Newspaper Sector: Stock Relief By Goring Ranks (GCI)

If there is a single industry that would be in jeopardy today even if the economy turns, it is the newspaper business. Gannett Co. Inc. (NYSE: GCI) is one of the few newspaper and print media operations that isn’t hovering near multi-year lows.  But that being said, its stock is down almost 60% from its 52-week highs of $49.75 and down over 75% from its highs over the last five years.  But the company may have found something good to do, at least as long as you aren’t an employee.

There were reports out of PaidContent.org and now more reports comingout of the WSJ that Gannett is cutting 1,000 newspaper jobs.  If thenumbers are accurate that will represent about 3% of its divisionworkforce.  While Gannett owns USA Today and more than 23 televisionstations, these cuts are said to come from community papers.  The goodnews is that this represents only about 600 actual layoffs, with therest coming from attrition.

If you have watched the monthly numbers for ad lineage andsubscriptions to actual papers, you will have seen a multi-year dropwith very few positives and the few positives mostly being anomalies.In fact, you could almost draw a parallel between newspapers in thisdecade and cigarettes in the 1990’s.   That’s how fast the industry islosing its readers of print media.

Gannett shares are up over 7% today at $20.40 in mid-day trading.Imagine how well the stock might do if the industry trims aboutone-third of the ranks.  That isn’t a made-up number either.  Someanalysts we have spoken to have said that ultimately one-third (ormore) of the costs have to come out of the SG&A side of expenses onthe income statement.  Unfortunately, shareholder interests don’talways align with the same interests that are good for a companies andcustomers.

Jon C. Ogg
August 14, 2008