July 16 (Bloomberg) -- Gannett Co., the largest U.S. newspaper publisher, dropped to its lowest level since 1990 on the New York Stock Exchange after reporting second-quarter profit fell 36 percent, hurt by sliding advertising sales.

Gannett declined 78 cents, or 4.5 percent to $16.57 at 4:15 p.m., bringing the stock's drop this year to 58 percent. New York Times Co. also retreated as the results indicated a deepening drop in newspaper industry advertising.

Ad sales at USA Today, the biggest U.S. newspaper by circulation, fell 27 percent in June for their steepest monthly decline this year. Gannett's total print ad sales dropped 16 percent in the same period. For the quarter, national advertising for all publications sank 14 percent to $168.9 million because of cutbacks by retailers and carmakers.

``The economy is tough and could be for the foreseeable future,'' Chief Executive Craig Dubow said on a conference call.

The company said today's earnings exclude a writedown of as much as $2.7 billion it will take to reflect the declining value of its newspapers. Net income fell to $232.7 million, or $1.02 a share, from $365.7 million, or $1.56, a year earlier, the McLean, Virginia-based company said today.

The earnings were in line with a forecast range of $1.01 to $1.03 a share that Gannett gave in June.

Sales dropped 10 percent to $1.72 billion, hurt by the print ad decline as well as lower revenue from the company's 23 television stations.

`Strongest Operator'

``Gannett is typically viewed as the strongest operator,'' said James Goss, an analyst with Barrington Research in Chicago who rates the shares ``market perform.'' ``The pressure on ad sales and the classifieds has been intensifying.''

New York Times fell 2 percent to $12.59 in trading after Gannett's report today. Gannett is the first major U.S. newspaper company to report second-quarter earnings. Media General Inc., owner of the Tampa Tribune, is scheduled to report tomorrow.

``The bottom line is that everybody's in the same boat,'' Noble Financial Group analyst Michael Kupinski said in an interview with Bloomberg Radio. ``I do think that we'll pull out of this as we go into next year.''

Craig Huber, an analyst at Lehman Brothers Holdings Inc. in New York, called Gannett's broadcast and print results ``very weak'' in a research note today. He rates the shares ``underweight'' and cut the stock price target yesterday for the sixth time this year, reducing it by 29 percent to $15.

`More of the Same'

The June decline followed a 14 percent drop in May ad sales. Classifieds fell 22 percent, also a record this year. Gannett is trimming expenses by freezing employees' pension benefits, shrinking page widths and switching to lighter paper.

On the conference call, Chief Executive Dubow said visibility for ad revenue is limited and that July sales will probably be ``more of the same.''

Analyst Huber cut his newspaper industry ad projections today for retail, national and classified ads. He anticipates total print ad revenue will fall 13 percent in 2008 and 7.5 percent next year, steeper than his previous estimates for 10 percent and 6 percent drops.

Gannett is pursuing Internet growth through the acquisitions of ShopLocal LLC, owner of a marketing database for retailers, and a minority stake in Cozi Group Inc., operator of a social-networking site. This week Gannett joined the Platform A advertising network, run by Time Warner Inc.'s AOL.

Revenue at Gannett's TV stations fell 5.9 percent to $192.6 million during the quarter.

The company said third-quarter broadcast sales, which will include advertising for the Olympics and U.S. elections, may increase by a ``mid to high single digit'' percentage. That's short of Huber's estimate for a 16.5 percent jump.

The company said today that the second-quarter writedown, to be disclosed in a regulatory filing by Aug. 8, will reduce earnings per share and won't change operating cash flow.

To contact the reporter on this story: Sarah Rabil in New York at srabil@bloomberg.net

Last Updated: July 16, 2008 16:31 EDT