Gannett (GCI, Financial) reported some strong financial numbers for the third quarter of 2014. Its performance during the quarter was primarily driven by the strong demand from political-related advertisement at most of its television stations. Also, Belo Corporation (BLC, Financial) made notable contributions to its broadcasting and digital businesses that helped the company counterbalance softness in its publishing business for the quarter. Its broadcasting business grew 19% on pro-forma basis.
Its revenue for the third-quarter rose 15.2% to $1.44 billion as compared to $1.25 billion in the third quarter a year ago. Also, its net income for the quarter increased 48.6% to $118 million or earnings of $0.51 per share from $79.7 million or earnings of $0.34 per share in the corresponding period last year. Its performance topped the Zack consensus estimates on both the top as well as bottom lines. The consensus estimated earnings of $0.55 per share on the revenue of $1.43 billion for the quarter.
The way ahead
Looking forward, the media company is taking various strategic initiatives in order to diversify its business. It is enhancing its broadcasting business through adding new revenue streams. It has recently acquired cars.com for $1.8 billion. Cars.com has potential product suit that should enhance growth for its digital business. It is indeed an outstanding acquisition as cars.com has grown at the compounding annual growth rate of 20% since 2006-2013. The company earlier bought six television stations of London Broadcasting.
These acquisitions should help the company offset the low-margin newspapers to a high-level multi-media mode and drive its growth going forward. Moreover, Gannett is transforming its business into multi-platform media universe with Internet comprising mobile, social media networks and outdoor video advertising that should add value to its digital business and accelerate its growth in the long-run.
In addition, the company continues to win market share in its digital business that grew 4.4% to $199.8 million on the back of strong online advertisement. It is seeing acceleration in its Digital Marketing business and CareerBuilder. Moreover, the company is effectively customizing the search and social products. It is concentrating on enlarging its products to better align its products and services to meet their needs and enhance results for them. It has various products such as D/O digital that is gaining traction.
It has also recently launched mobile shopping app Key Ring Express that should win many new clients for the company and add value to its digital portfolio of products. Also, the job listing site is making significant contribution to its digital business. Gannett has more than 120 domestic websites that are affiliated with its publishing and television properties such as USA TODAY, Gannett Government Media and Gannett Healthcare Group.
Gannett is additionally observing strong political ad-campaign spending in the fourth quarter that should enhance its performance. Also, its broadcasting unit continues to gain market share, driven by strong portfolio of television stations. Gannett currently provides service to approximately 46 TV stations. Its broadcasting segment will certainly enhance its growth as the company is effectively integrating Belo and cars.com broadcasting and digital offerings with its business. The broadcasting business grew 105% to $416.5 million for the third quarter. Moreover, it is seeing significant growth in its retransmission revenue as the TV companies pay retransmission fees to Gannett for the rights to carry its stations. This should certainly enhance its performance going forward. The retransmission revenue grew 61% during the fourth quarter.
However, it is seeing a slowdown in its publishing segment that declined 3.6% to $858.1 million as more and more advertisement campaigns shift to digital media. Gannett is also planning to divide its business into two separate publicly traded companies – one concentrated on publishing and its fast-growing digital components and another includes its higher-growth, higher-margin broadcast and digital businesses. The company believes that stand-alone companies will be in better position to concentrate and effectively can realign their resources so as to drive its growth in the long run.
Conclusion
Gannett certainly looks a great pick as the company is adding more and more revenue streams that will undeniably enhance its performance in the long run. Also, it is now integrating Belo and cars.com to its business portfolio that should assist the company to win extra market share. The stock is currently trading at the trailing P/E of 15.45 and forward P/E of 12.62 that signifies a fair valuation for the stock that has a lot of rooms to grow in the future. Besides, its PEG ratio of 1.16 continues to support its growth over the long-term. Moreover, the analysts have forecasted CAGR of 10.00% for the next five years that indicate remarkable growth prospects for the company in the long run.
