Gannett profit falls short on weak advertising

NEW YORK (Reuters) - Gannett Co Inc , the largest U.S. newspaper publisher, posted lower-than-expected quarterly profit on Friday, reflecting anemic print advertising sales across the industry.

Shares fell as much as 9 percent shortly after trading began on the New York Stock Exchange, a move reflected by major indices including the Dow Jones Industrial Average, which dropped near 400 points after U.S. markets opened.

The results cap more than a week of stomach-churning ad declines at U.S. publishers Media General Inc , McClatchy Co and New York Times Co .

The worsening world financial crisis is aggravating the already weakened state of U.S. newspapers, which have been losing advertising dollars and circulation as more people go online to get their news and patronize free classified ad services such as Craigslist.

New York Times shares fell as much as 17 percent a day after reporting a drop in third-quarter advertising revenue. Standard & Poor's also pushed its debt ratings into junk territory and Moody's Investors Service said it was considering doing the same.

Junk ratings on debt could make it more costly for the newspaper to borrow money in the future.

Gannett, which publishes USA Today, the largest newspaper by circulation, said third-quarter net income fell 32.5 percent to $158.1 million, or 69 cents a share, from $234 million, or $1.01 a share, in the same quarter a year ago.

Excluding charges for job cuts of $14.4 million after tax, or 7 cents a share, Gannett reported earnings of 76 cents a share, a penny short of the average analyst forecast, according to Reuters Estimates.

Revenue fell 9 percent to $1.6 billion, driven by an 18 percent drop in publishing division ad revenue. Classified revenue fell 28.5 percent, with retail classified revenue falling 41.5 percent.

The results were not good, but Gannett is probably the strongest U.S. newspaper publisher, said Benchmark Co analyst Edward Atorino. "They're still in pretty good shape," he said.

At USA Today, ad revenue fell 7.1 percent in the third quarter, while the number of paid advertising pages dropped to 713 from 803 last year.

Shares of Gannett have lost more than three quarters of their value in the past 12 months. Even so, analysts and investors have cheered its stringent cost-cutting measures.

That has not always resonated well with employees, a thousand of whom earlier this summer were marked for dismissal as part of those efforts to trim expenses.

Another concern for newspaper publishers is debt. Several have renegotiated their lending agreements to avoid skirting the possibility of defaulting on their debt, which is becoming harder to pay off with decreasing amounts of cash.

On September 30, Gannett drew $1.2 billion from one of its credit lines to repay short-term debt, a move that more companies are making as the financial crisis makes it harder to engage in routine borrowing for daily operations.

Shares fell 58 cents $9.06 in early trading.

(Editing by Gerald E. McCormick; Editing by Derek Caney)