad revenue growth leader -- will be well-positioned to help lead the charge.

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Fool contributor Nathan Slaughter owns none of the companies mentioned.