MNG fires back with concerns that Gannett leadership cannot successfully lead the company forward.

The biggest revenue for Gannett (NYSE: GCI) decline was in advertising and marketing services revenue which totaled $365.2 million, compared to $410.3 million for the same period last year. Circulation revenue was $252.7 million, compared to $266.6 million, and other revenue was $45.4 million, compared to $46.1 million in the first quarter of 2018.

“We had a solid start to 2019, with better than expected results across print advertising and circulation revenues as well as improved adjusted EBITDA in the first quarter,” said Robert J. Dickey, Gannett president and CEO in a May 1 news release. “We also experienced robust new client acquisition in March and April that we believe will contribute to improved digital advertising and marketing services revenues in future quarters. Importantly, we are continuing to make progress on transitioning to a digitally-led product and revenue model, which we are confident will enhance growth and drive shareholder value.”

Dickey, who is retiring in a week, added that Gannett efficiencies have helped the company reduce same store operating expenses by 10 percent, and the company is focused on investments that will help it continue its transformation to digital.

Highlights from the earnings report include:

• Same store operating revenues declined 9%.
• Unfavorable changes in foreign currency exchange rates reduced revenue by $6.0 million.
• Total digital revenue was $245.8 million, representing 37% of total revenue.
• Total digital advertising and marketing services revenue were $179.0 million, represent 49% of total advertising revenue.
• The company had capital expenditures of $12.6 million for product development, technology and maintenance projects.
• GAAP net loss was $11.9 million, including $17.4 million of after-tax restructuring, asset impairment charges and other costs.
• Loss per diluted share was $0.10.
• Digital-only subscriber volume grew 39% to 538,000 digital-only subscribers.

Gannett provided the following outlook for 2019:

• Consolidated revenue will range between $2.74 billion to $2.81 billion.
• Consolidated adjusted EBITDA will be between $285 million and $295 million, including $8 million in one-time costs associated with the CEO transition.
• Capital expenditures will be between $50 million and $60 million, not including real estate projects.

Following the release of Gannett’s quarterly financials, MNG – who has been trying to take over Gannett since earlier this year, offering a $12 per share price – responded with a statement.

“Today’s earnings announcement underscores the stark choice between MNG’s (board) nominees, who will serve as a catalyst for immediate value creation, and the entrenched incumbent directors, who endorse a failing, risky, multi-year digital transformation that we believe is extremely unlikely ever to produce a $12 per share valuation. We also note that neither the Company nor any of its officers or directors purchased shares in the quarter, despite protestations that MNG’s $12 proposal undervalues Gannett. The Gannett board desperately needs change, and we hope that shareholders will send them a clear message by electing MNG’s nominees,” said MNG in a May news release.

“To say there is a leadership void at Gannett is a gross understatement, given the CEO’s impending retirement, the recent departure of ReachLocal’s head and a newly appointed COO with a legal rather than operational background. When coupled with the company’s prolonged underperformance, it is difficult to fathom how any reasonable investor could have confidence in Gannett’s ability to offset the declines in its core business and execute a so-called ‘digital transformation’. Simply put, this board needs fresh perspective and real accountability,” MNG added.

In its statement, MNG also explains that its investor presentation refutes many facts and strategic statements made by Gannett which, it says, were given to mislead investors. MNG directs investors and other interested parties to review its takeover offer and position at SaveGannett.com. Gannett shareholders will vote on May 16 for eight board members, including Gannett’s preferred choice for eight directors and three nominees put forth by MNG. MNG had originally proposed six board nominees, but in late April, it withdrew three of those nominees.

Throughout the battle between Gannett and MNG, investors seem to have lost patience. As of 4:01 p.m. yesterday, Gannett stock had dropped to $9.32 per share. In January, it was near the $12.00 mark.

Insider Take:

The last few months have been a roller coaster for both Gannett and MNG, and both sides are trying to show why they are the better choice to shepherd Gannett into the future. Gannett is trying to spin lackluster financials, calling the first quarter results “solid,” while MNG is pulling out all the stops to prove to shareholders that they are the better steward of shareholder money. Gannett’s shareholder meeting is just 10 days away, and it will tip the scales in one direction or the other. We aren’t going to even attempt a prediction. It could go either way…and either way, it will be ugly.

Dana Neuts is Subscription Insider's Senior Staff Writer, covering our daily subscription news as well as member features, case studies, and reports.  

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