NEW YORK Global news and information company Thomson Reuters Corp forecast 2008 revenue growth of 6 to 8 percent and lifted its estimate of merger-related cost savings, sending its shares up about 3 percent on Thursday.
In its first earnings report as a combined company, Thomson Reuters forecast $1.0 billion in annual cost savings by the end of 2010 and $1.2 billion by the end of 2011, a schedule that the company said was earlier than it anticipated.
Included in those estimates is $750 million of integration-related cost savings, up from the $500 million that Thomson Reuters had forecast earlier.
"The results themselves seem to be in line with expectations, but what the market likes about them is the fact that they have increased their cost-savings target," said Charles Stanley analyst Sam Hart.
Thomson, a Canadian publisher of professional services databases and financial information, bought Reuters on April 17 for about $16 billion in cash and stock, hoping the merged company would be better positioned to ride out volatile global financial markets.
Analysts asked Thomson Reuters Chief Executive Tom Glocer on a conference call if he saw a "massive cliff" ahead, given the thousands of layoffs among clients. He also was asked if the financial services sector was a "ticking time bomb."
"Thomson Reuters is certainly not immune to the business cycle," Glocer responded. "But I think the fear around the financial services business has been overstated, in part because we're well positioned and in part because of the work both companies have done over the past five years to steer their franchises."
The company said its pro forma first-quarter underlying operating profit was $579 million, a rise of 37 percent from a year ago, assuming that Thomson and Reuters had been one company at the time.
Pro forma revenue for the quarter ended March 31 rose 12 percent from a year ago to $3.3 billion.
UNDERLYING PROFIT MARGIN
Thomson Reuters forecast its underlying profit margin to be between 19 and 21 percent for 2008, with free cash flow margin, excluding synergy and integration costs, to be between 11 and 12 percent of revenue.
UBS analyst Polo Tang said the results and 2008 outlook exceeded expectations because of higher-than-anticipated growth in Thomson Reuters' markets and tax and accounting units.
"This implies the company (is) assuming the strong growth in markets continues throughout the year, which we believe is optimistic given heavy cuts in investment banking head count in (the second quarter)," Tang wrote in a note to investors.
In the first quarter, the markets division -- which includes the Reuters and Thomson news operations, as well as their financial services data and tools -- reported operating profit of $353 million, up 69 percent from a year earlier.
The professional division, which includes databases and tools for accountants, lawyers and tax professionals, reported operating profit of $299 million, up 6 percent.
"The key thing from my vantage point was the fact that they had positive organic growth in almost every single sector," said Michael Sprung, president of Sprung & Co Investment Counsel, which owns Thomson Reuters shares.
"Our view on this stock and buying it is sort of a three- to five-year outlook," said Sprung. "The fact that in the interim we might be having a slowdown in financial services is not really what we're concentrating on."
ABN AMRO analyst Justin Diddams said, however, he thought people are "a bit over-excited about the cost savings number."
"The results are very much in line with expectations, and in the medium term there's still pressure on bums on seats (in the financial services industry)," he said.
The company has said it would cut some jobs as part of its cost-savings effort, but has not announced a number.
London-listed shares of Thomson Reuters closed up 3.3 percent at 1,589 pence. Toronto-listed shares rose 2.3 percent to C$38.15 in afternoon trading.
(Additional reporting by Michael Taylor in London; Editing by Brian Moss)