July 28 (Bloomberg) -- Gannett Co. and other newspaper publishers are poised to beat analysts’ estimates for the next five to six quarters as advertising declines moderate and expense cuts pay off, Gannett’s largest investor said.

“With all the cost cutting, you just have to have some reasonable growth in revenue and you’ll have spectacular earnings growth,” said John Rogers Jr., chief executive officer of Chicago-based Ariel Investments LLC, which is also McClatchy Co.’s second-biggest holder. “This economy is going to recover and people are going to advertise again.”

Gannett, USA Today’s publisher, and McClatchy reported improved net income and operating profit in the second quarter from wages, staff and benefit cuts after advertising plummeted.

“Over the next couple of years, people are going to be surprised by the earnings power” of newspaper companies, Rogers said in an interview yesterday. “They don’t even have to get anything near the revenue of three or four years ago.”

Ariel more than doubled its Gannett stake in the first quarter to 28.5 million shares, or 12 percent, as of March 31. The firm held 15 percent, or 8.98 million shares, of Sacramento, California-based McClatchy as of April 30. It’s the largest stockholder of St. Louis Post-Dispatch publisher Lee Enterprises Inc., with 11 percent, or 4.44 million shares as of June 30.

‘Long Run’

Rogers said he plans to maintain Ariel’s current holdings in the three newspaper companies. “We’re in this for the long run,” he said.

McClatchy added 19 cents, or 14 percent, to $1.58 at 4:02 p.m. in New York Stock Exchange composite trading. The stock has jumped 98 percent this year, after slumping 94 percent in 2008. Gannett lost 4 cents to $6.48. It has declined 19 percent this year, after falling 79 percent last year. Lee has quadrupled this year after falling 97 percent in 2008.

Ariel sold 3.2 million shares in McClatchy this year, in part to help fund the additional Gannett share purchases, Rogers said. McLean, Virginia-based Gannett, the largest U.S. newspaper publisher, owns 23 television stations and controls the CareerBuilder Web site.

“Gannett’s a little more diversified with their TV stations and Web holdings,” Rogers said. “We decided to allocate most of our dollars to Gannett.”

Gannett and McClatchy this month said their ad declines stabilized, noting June had the smallest drops during the second quarter. Lee, based in Davenport, Iowa, said in May the drop in advertising revenue had widened in its fiscal second quarter, ending March 29, from the first quarter.

To contact the reporter on this story: Greg Bensinger in New York at gbensinger1@bloomberg.net

Last Updated: July 28, 2009 16:07 EDT