Revenue trends improved
GAAP Diluted Earnings Per Share of $0.26,
Adjusted Diluted Earnings Per Share of $0.29
Higher Operating Margin and Adjusted EBITDA
Margin
Gannett Co., Inc. (NYSE: GCI) ("Gannett" or "company" or "we")
today reported first quarter 2016 results of operations.
Recent highlights include:
- Improved revenue trends over 2015.
- Operating income of $47.5 million.
Adjusted EBITDA of $77.6 million. Adjusted EBITDA margin of 11.8%
improved 186 basis points over prior year.
- Accelerated production and distribution
efficiencies.
- National digital advertising up
17.5%.
- Digital-only subscriptions grew
37%.
- Completed the acquisition of Journal
Media Group, Inc. (JMG).
- The USA TODAY NETWORK and the Detroit
Free Press were honored with top awards in the prestigious Scripps
Howard Foundation’s national journalism competition.
Robert J. Dickey, president and chief executive officer, said,
"We are pleased to report strong first quarter results led by
ongoing efforts to improve our cost position. The company was
successful in accelerating certain printing and distribution
improvements into the quarter, generating several million dollars
in savings sooner in 2016 than were expected. With the completion
of the acquisition of JMG, we are beginning to integrate these two
great companies, leverage the best of each of our journalistic
talents, and look for additional combined cost improvement
opportunities. In addition, programs put in place to improve
revenue trends are beginning to show positive results. These
programs have been focused on maximizing viewability and duration
of ad play for advertisers, improving circulation retention, and
maximizing national digital advertising opportunities and
programmatic ad sales."
Beginning with the period post-spin from the company's former
parent and in conjunction with the execution of new agreements with
the company's former parent and certain of its affiliates, the
company began reporting wholesale fees associated with sales of
certain third party (principally Cars.com and CareerBuilder)
digital advertising products and services on a net basis, as a
reduction of the associated digital advertising revenues, rather
than in operating expenses within our consolidated statements of
operations. This change has no impact on reported operating income,
operating cash flows, net income or earnings per share.
Operating revenues for the quarter were $659.4 million compared
to $717.4 million in the prior year, a decrease of $58.0 million or
8.1%. This decline is partially due to approximately $14.6 million
related to the reporting of sales of certain third party
(principally Cars.com and CareerBuilder) digital advertising
products on a net basis (as described above), $5.4 million of
unfavorable foreign currency exchange rate changes and $5.4 million
of selected exited operations and other items. Excluding these
items revenues declined $32.7 million, or 4.6%, compared to the
first quarter of 2015, representing a sequential improvement from
the 4.9% decline on the same basis in the fourth quarter of 2015
compared to the fourth quarter of 2014. This decline was primarily
attributable to ongoing advertiser demand shifts and the impact of
an unfavorable affiliate agreement change with CareerBuilder and
its negative impact on classified employment revenues. These
declines were partially offset by positive revenue trends in
Gannett's digital products, particularly national digital
advertising which increased 17.5%, as well as approximately $23.8
million of revenues from acquired businesses.
Operating income for the first quarter was $47.5 million and
included $4.9 million of pre-tax restructuring, severance and other
items. Adjusted EBITDA for the quarter was $77.6 million compared
to $71.1 million in the prior year, an increase of $6.5 million or
9.1%. The increase in first quarter adjusted EBITDA was due
principally to ongoing cost reductions and efficiency gains in
operating expenses, increases in digital revenues and operating
results from businesses acquired during the second quarter of 2015,
partially offset by $7.3 million reduced EBITDA contribution
resulting from changes to the CareerBuilder affiliate agreement in
August 2015, $2.9 million of incremental pension costs, $1.3
million in unfavorable foreign exchange rate changes and overall
declines in print advertising revenues.
Acquisitions and Integration
On April 8, 2016, Gannett completed its acquisition of Journal
Media Group in which Gannett acquired all of the outstanding common
stock of JMG for approximately $260 million, net of cash acquired.
The company financed the transaction by borrowing $250 million from
its revolving credit facility and available cash on hand.
In its first full year, the former JMG operations are expected
to add approximately $450 million to Gannett's annual revenues and
approximately $60 million in adjusted EBITDA, through a combination
of their solid base business and certain quickly attainable
synergies. The company expects approximately $25 million of
additional synergy opportunities in the second year.
Cash Flow
Net cash flow from operating activities for the quarter was
$15.8 million which was impacted by seasonally low revenues and
annual incentive compensation payments. In addition, the company
made its full year contribution to the Gannett Retirement Plan of
$25 million. Capital expenditures were $10.2 million, primarily for
technology investments and real estate efficiency projects. Also,
the company paid dividends of $18.5 million. The resulting cash
balance at the end of the first quarter was $190.9 million.
At the end of the first quarter of 2016, the underfunded pension
liability was $549.8 million, compared to $612.4 million as of
December 27, 2015, a reduction of $62.6 million or 10.2%. This
reduction is principally the result of the full year cash
contribution of $25 million made to the Gannett Retirement Plan and
the effect of foreign exchange rate changes.
Outlook
"Without taking into consideration the impact of the JMG
acquisition, the company reiterates its expectations for 2016.
Specifically, we expect full year revenue trends to improve over
2015 driven largely by growth in digital. We expect advertising
revenues to decline in the 5%-7% range and circulation revenues to
decline in the 2%-4% range. EBITDA margins will likely stay under
pressure in the short term as we continue to offset incremental
public company costs, the earnings impact of declining revenues,
higher non-cash pension expense, and lower contributions from
CareerBuilder, with ongoing cost efficiency programs and growth in
digital revenue," Dickey concluded. With the recent completion of
the acquisition of JMG, the company expects to update its 2016
guidance to include JMG in connection with the reporting of second
quarter results.
Additionally for the full year 2016, without the impact of the
acquisition of JMG, the company expects the following:
• Capital expenditures of $50-$60 million, not including real
estate transactions.
• Depreciation and amortization of approximately $110
million.
• Effective tax rate of 31-33%.
• Recurring non-cash pension expense increase of approximately
$12 million.
* * * *
Conference Call Information
As previously announced, the company will hold an earnings
conference call at 1:00 p.m. ET today. The call can be accessed via
a live webcast through the company's investor site, http://investors.gannett.com/, or listen-only
conference lines. U.S. callers should dial 855-462-1958 and
international callers should dial 503-343-6635 at least 10 minutes
prior to the scheduled start of the call. The confirmation code for
the conference call is 91123471.
Forward Looking Statements
This press release contains certain forward-looking statements
regarding business strategies, market potential, future financial
performance and other matters. Forward-looking statements include
all statements that are not historical facts. The words “believe,”
“expect,” “estimate,” “could,” “should,” “intend,” “may,” “plan,”
“seek,” “anticipate,” “project” and similar expressions, among
others, generally identify forward-looking statements, which speak
only as of the date the statements were made and are not guarantees
of future performance. Where, in any forward-looking statement, an
expectation or belief as to future results or events is expressed,
such expectation or belief is based on the current plans and
expectations of our management and expressed in good faith and
believed to have a reasonable basis, but there can be no assurance
that the expectation or belief will result or be achieved or
accomplished. Whether or not any such forward-looking statements
are in fact achieved will depend on future events, some of which
are beyond our control.
The matters discussed in these forward-looking statements are
subject to a number of risks, trends, uncertainties and other
factors that could cause actual results to differ materially from
those projected, anticipated or implied in the forward-looking
statements. These factors include, among other things:
- competitive pressures in the markets in
which we operate;
- increased consolidation among major
retailers or other events which may adversely affect business
operations of major customers and depress the level of local and
national advertising;
- macroeconomic trends and
conditions;
- economic downturns leading to a
continuing or accelerated decrease in circulation or local,
national or classified advertising;
- potential disruption or interruption of
our operations due to accidents, extraordinary weather events,
civil unrest, political events, terrorism or cyber security
attacks;
- an accelerated decline in general print
readership and/or advertiser patterns as a result of competitive
alternative media or other factors;
- our inability to adapt to technological
changes or grow our online business;
- an increase in newsprint costs over the
levels anticipated;
- labor relations, including, but not
limited to, labor disputes which may cause revenue declines or
increased labor costs;
- risks and uncertainties related to our
ability to successfully integrate JMG’s operations and employees
with our existing business;
- an inability to realize benefits or
synergies from acquisitions of new businesses or dispositions of
existing businesses, or to operate businesses effectively following
acquisitions or divestitures;
- our ability to attract and retain key
employees;
- rapid technological changes and
frequent new product introductions prevalent in electronic
publishing;
- a weakening in the British pound to
U.S. dollar exchange rate;
- volatility in financial and credit
markets, which could affect our ability to raise funds through debt
or equity issuances and otherwise affect our ability to access the
credit and capital markets at the times and in the amounts needed
and on acceptable terms;
- changes in the regulatory environment,
which could encumber or impede our efforts to improve operating
results or the value of assets;
- credit rating downgrades, which could
affect the availability and cost of future financing;
- adverse outcomes in proceedings with
governmental authorities or administrative agencies;
- an other than temporary decline in
operating results and enterprise value that could lead to non-cash
goodwill, other intangible asset, investment or property, plant and
equipment impairment charges;
- our dependence on our former parent and
other third parties to perform important services for us following
the separation;
- our inability to engage in certain
corporate transactions following the separation;
- any failure to realize expected
benefits from, or the possibility that we may be required to incur
unexpected costs as a result of, the separation; and
- other uncertainties relating to general
economic, political, business, industry, regulatory and market
conditions.
A further description of these and other important risks,
trends, uncertainties and other factors are discussed in the
company’s filings with the U.S. Securities and Exchange Commission,
including the company’s annual report on Form 10-K for fiscal year
2015. Any forward-looking statements should be evaluated in light
of these important risk factors. The company is not responsible for
updating or revising any forward-looking statements, whether as a
result of new information, future events or otherwise, except as
required by law.
Non-GAAP Financial Measures
This press release also contains a discussion of certain
non-GAAP financial measures that the company presents to allow
investors and analysts to measure, analyze and compare its
financial condition and results of operations in a meaningful and
consistent manner. A reconciliation of these non-GAAP financial
measures to the most directly comparable GAAP measures can be found
in the tables accompanying this press release.
About Gannett
Gannett Co., Inc. (NYSE: GCI) is a next-generation media
company committed to strengthening communities across our network.
Through trusted, compelling content and unmatched local-to-national
reach, Gannett touches the lives of more than 100 million people
monthly. With more than 120 markets internationally, it is known
for Pulitzer Prize-winning newsrooms, powerhouse brands such as USA
TODAY and specialized media properties. To connect with us, visit
www.gannett.com.
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF
INCOME
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands (except per share
amounts)
Table No. 1 Three months ended Mar. 27, 2016 Mar. 29,
2015
Operating revenues: Advertising $ 351,221 $ 397,266
Circulation 262,703 271,258 Other 45,444 48,836
Total operating revenues 659,368 717,360
Operating expenses: Cost of sales and operating
expenses 419,763 479,844 Selling, general and administrative
expenses 166,325 178,329 Depreciation 23,959 24,428 Amortization
1,318 3,399 Facility consolidation and asset impairment charges 544
1,549
Total operating expenses 611,909
687,549
Operating income 47,459 29,811
Non-operating income (expense): Equity income in
unconsolidated investees, net 1,141 6,307 Other non-operating items
(4,223 ) (1,458 )
Total non-operating income (expense)
(3,082 ) 4,849
Income before income taxes
44,377 34,660 Provision for income taxes 13,085 1,413
Net income $ 31,292 $ 33,247
Earnings per share - basic $ 0.27 $ 0.29
Earnings per
share - diluted $ 0.26 $ 0.29
Weighted average number
of common shares outstanding: Basic 116,311 114,959 Diluted
118,656 114,959
USE OF NON-GAAP
INFORMATION
The company uses non-GAAP financial performance and liquidity
measures to supplement the financial information presented on a
GAAP basis. These non-GAAP financial measures should not be
considered in isolation from or as a substitute for the related
GAAP measures, and should be read together with financial
information presented on a GAAP basis.
Adjusted EBITDA is a non-GAAP financial performance measure that
the company believes offers a useful view of the overall operation
of our business. The company defines adjusted EBITDA, which may not
be comparable to a similarly titled measure reported by other
companies, as net income before (1) income taxes, (2) interest
expense, (3) equity income, (4) other non-operating
items, (5) severance related charges (including early
retirement programs), (6) other transformation items,
(7) asset impairment charges, (8) depreciation and
(9) amortization. The most directly comparable GAAP financial
measure is net income.
Adjusted diluted earnings per share ("EPS") is a non-GAAP
financial performance measure that the company believes offers a
useful view of the overall operation of our business. The company
defines adjusted EPS, which may not be comparable to a similarly
titled measure reported by other companies, as EPS before
tax-effected (1) severance related charges (including early
retirement programs), (2) other transformation items,
(3) asset impairment charges and (4) acquisition related
expenses (gains). The tax impact on these non-GAAP tax deductible
adjustments is based on the estimated statutory tax rate for the
United Kingdom of 20% and the United States of 38.7%. The most
directly comparable GAAP financial measure is diluted EPS.
Free cash flow is a non-GAAP liquidity measure that adjusts our
reported GAAP results for items that we believe are critical to the
ongoing success of our business. The company defines free cash
flow, which may not be comparable to a similarly titled measure
reported by other companies, as net cash flow from (used for)
operating activities as reported on the statement of cash flows
less capital expenditures, which results in a figure representing
free cash flow available for use in operations, additional
investments and returns to shareholders. The most directly
comparable GAAP financial measure is net cash from operating
activities.
The company uses non-GAAP financial measures for purposes of
evaluating our performance and liquidity. Therefore, the company
believes that each of the non-GAAP measures presented provides
useful information to investors by allowing them to view our
businesses through the eyes of our management and Board of
Directors, facilitating comparison of results across historical
periods, and providing a focus on the underlying ongoing operating
performance of our business. Many of our peer group companies
present similar non-GAAP measures to better facilitate industry
comparisons.
NON-GAAP FINANCIAL INFORMATION ADJUSTED EBITDA
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands
Table No. 2 Three months ended Mar. 27,
2016 Mar. 29, 2015 Net income (GAAP basis) $ 31,292 $ 33,247
Provision for income taxes 13,085 1,413 Equity income in
unconsolidated investees, net (1,141 ) (6,307 ) Other non-operating
items 4,223 1,458 Operating income (GAAP basis)
47,459 29,811 Early retirement program 1,079 — Severance related
charges 2,617 11,945 Acquisition related expenses 1,851 — Other
transformation items (656 ) 1,549 Adjusted operating income
(non-GAAP basis) 52,350 43,305 Depreciation 23,959 24,428
Amortization 1,318 3,399 Adjusted EBITDA (non-GAAP
basis) $ 77,627 $ 71,132
NON-GAAP
FINANCIAL INFORMATION ADJUSTED DILUTED EPS
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands (except per share
amounts)
Table No. 3 Three months ended Mar. 27,
2016 Mar. 29, 2015 Early retirement program $ 1,079 $ —
Severance related charges 2,617 11,945 Acquisition related expenses
1,851 — Other transformation items (593 ) 1,549 Pretax
impact 4,954 13,494 Income tax impact of above items (1,793 )
(4,739 ) Impact of items affecting comparability on net income $
3,161 $ 8,755 Net income (GAAP basis) $ 31,292
$ 33,247 Impact of items affecting comparability on net income
3,161 8,755 Adjusted net income (non-GAAP basis) $
34,453 $ 42,002 Earnings per share - diluted
(GAAP basis) $ 0.26 $ 0.29 Impact of items affecting comparability
on net income 0.03 0.08 Adjusted earnings per share -
diluted (non-GAAP basis) $ 0.29 $ 0.37 Diluted
weighted average number of common shares outstanding 118,656
114,959
NON-GAAP FINANCIAL INFORMATION FREE
CASH FLOW
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands
Table No. 4
Three months endedMar. 27, 2016
Net cash flow from operating activities (GAAP basis) $
15,839 Capital expenditures (10,153 ) Free cash flow (non-GAAP
basis) $ 5,686
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160427005516/en/
Gannett Co., Inc.For investor inquiries, contact:Michael P.
DickersonVice President, Investor
Relations703-854-6185mdickerson@gannett.comorFor media inquiries,
contact:Amber AllmanVice President, Corporate
Communications703-854-5358aallman@gannett.com
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