The Washington Post Co. (NYSE: WPO) is once again the envy of the newspaper industry. The last time investors were so bullish about the company is when Wall St. saw the huge profits from the online education firm Kaplan, which the media company bought in 1984. Kaplan’s earnings more than offset the drop in profits from the Post’s faltering newspaper and other media units. The profits were so strong that the parent company had enough income to prevent deep cuts in its newsrooms. To diversify the Post even more, yesterday it bought a majority interest in a health care firm. Now, if companies like The New York Times Co. (NYSE: NYT) and Gannett Co. Inc. (NYSE: GCI) want to prove they are as clever as the Post, each will have to make some new and diversified investments, too.

The Department of Education made a decision last year that hurt the sales and profits of Kaplan, along with those of all of its competitors. For-profit colleges had saddled too many of their students with too much debt, but had not adequately trained them to find jobs. Three months ago, Education Secretary Arne Duncan said:

Career colleges have a responsibility to prepare people for jobs at a price they can afford. Schools that cannot meet these very reasonable standards are on notice: Invest in your students’ success, or taxpayers can no longer invest in you.

A business that had made Washington Post an attractive investment was in trouble.

The Post came up with a novel solution to the Kaplan problem. It announced it would buy a majority interest in Celtic Healthcare Inc., a provider of home health care and hospice services in the northeastern and mid-Atlantic regions. The reason behind the decision was that more diversification was good for the Post, no matter how disconnected the new business was from its traditional media roots. Donald E. Graham, chairman and chief executive officer of The Washington Post Company, said:

Our acquisition of Celtic Healthcare is part of the Post Company’s ongoing strategy of investing in companies with demonstrated earnings potential and strong management teams attracted to our long-term investment horizon. It also fits with our decentralized operating philosophy. We are a diverse group of businesses sharing common goals and values but each with its own identity and workplace culture, and with management responsible for its operations.

USA Today has begun to reinvent itself as it reaches its 30th birthday. The improvement at the paper may be one of the reasons that parent Gannett’s stock trades near a 52-week high. But the shares are down 60% from five years ago. Gannett’s reorganization and the changes in USA Today may not be enough to get its stock price back near 2007 levels. Gannett does have an option it has not exercised. The public company could follow the example of the Post.

Less than a year ago, Hershey Co. (NYSE: HSY) bought Brookside Foods, a privately held confectionery company headquartered in Abbotsford, British Columbia. With the buyout, the chocolate firm probably has too many plants. That means it may divest one or more. One of those plants is located in Monterrey, Mexico. Labor is likely to be inexpensive there, so the plant is probably profitable. Gannett has a chance to diversify into the chocolate-making business to offset whatever drop in revenue its print products may have suffered. The opportunity is too good to be true.

Gannett says it is a leading media and marketing solutions company that reaches millions of people every day through its digital, mobile broadcast and print media. It could say that it is a chocolate maker, too.

Douglas A. McIntyre

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