Tuesday, February 4, 2014

GCI: Guides higher than expected Broadcast revenues; Reported strong Q4 and FY '13 results

Gannett (GCI) reported a better than expected FY '13 results.  It also guided broadcast retransmission revenues higher than we had estimated.  GAAP EPS came in lower than our estimate as we had not projected additional facility consolidation or asset impairment charges for Q4.  The stock opened up nearly 4%, but is now up only 2.6%.  We have updated our model given the strong broadcasting revenue guidance provided by management.  Our new valuation of the Company is now $40.75/sh, compared to the $38.61/sh we had in our initial post.

FY '13 broadcast revenues came in at $835.1MM, topping our $815.8MM estimate.  On a Y/Y basis, those revenues were down 7.8% due to more political and Olympic spots in even year, FY '12. Operating margin came in below our estimate; 43.3% vs 48%.  Excluding one-time charges, broadcasting operating margin was 45.2%.  We still expect significant margin expansion given the higher than expected retransmission revenues going forward.  

Digital revenues of $748.4MM came in below our $757.3MM projection, although still up 4.1% Y/Y. Digital operating margin of 17.1% was also below our 18.5% estimate.  However, excluding one-time items, it came in slightly higher, at 18.7%.  

Publishing ad revenues of $2,198.7MM were above our $2,171.2MM estimate, and down 6.7% Y/Y.  Circulation revenues were $1,129.1MM, compared to our $1,118.7MM estimate, and up 1.1%.  We expect overall publishing revenues to continue to decline going forward.  Surprisingly, operating margin in the publishing segment was about 30bps higher than our 8.5% estimate.  In fact, excluding one-time charges, that figure was 12.1%.  With continuing decline in publishing revenues, we expect lower margin in publishing, going forward.

Total FY '13 EBITDA of $987.1MM was higher than our $939.6MM, mainly due to higher revenues.  

For FY '14, in our base case scenario, we upped our revenue estimates in publishing and broadcasting segments, and did not make any adjustments to our digital revenue estimate.  We slightly lowered our margin assumption for broadcasting to 49%, from 50%.  In addition, we upped our publishing margin by 50bps to 8.5%.

With these adjustments, our DCF and sum-of-parts valuations increased, resulting in what we consider to be a fair value of $40.75/sh for GCI.  We await the release of the 10-K in order to fully update our model. 

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