WSJ says Gannett preparing to release ugly earnings --- forcing readers to receive even less; though profitable, its newspapers are shrinking

The Wall Street Journal reports today that Gannett Co. Inc., the publisher of The Tennessean, is prepared to unveil some very bad earnings for the first quarter on Thursday, unleashing new demands for cutbacks that will diminish the poor product readers receive now.

The company already has laid off more than 300 employees in the second quarter.

Yet by Gannett standards, The Tennessean is doing remarkably well. It was just named a Gold Medal newspaper for the company and its editor received a president's ring.

Don't you feel like you're holding gold when you pick up a Tennessean? It's kind of like being the best general in the Iraqi army. Saddam Hussein had to decorate someone.

Here is what The WSJ has to say about GCI:

The depths of the newspaper industry's swoon will get a fresh sounding this week. Gannett Co., the largest U.S. newspaper publisher by circulation, reports earnings on Thursday, kicking off what is expected to be the ugliest quarter in recent memory for the industry.

Though there is little uncertainty about the short-term outlook, analysts and industry executives will be watching for any signs of a recovery in advertising. Declines in print ad revenue accelerated through the end of last year, and if early returns this year offer no clearer view of a bottom, publishers could start taking more aggressive action, including closing papers or shifting operations online.

"We're expecting particularly dismal results from newspapers," said Mike Simonton, an analyst with Fitch Ratings, adding that until classified ads disappear completely, there is "no bottom in sight" for the current revenue trends.

Already, heavy losses have forced publishers to close or threaten to close print operations in Denver, Seattle, San Francisco and Boston. Many publishers have large debt payments looming and are bound to take similarly drastic steps if they determine their newspapers will never again generate revenues capable of supporting those obligations.

Gannett, publisher of more than 80 U.S. dailies including USA Today, faces many of the same pressures as its competitors. Though most of its papers are profitable, profits are shrinking. The company's entire debt structure is due to mature by 2012. To alleviate pressure, Gannett last week announced a bond exchange to push out some of its maturities.

Gannett has made some drastic cost-cutting moves at its newspapers to keep costs in line with dwindling revenue, including multiple rounds of job cuts and two furlough programs forcing employees to take unpaid leave. More changes could be in store, particularly as the outlook worsens for its flagship paper.

USA Today, which until recently had been somewhat insulated from the worst of the industry slump, has begun to take its lumps. Gannett executives recently projected a drop of as much as 35% in first-quarter ad revenue from a year earlier. And when the Audit Bureau of Circulations releases its numbers for the six-month period ended in March, the national daily's circulation is set to fall by about 100,000 just from lower occupancy in hotels, which account for more than half of its 2.3 million circulation.

Circulation is likely to take another hit in June, when Marriott International Inc. will start delivering papers at many of its hotels based on customer preference. The switch, expected to be announced Monday, will cut distribution by about 50,000 daily copies and mostly affect circulation at USA Today and The Wall Street Journal.

Gannett shares are down 53% since the beginning of the year, though the stock jumped 39% Thursday to $3.75 after Ariel Investments LLC more than doubled its holdings in the company.