Financial and risk division will be hit hardest
Thomson Reuters Corp said on Tuesday that new sales of its financial terminals outpaced cancellations in the third quarter for the first time since 2011, and it announced 3,000 job cuts to reduce costs.
The global news and information company's stock rose more than 2 percent to hit a two-year high on optimism that the positive turn in net sales will translate into stronger revenue growth next year, since terminal subscriptions are signed on an annual basis. Thomson Reuters also announced a $1 billion share buyback program.
“Clearly what we are seeing is progress on the turnaround efforts at Thomson Reuters,” said Piper Jaffray analyst Peter Appert. “Getting back to positive net sales was significant.”
Still, revenue rose just 2 percent in the third quarter, underscoring a tough business climate as banks and law firms cut jobs and curb spending.
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Appert acknowledged that the company still faced challenges. “It's not out of the woods, but it's definitely moving in the right direction,” he said.
Thomson Reuters has lost market share to Bloomberg LP since the financial crisis, mainly due to weakness in its business catering to financial institutions, which accounts for more than half of revenue. It has undergone a series of structural changes during this time.
The company announced a $350 million charge to accelerate a cost-saving plan and eliminate about 3,000 positions, mainly in its Financial & Risk division. Including other jobs that were cut earlier this year, Thomson Reuters’ workforce of 60,000 will be reduced about 9 percent.
“I think everybody in the world is trying to do more with less,” Chief Executive Jim Smith said.
When asked about the outlook for net sales in the current quarter, Smith said the fourth quarter was typically “difficult” as banks usually trim staff near the end of the year.
“I don't think the pressure on costs and keeping them under control is going to lessen,” Smith said. “That said, what I hope is this strategy gives us a more predictable path in the future.”
Smith said the company would pare back its acquisition ambitions and deploy some of its cash toward the $1 billion stock repurchase program. During the third quarter, it bought back about 2.9 million shares for about $100 million.
Moody's Investors Service on Tuesday lowered Thomson Reuters senior unsecured rating to Baa2 from Baa1 on the share buyback and higher leverage target.
Thomson Reuters said its third-quarter ongoing revenue rose 2 percent before currency changes to $3.07 billion, largely in line with Wall Street estimates.
Excluding businesses that have been sold and other items, the company reported a profit of 48 cents per share, flat with a year earlier and beating the analysts’ average forecast by 4 cents.
Net income fell 37 percent from a year earlier to $283 million, due in part to a lower tax rate and businesses that have been divested.
“They still have their work cut out for them,” Evercore Research analyst Doug Arthur said. “They are doing all the right things, but the environment is not cooperating with them.”
The company said that to date it had installed more than 100,000 Eikon desktops, its flagship product for financial institutions. That is up from 61,000 at the end of June.
The Legal Division, which includes the flagship product WestlawNext, reported a 3 percent increase in revenue to $843 million. But stripping out acquisitions, revenue fell 1 percent on weakness in its print business and in Latin America.
Canada's Thomson Corp bought Reuters Group Plc in 2008 for $17 billion, creating a company that serves financial, legal, tax, accounting and other professionals.
Thomson Reuters said Tax & Accounting revenue jumped 10 percent to $270 million, benefiting from a rise in subscriptions and strength across all of the business segments except Government.
The company also announced plans to make contributions of about $500 million to its U.S. and British defined benefit pension plans this quarter.
Thomson Reuters affirmed its outlook for the year, excluding the impact of the cost-saving charge and pension contributions. It expects revenue in 2013 to rise at a low single-digit percentage rate and earnings before interest, taxes, depreciation, and amortization margins, excluding special items, of 26 percent to 27 percent.
Thomson Reuters shares were up 2.4 percent in afternoon trading at $36.60 in New York and C$38.27 in Toronto. The stock has risen more than 25 percent over the past 12 months.