Torstar profit rises but economic worries loom

By Wojtek Dabrowski

TORONTO (Reuters) - Book and newspaper publisher Torstar Corp reported a higher fourth-quarter profit on Wednesday, but warned it is already seeing signs that problems besetting the economy could be hurting its revenues.

Torstar, which publishes the Harlequin line of romantic fiction and the Toronto Star, Canada's biggest daily newspaper, said it earned C$47.2 million ($48 million), or 60 Canadian cents a share, in the three months ended December 31. That was up from a profit of C$36.1 million, or 46 Canadian cents per share, in the same period a year earlier.

However, revenue fell to C$402.9 million from C$414.6 million a year earlier, with Torstar's book-publishing business responsible for the decline. The result was also short of analyst expectations of C$412.3 million, according to Reuters Estimates.

"Uncertainty in the economic outlook for both Canada and the U.S. may affect Torstar's businesses in 2008," it said in a statement. "Early indications ... are that the economy may be having a negative impact on newspaper revenues."

It said it announced a "substantial voluntary separation program" this month, which will reduce the newspaper's workforce by an unspecified number of employees to help the Star deal with possible revenue declines.

"This program, along with other initiatives, should provide for operating cost relief," it said.

Torstar also said the economy could hurt Harlequin's U.S. sales "if discretionary consumer spending falls."

Aside from economic exposure the company has through its newspapers in the province of Ontario, it also saw favorable cost trends in 2007 that are not likely to continue this year, Chief Executive Robert Prichard told analysts in a conference call.

As well, Torstar's U.S. sales remain vulnerable to further strengthening in the Canadian dollar.

"These forces will make 2008 tougher for us than 2007," Prichard said. "We still aim to grow, but at a more modest rate than in 2007."

Torstar's newspaper and digital revenue inched higher to C$296.3 million, from C$294.6 million a year earlier. Book publishing revenue fell to C$106.6 million from C$120 million a year ago.

The company released its results after markets closed. During the day, its shares fell 21 Canadian cents to finish at C$17.11.

($1=$0.98 Canadian)

(Editing by Rob Wilson)