2012
11/08

Category:
Revenue

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UPDATE 3-Thomson Reuters operating profit down, trading pressured

* Underlying operating profit falls 15 percent on lower
margins

* Third-quarter revenue meets expectations

* Company reiterates full-year outlook

By Jennifer Saba

Nov 2 (Reuters) – Thomson Reuters Corp
reported on Friday a 15 percent fall in operating profit because
of declining revenue and higher costs at its division that
serves the financial industry.

The slip in profit in the third quarter underscored the
problems facing some of Thomson Reuters clients, such as banks
and brokerages that are reducing staff and trimming costs to
cope with increased regulation and the struggling global
economy.

This business climate is leading the global news and
information provider to keep a tight grip on costs while at the
same time investing in customer service for its flagship
financial product Eikon.

Thomson Reuters reaffirmed its 2012 forecast, due in part to
stability at its Legal division, which includes WestlawNext.
Revenue there rose 1 percent to $830 million on growth in Latin
America and products such as legal resource provider FindLaw
Elite.

The companys smaller units, meanwhile, showed strong
growth. Governance, Risk Compliances revenue jumped 17
percent while revenue at the Tax Accounting division rose 8
percent.

Still, its trading business, which rivals the Legal division
as the biggest contributor of revenue, saw an 8 percent decline
in revenue to $816 million in the quarter.

The trading performance weighed down the companys operating
profit, which f ell to $585 million from $690 million. The
corresponding margin slipped to 18.5 percent from 21.6 percent
in the same period a year ago.

The company said that in the third quarter last year, its
underlying profit margin was the high-water mark for 2011.

The big headline is the decline in operating profit, said
Claudio Aspesi, senior analyst at Sanford Bernstein Co. Its
clear they need to be aggressive on costs. There is no way of
knowing when the top-line will recover.

Thomson Reuters Chief Executive James Smith said that he
does not expect net sales to financial institutions to turn
positive in the fourth quarter.

The net sales trend is an important gauge of the companys
future performance because subscription-based revenue typically
lags sales by about 12 months.

Were gaining momentum and traction but the down drafts at
the big global banks and in Europe (are) still offsetting
improved traction and momentum, Smith said, declining to
provide net sa l es figures.

We have to keep moving faster at removing complexity in
the organization. There is too much siloed behavior and too many
layers, he said.

The company is attempting to move away from some older
legacy products since the 2008 merger of Thomson Corp and
Reuters Group Plc, and bring clients products like Eikon, its
new desktop for financial professionals.

Thomson Reuters reported that its Eikon desktops totaled
25,600 at the end of the third quarter, up about 35 percent from
the end of the second quarter.

Its a good number, said Doug Arthur, an analyst with
Evercore Partners. Its a positive sign that Eikon is showing
steady growth.

Smith said in a memo to employees that last month the
company sold 1,000 Eikon terminals a week; two-thirds were
upgrades and one-third were new sales.

New York-listed and Toronto-listed shares of Thomson Reuters
were down 1.4 percent in afternoon trade at $28.12 and C$28.01,
respectively.

TOUGH ENVIRONMENT

The company stood by its full year outlook despite the
struggling global economy. Revenue growth is expected to be in
the low single-digits and underlying operating profit margin is
anticipated in the range of 18 -19 percent.

In the United States, financial companies have announced
plans to cut 28,000 jobs through the first nine months of this
year, compared with 54,000 jobs during the same period in 2011,
according to Challenger, Gray Christmas.

Swiss bank UBS said earlier this week that it
planned to fire 10,000 employees, or 15 percent of its staff, in
an effort to save billions of dollars.

Thomson Reuters is not the only market data provider to feel
the reverberations from the cutbacks occurring in the banking
sector and persistent economic weakness dogging Europe.

In September, FactSet Research Systems reported its
weakest revenue growth in two years..

Privately held Bloomberg LP, which competes with Thomson
Reuters on several fronts, is seeing growth of its terminal
sales to financial institutions slowing, according to a recent
report in the New York Post. A Bloomberg spokeswoman declined to
comment.

Third-quarter revenue from ongoing businesses this year rose
1 percent before currency changes to $3.2 billion. That is
in-line with analysts expectations, according to Thomson
Reuters I/B/E/S. Stripping out acquisitions, divestitures and
currency changes, revenue fell 1 percent.

The market for financial professionals is going to pick
up, said Ryan Bushell, a portfolio manager with Leon Frazer
Associates, who manages the IA Clarington Canadian Conservative
Equity Fund. We think that Thomson Reuters is going to survive
and thrive. Leon Frazer holds 2.7 million Thomson Reuters
shares.

For the quarter, Thomson Reuters reported adjusted earnings
per share of 54 cents, unchanged from the same period a year
ago. Analysts, on average, had forecast earnings per share of 48
cents.

The company recorded a net tax benefit of $140 million in
the period, a reversal of a tax expense of $145 million in the
same period a year earlier. Negotiations with tax authorities
primarily in the United States and Taiwan ended favorably for
the company, reducing Thomson Reuters projected tax rate for
the year to 16 to 18 percent from 21 to 23 percent.

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