FYI on USA Today Staffer Change

Jen: Alexandra Nicholson who was working in USA Today's communications and pr department is changing duties and is heading over to digital marketing as manager, social media strategist.

After The Bell Wednesday: And Still (GC)I Rise. Peers, Not So Much

Fitz: The stock rally was Gannett’s and Gannett’s alone Wednesday as investors skimmed some profits from Tuesday’s remarkable run-up, but continued to scramble for a piece of the nation’s largest newspaper publisher, the one estimating surprisingly robust earnings. (That's the Gannett HQ, left, BTW.)

Gannett (NYSE: GCI) rose 77 cents, or 6.6%, to $12.31 on volume of 23.6 million, nearly triple the average handle. Gannett on Wednesday priced the note offering it announced Tuesday -- and added $100 million to push it to a cool half-billion. The offering eased concerns about its $3.3 billion debt by stretching out maturities and for interest rates that are high, but not Visa credit card high.

Alas, the goodwill engendered by Gannett’s earnings estimate did nothing to help its peers. Every other Big Board newspaper stock fell, though not nearly as much as they soared on Tuesday.

Lee Enterprises (NYSE: LEE), which jumped 42.5% in that single session, not surprisingly was the leading decliner. LEE tumbled 9.3%, losing 28 cents to $2.75. Journal Communications (NYSE: JRN) shaved 37 cents, or 9.1%, to close at $3.68. Newspaper pure-play A.H. Belo (NYSE: AHC) the summer’s favorite small-cap in the sector, was off 21 cents, or 6.1% at $3.23.



 

Gannett Getting Its Swagger Back?

Fitz: Gannett Co.’s offering Wednesday of $400 million in senior notes that stretches out some of its debt to 2014 and 2017 got such a nice reception apparently that when the nation’s largest newspaper publisher released the pricing on the notes Thursday -- it had jacked up the offering to $500 million.

For the private offering, Gannett priced $250 million in the ’14 notes at 98.465% of face value with an interest rate of 8.75%. The ’17 notes were priced at 98.582 percent of face value with an interest rate of 9.375%.  Before the pricing release, Moody’s Investors Service rated the notes at its minimum investment-grade notch, while Standard & Poor’s Ratings Services put them just below its junk line.

Gannett is on a roll, clearly, and the question on The Street now is, has enthusiasm for the company gotten ahead of itself. Gannett stock (NYSE: GCI) is up more than 500% from its March low. Even as the rest of the newspaper sector was bid down in morning trading Thursday, GCI was up 68 cents, or 5.8%, to $12.42 -- its best share price since early October 2008.

Jonathan Heller, a RealMoney contributor posting on TheStreet.com, remains a believer in GCI as a “deep-value” stock to be held for a long period. While the fast run-up is a little disconcerting, he argues Gannett still has a lot going for it:

This S&P 500 constituent and former blue-chip darling was a $90 stock in 2004. While I doubt it will ever see $90 again, this is a classic case of the baby being thrown out with the bathwater. Despite carnage within the newspaper industry, Gannett still holds some quality assets, including 84 daily newspapers with estimated circulation of 6.6 million, 700 nondaily publications, 23 television stations, and a Web site that drew 27.1 million visitors in January. The crown jewel of this empire is USA Today, the nation's largest-selling daily newspaper with circulation of about 2.3 million.

Concerns about levels of debt have been abated, at least for now, as a result of a private exchange offer. Gannett still has $3.5 billion in long-term debt, but there are no maturities until June 2011 ($432 million) and July 2011($280 million). (The Company also just announced a private offering of $400 million in senior notes, maturing in 2014 and 2017, presumably to further pay down its credit facility; more details forthcoming.) That's still more debt than I am typically comfortable with, but Gannett has at least bought itself some time.

Green Shoots at Community Newspapers

Jen: Over the past week or so we've been chatting up a new survey from Cribb, Greene & Associates that takes the pulse of smaller market newspapers. Principal John Cribb revealed some of the results during last week's Fitz & Jen podcast edition. Today, Cribb released more details.

he news is relatively upbeat: More than half of those surveyed think ad revenue will be up next year and the same percentage would actually purchase a newspaper.

The survey polled executives from 126 newspapers -- 29% were from daily newspapers, 49% were from weeklies and 22% were from a combination of the two. Below are the findings.

Q: Do you think the local economy in your publication market is improving, declining, or about the same as last year?

• 31% said its improving
• 44% said it was about the same
• 25% said it was declining

Q: Next year do you believe your bottom line will be up, down or about the same as this year?

• 62% said up
• 32% said about the same
• 6% said down

Q: When the economy improves, do you think your bottom line will be better than it was before the downturn, worse or about the same?

• 46% said better
• 26% said about the same
• 28% said worse

Q: Next year do you believe your total advertising revenues will be up, down or about the same as this year?

• 54% said up
• 36% said about the same
• 10% said down

Q: If you currently print in-house, would you consider outsourcing your printing and eliminating your press?

• 44% said yes
• 56% said no

Q. Would you consider purchasing a newspaper currently?

• 52% said yes
• 48% said no

Wednesday Morning Links

The New York Times has been acting very coy about its plans for charging for some content. Executive Editor Bill Keller reveals the strategy "will come down to a gut call." Sigh. (New York Observer)

Larry Marsh says the key for newspapers' survival is a "daily me" type of customized news model a la Amazon's recommendations -- not knowing there is something called "DailyMe" that does just that. (Midwest Voice @ KCStar)

Some big-wig advertisers agree to test online research. (Media Decoder)

A possible set-back for BT ads: Two-thirds of Americans don't want to be tracked by advertisers. (NYT)

Jeremy Halbreich to the Chicago Newspaper Guild: There's only one party interested in owning the Sun-Times Media Group. (News Bites)

The owners of the San Diego News Network have formed a parent company called U.S. Local News Network. Look for a version in your city soon! (paidContent)

J.P. Morgan Raises Gannett Estimates

Jen: It's not everyday that a newspaper company rushes to get out quarterly results before executives are scheduled for the conference call.

Gannett though is too happy to sit on the news that they are beating the Street's expectations with EPS expected to come in at $0.39 to $0.42 versus the consensus of $0.31. The company also reported that ad revenue, while still down (way down actually) it's an improvement over Q2.

J.P. Morgan equity research analysts Alexia Quadrani and Monica DiCenso crash this little party over in McLean, Va., by writing in a note that newspaper ad revenue year-over-year comparisons are actually easing in Q3. This implies "that overall newspaper ad trends have clearly not rebounded," they wrote.

As noted elsewhere earlier, Gannett pulled off this feat by cost cutting.

Quadrani and DiCenso rework their estimates on Gannett increasing anticipated EBITDA margins to 20.3% from 19%. They set a new $12 price target for shares of Gannett for 2010.  Still they part with this comment: "With revenue declines continuing to track below expectations and more hurdles on the cost side ahead (from difficult comparisons and rising paper expense), we believe we are approaching a ceiling in the share price at these levels."

After The Bell Tuesday: Gannett Sparks Another Rally

Fitz: Another quarter, another newspaper sector rally, courtesy of Gannett Co. Inc. (NYSE: GCI). Tuesday’s pre-bell announcement of better-than-expected estimated Q3 earnings sent not just GCI soaring, but every other Big Board traded newspaper stock. In fact, four of the 11 highest  percentage gainers on the New York Stock Exchange were newspaper stocks, with the list headed by Lee Enterprises (NYSE: LEE).

As recently as July 22, LEE was trading for just 79 cents a share. Tuesday, it zoomed 42.5%, closing up 91 cents at $3.05, easily its best price in 2009. The volume in LEE was an astounding 6.5 million shares, more than six times its average daily handle. 

GCI touched off the current rally in newspapers after beating Street expectations for Q2. And even though it reported that EBITDA would likely fall 25% for Q3 -- a figure that would be shocking, pre-crisis -- traders looked at that as a moderating number that signaled an end, or at least an ending, to the brutal cyclical downturn. GCI closed at $11.71, up $1.76, or 17.6% on volume more than triple its average.

Sector stock big and small joined the part. Media General (NYSE: MEG) jumped $1.07, or 13.5%, to $8.97, while E.W. Scripps (NYSE: SSP) climbed 10% on a 72-cent gain to $7.92, just off its 52-week high. A.H. Belo (NYSE: AHC) added 26 cents, or 8.2% to close at $3.44.

The New York Times Co. (NYSE: NYT) was one of the more modest gainers, adding 40 cents a share, or 5%, to close at $8.39. Its volume, too, was nearly triple the normal handle.

What Can Brown Do For You?

Jen: Much more apparently. A big FYI here: UPS is getting in the direct mail business. Kenneth Hein reporting for our sister pub Adweek has the low-down.

UPS is testing the delivery of small packages filled with premium offers and samples in Chicago (Fitz!), Dallas (Hi mom!), Washington D.C., Phoenix and Miami. Gordon Borrell of Borrell Associates notes it's going to be tough even for the guys in brown. Spending on direct mail is supposed to decline 39% over the next five years.

Devotion To Accuracy Dept.

Fitz’s E&P print article on the newspaper industry’s looming pension obligations, posted here on our main Web site, contained a big error in discussing A.H. Belo’s underfunded pension obligations, which it incorrectly put as upwards of a half-billion bucks. In fact, as of Dec. 31, 2008, A.H. Belo said it had accrued $17.096 million for future contributions to future pension payments, which it estimated could range from between $17.1 million and $91 million.

Credit Raters Split Hairs On Gannett Q3, New Notes

Fitz: The big two credit ratings firms, Moody’s Investors Service and Standard & Poor’s Ratings Services, differed slightly with their assessments of Gannett Co.’s estimated Q3 earnings, and the $400 million in senior notes it will be floating to repay its revolver and term loans, and stretch out some of its debt maturities.

S&P pegged the notes -- $200 million due in 2014 and another $200 million due in 2017 -- as BB, the same grade as for Gannett’s corporate credit and S&P’s highest speculative-grade, or junk, rating. Moody’s rates the senior notes an investment-grade Baa3, its lowest investment grade level.

“Moody's believes the offerings improve Gannett's intermediate term liquidity position by terming out a portion of the $3.3 billion of debt that matures by 2012,” senior analyst John E. Puchalla said. “The offerings will increase cash expense, but by a smaller amount than Moody's anticipated when
it confirmed Gannett's ratings in August 2009.” Moody’s corporate family rating for Gannett is Ba1, its highest speculative-grade rating.

There much for credit agencies to like in Gannett’s estimated Q3 announcement Tuesday. The nation’s largest newspaper publisher said it repaid $200 million in debt in September, giving it a total of $500 million in paydowns for the year. And it said its senior leverage ratio would be between 3.04 times and 3.07 times.

Gannett reported it expected EBITDA to decline about 25% for Q3, but that’s better than the 40% fall-off for the first half of 2009.

But clearly the raters still have some doubts about newspapers. Here’s S&P:

Still, the 'BB' rating reflects the secular shift in revenue away from Gannett's newspaper business, which has been exacerbated by an extended period of cyclical pressure, and the difficulty at this time in estimating how much the pace of decline in newspaper ad revenue might moderate over the intermediate term. In addition, we anticipate that leverage will increase. Gannett's focus on using its still-large discretionary cash flow generation for debt repayment to help limit the leverage increase to a relatively moderate level (compared to other U.S.-based newspaper companies) only partially offsets these negative credit factors.

That didn't harsh the buzz about newspapers on Wall Street, though. Just before the closing bell Tuesday, Gannett continued to lead the sector north -- jumping 16.2% on a $1.62 gain to $11.60 a share.

Moody’s Drops Morris

Fitz: Moody’s Investors Service said Tuesday it was withdrawing its ratings of Morris Publishing Group for “business reasons.”

Moody’s policy says that business reasons signifies that the withdrawal is unrelated to adequacy of information but that under certain circumstances, “Moody's will balance the market need for a rating against the resources required to maintain and monitor a rating.”

The withdrawal comes days after Florida Times-Union parent Morris reached an agreement with holders of 75% of its outstanding senior subordinated notes -- totaling $278.5 million -- to would exchange those notes for $100 million of new "second lien secured" notes. At the same time, Morris sibling companies will pay down $110 million of its $138.75 million in existing senior secured indebtedness.

Moody’s last ratings stand at Ca for Morris’ corporate family rating and its probability of default, signifying “highly speculative.” Its senior secured bank credit was rated B3, which under Moody’s definition suggests it “lack characteristics of a desirable investment.”