Thomson Reuters Corp. believes it has turned a corner and found stability after its second-quarter results beat expectations on profit and revenue held steady.
The environment for the news and information company is “still challenging,” chief executive officer Jim Smith said in an interview. But after two and a half years of “grinding it out,” growth in its legal and tax and accounting businesses as well as stabilizing revenues in the news and financial and risk divisions may be early signs of progress.
Thomson Reuters has been on an aggressive path to make itself more efficient and innovative, which includes a plan to cut $400-million (U.S.) in costs by 2017. But the stable performance of its legal services, at a time when law firms are trimming costs, combined with improved results for products catering to financial institutions drove stronger-than-expected results.
“Turning a company around is always a work in progress, and this may be boring, but it's just another quarter of steady progress,” Mr. Smith said.
Earnings were $249-million, or 31 cents per share, up from $248-million and 30 cents per share in the same quarter a year earlier.
Revenue was $3.16-billion, which was effectively unchanged from the same quarter a year ago. But revenues from ongoing businesses increased 2 per cent.
Mr. Smith reiterated his stance that after a “particularly acquisitive period,” Thomson Reuters now wants to grow organically. The company spent between $1.2-billion and $1.3-billion on acquisitions in each of the last three years, and Adam Shine, an analyst at National Bank Financial, expects it will “prune back, if not almost halve its M&A spending.”
The company also announced a plan to buy back another $1-billion in shares by the end of 2015 after completing a billion-dollar buyback plan announced last October.
“As we dial back that [mergers and acquisitions] activity a bit, it leaves us more cash and more options, and we’ve said we’re going to use every tool we have in the toolkit to drive shareholder value,” Mr. Smith said.
The tax and accounting arm remains the largest driver of new growth, with revenues up 14 per cent before currency, while revenue in the legal division grew 1 per cent.
But the most notable positive may have been the financial and risk division, which includes the new Eikon trading software. Its revenues before currency are down 2 per cent and it continues to reduce staff, but its net sales turned positive after coming in negative in the first quarter. Cancellations also fell sharply.
Mr. Smith also sees opportunity in the Reuters News division. Revenue fell 1 per cent to $82-million, but he argues it has stabilized financially and improved its news coverage of companies, and in emerging economies.
“We’re doing it on the back of quality,” he said. “It’s not about dumbing down. It’s about smartening up and providing real, honest-to-god intelligent coverage and then doing a better job of casting the net using automation to do those things that can be handled by technology.”