WF vs. BEN: Which Stock Should Value Investors Buy Now?
It has been about a month since the last earnings report for Gannett Co., Inc. GCI. Shares have lost about 3.6% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is GCI due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Gannett Tops Q1 Earnings on Broadcasting, Digital Gains
Gannett Co., Inc. posted first-quarter 2015 earnings of $0.49 per share that came ahead of the Zacks Consensus Estimate of $0.45 and jumped 4.3% year over year. The outperformance was prompted by the splendid performance from its Broadcasting segment, which benefited from its enhanced portfolio of television stations, as well as profitable results at the Digital segment.
Gannett reported total revenue of $1,472.8 million, up 4.9% from the prior-year quarter but fell short of the Zacks Consensus Estimate of $1,525 million. Top-line growth primarily came from improved Broadcasting and Digital revenues, offset in part by a decline in Publishing revenue.
Gannett is taking initiatives to diversify its business model, shielding itself against any economic onslaught by adding new revenue streams. The company is also adapting to the changing face of the multi-platform media universe, with Internet, mobile, social media networks and outdoor video advertising already in its portfolio. The company has been also realigning its cost structure and streamlining its operations to increase efficiencies.
Gannett decided to split its business into two separate entities, one completely focusing on Broadcasting and Digital and the other concentrating on Publishing.
For quite some time now, Gannett has been making endeavors to expand its presence in broadcasting and digital products with a view to lower its dependency on its soft print media business and traditional advertising. Gannett’s acquisition of Cars.com underscores the same. Prior to this, the company bought six television stations of London Broadcasting Company and acquired television-station operator, Belo Corp.
Behind the Headline
Gannett stated that the Digital segment revenue advanced 85.1% to $332.7 million driven by the robust results at Cars.com. On a pro forma basis, revenue grew 10% on the back of revenue increase of 27.8% at Cars.com and 4.3% at CareerBuilder. The segment’s adjusted operating income came in at $59.2 million, substantially up from $23.8 million in the year-ago quarter.
Company-wide pro-forma digital revenues, taking into account the Digital segment and all digital revenues coming from the other business segments, grew 7.2% to $513.1 million. The upside was driven by increase in affiliate fees at Cars.com and revenue gains at CareerBuilder, digital marketing solutions products and digital advertising.
Broadcasting segment revenue grew 3.8% year over year to $396.8 million, in spite of absence of $51 million of Olympic and political revenue that contributed to the segment in the year-ago quarter. The quarter under review gained from increased retransmission revenue and Super Bowl advertising. Retransmission revenue surged 26% to $110.2 million, while digital revenue soared 11.2%. Adjusted Broadcasting operating income rose marginally by 0.6% to $165.3 million.
Management now expects second-quarter 2015 television revenue growth in the mid-single digits despite tough year-over-year comparisons, as the year-ago quarter gained from political advertising of $17 million.
Total Publishing segment revenue declined 8.8% to $768.2 million on account of softness in display advertising, absence of revenue related with USA Weekend, Gannett Healthcare Group, Apartments.com and a commercial printing operation along with 8% decline in the UK exchange rate. On a pro-forma basis, Publishing segment revenue decreased 6.3%. The fall in revenues was due to soft display advertising, partly offset by an increase in revenues across digital advertising and marketing solutions.
Publishing advertising revenue dropped 11.3% to $444.4 million, while Publishing circulation revenue decreased 3.1% to $273.2 million. Total Publishing segment adjusted operating income slipped 32% to $38.1 million.
Pro-forma Publishing segment digital revenues rose 4.3% attributable to increased digital advertising and marketing solutions revenues.
Classified advertising revenue at domestic publishing operations decreased 2.8% in the quarter under review. Within classified, softness persisted across real estate (down 0.7%), automotive (down 3.4%), employment (down 1.7%) and legal (down 7.4%). Retail and national advertising categories at domestic publishing operations declined 6.7% and 19.7%, respectively.
Other Financial Aspects
Gannett ended the quarter with total cash of $135.7 million and long-term debt of $4.35 billion. The company generated net cash flow from operating activities of $145.5 million and free cash flow of $129.2 million. The company bought back approximately 1.1 million shares for $37.5 million.
During the quarter management invested more than $19 million in capital projects. Capital expenditures are projected between $135 million and $140 million for the year.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimate have trended downward during the past month. There has been one revision higher for the current quarter compared to two lower.
Gannett Co., Inc. Price and Consensus
Gannett Co., Inc. Price and Consensus | Gannett Co., Inc. Quote
At this time, GCI has a strong Growth Score of A and a grade with the same score on the momentum front. The stock was also allocated a grade of An on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is equally suitable for value, growth and momentum investors.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, GCI has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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