Thomson Reuters Corp. posted better-than-expected second quarter results Thursday, including its best organic revenue growth in a decade, prompting executives to boost their outlook for the rest of 2019 and 2020.
Jim Smith, president and chief executive of the news and information company, said renewed focus on its three core business areas – legal, tax and accounting and Reuters News – factored into the strong results.
“I think the future’s really bright for the organization,” he said. “The new focus is paying off for us, and what we will be doing strategically is doubling down on the spaces that we’re in.”
That streamlining comes from the company’s sale last year of a majority stake in its financial and risk business, now known as Refinitiv Holdings Ltd., to a consortium of investors led by U.S. private equity firm Blackstone Group Inc. Thomson Reuters retained a 45-per-cent stake in the business, which sells data and financial information terminals, primarily to financial professionals.
On Thursday, the London Stock Exchange Group PLC announced an agreement to buy Refnitiv for US$14.5-billion in stock, confirming a deal that had been first reported last week. Including debt, the deal is worth about US$27-billion. The move doubled the value of equity held by Refinitiv’s owners, and it’s one Mr. Smith said creates “a great deal of value for all our shareholders.” It will be subject to a long regulatory review, however, and is not expected to close until the second half of 2020.
Going forward, Thomson Reuters will be able to concentrate on its three remaining business streams, while retaining a 15-per-cent stake in the enlarged London Stock Exchange Group, Mr. Smith said.
Within the past year, Thomson Reuters has launched artificial intelligence products in its legal and tax areas, including Westlaw Edge, a research platform for lawyers, and Checkpoint Edge, an AI-enabled tax guidance tool. Mr. Smith told investors Thursday that Thomson Reuters plans to launch more AI products in the coming months.
Thomson Reuters’s overall organic revenue growth came in at 4 per cent for the second quarter of 2018, the company’s best since 2008. It was driven by a 5-per-cent increase in recurring revenues.
The company now predicts 3.5-per-cent to 4-per-cent organic revenue growth for 2019, and 4-per-cent to 4.5-per-cent growth for 2020, higher than previously forecast.
For the quarter, earnings before interest, tax, depreciation and amortization (EBITDA) came in at $355-million, above the consensus expectation of $285-million. But EBITDA margin declined 1.6 percentage points to 25 per cent, compared with the second quarter of 2018, in part because of higher expenses related to separating Refinitiv from the rest of the company.
Thomson Reuters updated its 2019 outlook to forecast $1.45-billion to $1.5-billion in adjusted EBITDA for the year, an increase from its previous expectation of $1.4-billion to $1.5-billion.
Thomson Reuters’s revenue rose to $1.42-billion in the second quarter of 2019, compared with $1.31-billion for the same period last year – broadly in line with analyst expectations. Part of that was due to payments from Refinitiv to supply its clients with Reuters News content.
“If they can continue to execute on their plan of driving growth in the remaining platforms following the sale of the finance business, I don’t necessarily think there’s a real reason to change course,” said Matt Arnold, a senior equity analyst with Edward Jones.
New AI products and excitement surrounding the Refinitiv deal have contributed to a soaring stock price for Thomson Reuters. The Toronto-listed shares traded as high as $93.44 last week. They closed up 1.75% to $90.19 on Thursday.
Mr. Arnold is advising his clients to hold on to Thomson Reuters shares. “Even though a lot of companies have seen their businesses slow because of some pretty uneven global economic conditions, growth held in really nicely for Thomson,” he said. “These results stand out compared to what we seen for a lot of other firms that we track.”
In December, 2018, Thomson Reuters announced it would cut 3,200 jobs by 2020 and reduce the number of offices around the world by 30 per cent.
But on Thursday, Mr. Smith said headcount has actually increased because of recent acquisitions. The company is hiring salespeople, marketers and technical specialists. But Thomson Reuters is still trying to centralize some operations at larger offices in cities around the world, Mr. Smith added.
“It was a really solid and gratifying quarter,” Mr. Smith said. “We like where we play, and we're going to work really hard to make sure that we win.”
The Woodbridge Co. Ltd., the Thomson family holding company and controlling shareholder of Thomson Reuters, also owns The Globe and Mail.
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