Australian publishing giant Fairfax Media on Tuesday reduced its earnings outlook as it announced it would outsource the sub-editing for its largest mastheads. The announcement was met negatively by investors which saw Fairfax's shares plunge in mid trade.

Fairfax, which publishes some of Australia's biggest newspapers, including The Sydney Morning Herald, The Melbourne Age and The Australian Financial Review, said that profit fell by 4.5 percent since January citing a decline in advertising.

It also painted a grim outlook in the coming months and said advertising sales are not expected to pick up the end of the financial year on June 30. The company predicts a 6.5 percent drop in full year earnings to Aus$600 million (US$654 million).

Fairfax Chief Executive Greg Hywood said in a statement, "The overall softness (in advertising revenues) is consistent with trading conditions reported by major clients and reflects poor consumer sentiment.

"Revenues have also been directly affected by the flood conditions experienced in key markets early in the second half and the continuing impact of the Christchurch earthquake."

Hywood was referring to the massive flooding in Queensland in January and the powerful earthquake which hit new Zealand the following month which killed more than 180 people.

Part of the company's restructuring plan is to outsource the sub-editing duties on The Sydney Morning Herald, The Age, Sun-Herald, and The Sunday Age to Pagemasters, a subsidiary of the Australian Associated Press news agency.

The move is expected to save Fairfax at least Aus$25 million worth of redundancies.

"Yes, there will be cost reductions -- but the strategic driver for those savings is reinvestment in the parts of Fairfax that will determine the future success of the company," Hywood said and added, "While the changes I am announcing today carry some pain they represent a necessary step forward in creating a sustainable and successful Fairfax."