Thomson Reuters President and CEO James Smith attends their annual general meeting for shareholders in Toronto, May 16, 2012.MARK BLINCH/Reuters
Thomson Reuters Corp. reported on Friday a 15-per-cent 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.
At the same time, Thomson Reuters is investing in customer service for its flagship product Eikon, which targets the financial sector.
While the global news and information provider reaffirmed its 2012 forecast, its underlying operating profit, which excludes divestitures, fell to $585-million (U.S.) from $690-million. The corresponding margin slipped to 18.5 per cent from 21.6 per cent 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.
Third-quarter revenue from ongoing businesses this year rose 1 per cent 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 per cent.
Thomson Reuters' Eikon desktops totalled 25,600 at the end of the third quarter, up about 35 per cent from the end of the second quarter.
Still, an increase in revenue of 1 per cent and 3 per cent at the company's Legal and Tax & Accounting divisions, respectively, could not offset a 2 per cent decline in organic revenue at the Financial & Risk division, which serves banks.
The company's trading business within its Financial & Risk operation recorded an 8-per-cent decline in revenue to $816-million in the quarter. Before currency effects it dropped 4 per cent.
Thomson Reuters Chief Executive James Smith warned that revenue growth still faces a "challenging environment." But he expects further operational improvements to make its businesses more efficient, helping the company meet its full-year financial targets. The company's statement was not more explicit about any plans to control costs.
In February, Smith forecast 2012 revenue growth in the low single-digits and underlying operating profit margin of between 18 per cent and 19 per cent.
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.
For the quarter, Thomson Reuters reported adjusted earnings per share of 54 cents, unchanged from the prior-year period.
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.
Investors and analysts are looking for an update on net sales – total sales minus any cancellations – which were not mentioned in the company's press statement. Thomson Reuters may give more guidance on a conference call due to be held on Friday. The net sales trend is an important gauge of the company's future performance because subscription-based revenue typically lags sales by about 12 months.
Mr. Smith warned in July that net sales to financial institutions were likely to remain negative throughout the rest of the year.
In the United States, financial companies plan 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 per cent, in an effort to save billions of dollars.
New York-listed shares of Thomson Reuters are up 6 per cent at $28.43 year-to-date, while its Toronto-listed shares are up 3 per cent at C$28.43.