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Gannett Swings To A Profit: Hope For Newspapers?

Here's a shocker for the struggling newspaper industry: good news!

The largest US newspaper publisher, Gannett, beat analyst estimates with earnings of 46 cents per share (excluding some items), eight cents higher than analysts estimates, sending the stock higher in Wednesday trading.

Bottom line: Gannett has been able to cut enough costs to keep up with declining revenue. The real silver bullet this quarter was the company's strategy of giving employees a week of unpaid leave, the second so far this year.

More good news from the owner of USA Today: results seem to be improving. Is it possible that the newspaper ad decline has bottomed? June was Gannett's best month so far this year, with just 12 percent declines in national advertising, compared to 20-something percent decreases in the prior two months. Double digit declines are certainly bad, but these are at least slightly smaller. And year-over-year comparisons in this most recent quarter were stronger than those in the previous, first quarter. The company's CFO pointed out in the earnings call that classified ads, the battered former backbone of the industry showed improvement. While Gannett's overall classified ad business "stabilized somewhat," remarkably, real estate ads "trended upward."

Don't get too excited, the business is still really struggling. Gannett's ad sales in its publishing unit dropped 32 percent and 27.2 percent for US papers. The local ad business continues its decline, falling faster this year than last year. And while Gannett's CFO pointed out that some advertisers are "beginning to dip their toes back into the water," that doesn't change the fact that advertisers are as a whole shifting away from newspapers towards new media.

But here's the good news: digital revenues are growing, and fast. Gannett reported that total digital revenues across the company topped $225 million, as pro forma operating profits grew 84 percent.

What does this mean for the rest of the newspaper business? The New York Times Company, McClatchy and Media General all report earnings next week. Newspaper publishers take note: cost cutting works. The thousands of employees that were laid off, the forced unpaid vacations, they make a huge difference in keeping up with the downturn in ads. And the future of the ad business is online, so publishers had better beef up their business there. We'll be watching to see if Gannett's rivals also seem to have turned a corner. More likely than not, even the digital results from The New York Times will face headwinds.

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