Media house Gannett Co Inc, the largest newspaper publisher in the US, posted a 60 per cent drop in quarterly profit because of lower advertising revenue. Nonetheless, cost cuts helped it to do better than the market expected.

Gannett, which publishes 80 newspapers across the US, including the country's third largest daily USA Today, reported a 34-per cent drop in publishing ad revenue. US publishing ad revenue fell 28 per cent.

Those declines are some of the steepest yet for the US newspaper industry as the recession prompts advertisers to slash their budgets. Other publishers that will report in the coming weeks include Media General Inc, McClatchy Co and The New York Times Co.

Gannett reported net income of $77.7 million, or 34 cents a share, down from $191.8 million, or 84 cents a share, a year ago. Revenue fell almost 18 per cent to $1.38 billion. Excluding gains relating to a union pension plan and a charge for layoffs and consolidation costs, Gannett's profit was 25 cents a share, beating average analyst estimates by a penny according to Reuters Estimates.

Gannett cut expenses 10 per cent to $1.2 billion. It has been working on a number of ways to modernise its news-gathering and adapt to the Internet. In the meantime it has been resorting to lay-offs and furloughs for employees. Gannett also is experimenting in other ways, including cutting the number of days it home-delivers print editions of the Detroit Free Press.

Chairman, President and CEO Craig Dubow, during a conference call with Wall Street analysts on Thursday, declined to say how much of the company's advertising decline is permanent and how much is because of the financial crisis.

He offered a rare ray of hope, however, for the newspaper business. "Our belief is, if things are levelling a bit, hopefully some time the end of the year... we may begin to see some advertisers poking back into this in some pretty significant ways," he said.

One of the biggest problems Gannett is facing is a drop-off in classified ad revenue, which is flowing to free websites. First-quarter classified ad revenue fell 46.5 per cent, and included a 62 per cent drop in revenue from job classifieds.

At USA Today, total ad sales fell 33.5 per cent. Its paid circulation is also expected to fall after hotel chain Marriott International said this week that it would no longer automatically deliver the paper to its guests.

Gannett continues to work with Marriott, and executives said on Thursday that the publisher signed a contract with a hotel chain that they would not name. They said the chain has a larger USA Today circulation than Marriott.

Gannett, which owns local TV stations, said broadcasting revenue fell to $143.5 million from $170.2 million last year because of lower automotive and retail ad sales. TV revenue likely will fall in the second quarter too, the company said.

TV ad sales benefited a year earlier from $5 million in political ads, which were virtually nonexistent this year, Gannett said. But Gannett's NBC stations benefited from Super Bowl advertising this year.

Newspaper publishers have touted their online ad businesses as a growth engine that can offset the industry's print declines over time, but that growth has largely disappeared amid the global economic crisis.

Shares of the Virginia-based company have risen and fallen in dramatic arcs in the past few days. Last week, Ariel Investments, a major investor, boosted its stake, contributing to a 40 per cent share rise in one day. Many investors also began covering their bets that Gannett's stock would fall, causing further gains.

The market also welcomed Gannett's news that it plans to swap some of its debt for new debt with payments due later than 2012. Most of the company's debt was due in 2012. The company plans to offer more information about the offer next week.

Investors might have also been encouraged by Gannett's pledge to use most of its cash flow to whittle its debt, which stood at $3.7 billion at the end of March. The company's next big repayment, of $500 million, isn't due until 2011. It also said it will use most of its free cash flow this quarter to pay debt. Gannett cut its dividend by 90 per cent in February to use that money to pay debt.

With its debt apparently under control and operations still profitable, Gannett is less likely to sink into the kind of financial despair that has driven five other US newspaper publishers into bankruptcy protection since December.

Gannett also said that newsprint prices - a key expense for the business - were likely to decline through the second quarter, and possibly beyond. The company said it is not clear how Thursday's bankruptcy filing by North America's largest newsprint maker, AbitibiBowater Inc, will affect it.

Gannett shares were up 7 cents to $3.56 on the New York Stock Exchange after climbing as high as $4.20 earlier in the session.