UPDATE: Gannett 3Q Profit Drops 53% But Beats Views

Gannett Co.'s (GCI) third-quarter profit tumbled 53% amid an advertising slump, but the newspaper publisher's results beat expectations, helped by cost cuts.

The publisher of USA Today, which said late last month it expected third-quarter profit to far exceed Wall Street's forecasts, surpassed its raised earnings outlook, boosting hopes that the worst may be over for newspaper publishers and broadcasters as they suffer through the recession and a painful transition to digital media.

Concerns remain, however, about the company's $3.5 billion debt load and its ability to sustain a rebound through cost cuts. The company's operating expenses fell 14% in the third quarter through job cuts, salary reductions and other measures; however, publishing ad revenue dropped 28%.

"Even though they were still down substantially, the ad revenue trend is improving, and the third-quarter performance wasn't as bad as I was expecting," Barrington Research analyst James Goss said. "It's continually impressive that Gannett is able to keep cutting back its cost base."

Shares of Gannett, which have risen more than five-fold in the past seven months, rose 1.6% to $13.21. The company's chairman and chief executive, Craig Dubow, who returned late last week from a four-month medical leave, said the company is seeing better trends in advertising.

"Although recessions in the U.S. and U.K. continued to temper ad demand and revenue growth during the quarter, we are encouraged by the revenue trends," Dubow said.

He also noted that a quarter of Gannett's debt outstanding now matures in late 2014 or beyond after the company raced to restructure its financing in the wake of the global financial crisis. Gannett recently raised $500 million in new debt financing to pay down near-term maturities, and in the third quarter it paid down $197 million in debt.

The company, which owns more than 80 daily newspapers, said its quarterly profit fell to $73.8 million, or 31 cents a share, from $158.1 million, or 69 cents a share, a year earlier. Excluding asset write-downs and restructuring costs, earnings fell to 44 cents from 76 cents. Gannett's September forecast, excluding restructuring charges, was 39 cents to 42 cents a share, above analysts' then-estimates.

Revenue dropped 18% to $1.34 billion, better than Gannett's forecast for a decline of about 19%.

Publishing revenue dropped 24% while broadcasting reported a 23% decline.

In a sign of the challenges still facing Gannett, its national newspaper, USA Today, was unofficially surpassed by The Wall Street Journal as the largest U.S. newspaper by weekday circulation. After leading the industry in circulation for years, USA Today recently said it had slipped to about 1.9 million, while the Journal - which, like this newswire, is owned by News Corp. (NWS) - said its circulation rose to 2.02 million. Official figures will be released Oct. 26.

-Nat Worden, Dow Jones Newswires; 212-416-2472; [e-mail]

(Mike Barris contributed to this story)