By Staff
Gannett today reported total operating revenues in the second quarter were 12.1% higher compared to the second quarter in 2013 and totaled $1.46 billion. The increase reflects broadcasting segment revenue growth of about 88%, due primarily to the acquisition of Belo Corp. and 4.2% growth in digital revenues. Publishing segment revenues were 4.1% lower in the quarter.
Earnings of $0.67 for the second quarter compared to $0.58 for the second quarter of 2013, a 15.5% increase.
Net income attributable to Gannett on a non-GAAP basis was $154.6 million in the quarter, 14.4% higher compared to the second quarter of 2013. Operating income on the same basis grew 28.4% to $294.2 million reflecting primarily the expansion of the television station portfolio. Adjusted EBITDA was substantially higher in the quarter, up 27.6% to $353.5 million compared to $276.9 million in second quarter of 2013
Broadcasting segment revenues on a pro forma basis were up 13.4% compared to the second quarter in 2013. On the same basis, retransmission revenues were 66.6% higher and totaled $88.7 million. Politically related advertising revenue reached $16.6 million compared to $2.8 million in the second quarter a year ago. Pro forma digital revenues in the broadcasting segment were 15.2% higher in the quarter reflecting increasing traction from digital marketing services products. National advertising trends impacted core revenue in the quarter resulting in a 2.0% decline compared to the second quarter in 2013. An increase of almost 1% in local revenue was more than offset by a 7.3% decline in national revenue.
Broadcasting segment non-GAAP operating expenses totaled $221.6 million in the quarter, up 3.1% on a pro forma basis, due in large part to higher reverse network compensation and digital initiative investments. Non-GAAP operating income was $176.7 million while Adjusted EBITDA totaled $194.2 million, increases of 80.1% and 84.8%, respectively, compared to the second quarter last year. On a pro forma basis, non-GAAP operating income was up significantly, 29.6%, and Adjusted EBITDA increased 26.0%.
Based on current trends and including a full quarter of results for the former Belo stations, Gannett said it expects the percentage increase in total television revenues for the third quarter of 2014 to be in the high nineties compared to the third quarter of 2013. On a pro forma basis, the percentage increase in total television revenues in the third quarter of 2014 is projected to be in the high teens compared to the third quarter of 2013.
Publishing segment revenues in the quarter totaled $867.4 million, a 4.1% decline compared to $904.2 million in the second quarter of 2013. On a pro forma basis, which excludes the impact of the sale of Apartments.com, Publishing segment revenues were 3.7% lower. The decline reflects continued pressure on advertising demand, particularly domestic national advertising, partially offset by higher revenue associated with digital advertising and marketing solutions. In Montana Gannett owns the Great Falls Tribune.
Advertising revenues were $530.2 million, a 5.7% decline compared to $562.5 million in the second quarter of 2013. Pro forma advertising revenues were 5.1% lower. On the same basis, retail and classified advertising comparisons in the second quarter were better than first quarter year-over-year comparisons. Employment advertising was up 1.3% in the quarter. Excluding national advertising, which was 16.3% lower in the quarter, advertising revenue year-over-year comparisons improved sequentially
Digital segment operating revenues totaled $194.4 million, a 4.2% increase from the second quarter in 2013. The revenue growth was driven primarily by higher revenues at CareerBuilder reflecting strong sales of its human capital software-as-a-service products. Operating expenses in the Digital Segment were 4.9% higher as CareerBuilder continued to invest in its sales staff expansion as well as technology support for its human capital software solutions. Digital segment operating income was $35.7 million in the quarter and Adjusted EBITDA was $45.3 million.
Pro forma digital revenues companywide, including the digital segment and all digital revenues generated by the other business segments, reached $396.9 million, an increase of 6.0%. Higher revenue associated with CareerBuilder, digital marketing solutions products and digital advertising drove the increase.
On April 1, 2014, Classified Ventures completed its sale of Apartments.com. Gannett owns a 26.9% interest in Classified Ventures and, as a result, received a cash distribution of $155 million in proceeds from Classified Ventures. On June 19, 2014, the company and Sander Media LLC announced the completion of the previously announced sale of KTVK-TV and KASW-TV in Phoenix for $231 million. The total purchase price of the television station sales including KMOV-TV in St. Louis was about $408 million. The company’s previously announced acquisition of six of London Broadcasting Company’s television stations in Texas for $215 million was completed on July 8, 2014.
Special items in the second quarter of 2014 include: operating charges of $51.7 million ($0.16 per share) representing primarily workforce restructuring, other transformation costs and asset impairments; non- operating income of $143.5 million ($0.39 per share) reflecting principally the pre-tax gain from the sale of Apartments.com. Special items in the second quarter of 2013 totaled $35.7 million ($0.10 per share) due primarily to workforce restructuring charges and transformation costs.
Operating expenses including special charges noted above totaled $1.22 billion in the quarter compared to $1.10 billion in the second quarter of 2013. The 10.7% increase reflects the Belo acquisition primarily. On a non-GAAP basis, operating expenses were up 8.6% to $1.17 billion. Pro forma non-GAAP operating expenses declined almost 1% compared to the second quarter in 2013. A decline in publishing segment expenses, which reflects the impact of cost control and efficiency efforts, was partially offset by increases in broadcasting and digital segment expenses supporting revenue growth.
The company’s equity earnings include its share of operating results from unconsolidated investees including the California Newspapers Partnership, Texas-New Mexico Newspapers Partnership, Tucson newspaper partnership and other online/digital businesses including Classified Ventures.
Equity income in unconsolidated investees totaled $156.5 million in the quarter reflecting primarily the gain from the sale of Apartments.com. Excluding special items in the quarter equity income was $8.6 million, a 9.3% decline compared to $9.4 million in the second quarter of 2013.
Interest expense was $64.1 million in the quarter compared to $36.2 million in the second quarter of 2013 reflecting debt issuance associated with the Belo acquisition offset, in part, by a lower average interest rate. Excluding special items, other non-operating income in the quarter would have been $1.5 million compared to an expense of $0.3 million in the second quarter of 2013.
Net cash flow from operating activities was $188.9 million in the quarter. Free cash flow (a non-GAAP measure) totaled $307.1 million, a 77.7% increase from the second quarter of 2013. The increase reflects the sale of Apartments.com offset by $41.3 million in pension contributions during the quarter. The balance of long-term debt was $3.45 billion and total cash was $430.7 million at quarter end.
During the second quarter, the company purchased about 1.4 million shares for $37.9 million.
