UPDATE 2-Thomson Reuters profit falls on severance costs

Tue Apr 30, 2013 11:42am EDT

By Jennifer Saba

April 30 (Reuters) - Thomson Reuters Corp reported on Tuesday a 7 percent decline in first-quarter operating profit because of severance costs and a decrease in revenue at its Financial & Risk division, which caters to banking clients.

Shares of the global news and information company fell 2.6 percent in morning trading, even as Thomson Reuters stood by its outlook for the remainder of the year. The company reaffirmed its forecast for 2013 revenue growth in the low single digits.

"We have seen improving sales trends now for the last several quarters," Thomson Reuters Chief Executive James Smith said in an interview.

Excluding the severance charges, first-quarter profit topped Wall Street's expectations, helped by operating expenses that fell 8 percent. Revenue was in line with analysts' forecasts, up 2 percent to $3.1 billion before currency changes, on the strength of the company's Legal and Tax & Accounting divisions.

"The good news is they are ahead on their cost savings plans," said Claudio Aspesi, a senior analyst at Sanford Bernstein & Co.

"On the flip side, revenue is fundamentally showing little progress. You need good revenue growth to justify a premium to the market."

Thomson Reuters competes for financial customers against main competitor Bloomberg LP, as well as News Corp's Dow Jones unit, FactSet Research Systems Inc and Interactive Data Corp.

The banking industry has been slashing costs and headcount, putting pressure on companies that target the sector.

"We have at least stemmed the tide of losses in market share," Smith said on a call with analysts. "We are in a very competitive position."

Bloomberg maintains a slight lead over Thomson Reuters for 2012 in the global market data analysis space at 30 percent and 29 percent, respectively, according to Burton-Taylor International Consulting.

Sales figures that strip out cancellations, known as net sales, are an important metric for the company. Smith said that net sales for the Financial & Risk division are still on track to turn positive during the second half of the year. Revenue lags net sales by about 12 months.

Earlier in the year, Thomson Reuters said there would be $100 million in severance costs related to about 2,500 job cuts. It spent $78 million on severance in the period, and also booked a tax charge of $235 million.

EIKON DESKTOPS UP 38 PERCENT

Thomson Reuters is in the middle of a turnaround after Thomson Corp's $17 billion acquisition of Reuters Group Plc in 2008, which coincided with the financial crisis.

Adding to the challenge was the company's premature roll out to its financial clients of its flagship desktop product Eikon.

By the end of the first quarter, Eikon desktops totaled nearly 47,000, up 38 percent from the end of last year, the company said. Between the third and fourth quarters of 2012, the total number of Eikon desktops rose 33 percent.

"We are executing better, we have great new products out there, and those products are gaining customer acceptance," Smith said.

Revenue at Financial & Risk, after subtracting acquisitions, divestitures, and currency changes fell 3 percent. This is because the division had negative net sales from the cancellation of subscriptions in 2012, the company said.

By region, the company had its strongest performance for its financial products in the Americas, where revenue was up 2 percent. Revenue for Europe, the Middle East and Africa fell 3 percent while it declined 2 percent in Asia.

The Legal division, which makes up about a quarter of the overall business and competes with Reed Elsevier and Wolters Kluwer, posted a 4 percent rise in revenue to about $800 million.

"They are doing the work behind the scenes where they can ... to protect their earnings numbers," said Ryan Bushell, portfolio manager for the IA Clarington Canadian Conservative Equity Fund at Leon Frazer, which holds 2.5 million of Thomson Reuters shares.

On a net basis, Thomson Reuters reported a loss of 4 cents per share compared with earnings of 35 cents in the year-earlier period. On an adjusted basis, the company reported earnings per share of 38 cents compared with analysts' forecast of 32 cents

Shares of Thomson Reuters touched a year high at $33.74 on the New York Stock Exchange on Monday. The stock was down about 2.5 percent at $32.90 in New York and C$33.13 in Toronto by mid-morning.