UPDATE 2-Torstar faces sluggish newspaper ad market, sets bleak outlook
* Says book publishing revenue to slip in second half
* After decline, expects digital revenue to recover
* 2nd-quarter profit falls 45 percent, operating revenue down 7.6 percent
* Shares fall nearly 6 percent
By Alastair Sharp
TORONTO, July 31 (Reuters) - Torstar Corp, owner of Canada's largest daily newspaper by circulation, warned that print revenue would remain under pressure in the second half of the year, after reporting its fifth straight decline in quarterly profit.
The dismal earnings report and outlook sent shares of the Toronto Star owner down nearly 6 percent in morning trading on Wednesday.
The company said earnings in its book publishing business, which includes the Harlequin series of romantic novels, had suffered because of less demand in overseas markets and would slip in the second half.
It earned C$212.8 million from the business in the second half of 2012, according to regulatory filings.
RBC Dominion Securities analyst Haran Posner blamed Harlequin for most of the overall disappointment, given that investors were already expecting weakness in the media segment.
Torstar has been slashing costs by cutting jobs and outsourcing, and it signaled it would continue on that path.
"In the media operations, print advertising revenues are likely to continue to be under pressure," Chief Executive Officer David Holland said in a statement.
Revenue in the media business fell 8 percent to C$255.4 million in the second quarter, largely due to declines in print advertising at the company's newspapers, which also include the free Metro commuter titles.
Torstar said it would invest to expand the Metro franchise.
The company, which is looking to start charging readers for online access to the Toronto Star as they and advertisers shift online, said it expected digital revenue from existing properties to rise for the rest of the year.
Executives said the paywall should help Torstar in the long term, but its effect would be negligible this year, given the investment needed to promote and explain the model.
Digital revenue fell 10.1 percent for the media business in the second quarter, while print advertising sales were down almost 10 percent, with particular weakness in national automotive and technology ad spending.
Net income fell to C$18 million ($17.5 million), or 23 Canadian cents per share, from C$32.6 million, or 41 Canadian cents per share, a year earlier.
Excluding special items such as restructuring and noncash foreign exchange costs, the company earned 29 Canadian cents per share. Analysts on average had expected 36 Canadian cents, according to Thomson Reuters I/B/E/S.
Operating revenue slipped 7.6 percent to C$354.9 million, below analysts' estimates of C$357 million.
Torstar expects to save C$23.8 million from the restructuring activities it undertook through the end of the second quarter.
The company cut 105 jobs in the first quarter and 260 jobs in 2012. It said additional reductions were likely, without providing details.
Its shares, which have halved in value since April, were down 5.9 percent at C$5.60 on the Toronto Stock Exchange.
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