(Adds details from conference call, analyst and union comment, share reaction)
By Alastair Sharp
TORONTO May 7 A grim newspaper advertising market continued to hit revenue at Torstar Corp, publisher of Canada's largest-circulation daily paper, in the first quarter, the company said on Wednesday as its journalists mounted a protest against cost-cutting measures.
In its quest for cash, Torstar said last week it would sell its Harlequin romance-novel publishing business to News Corp for C$455 million ($418 million). The sale helped reassure investors who have worried that the company's dividend payout is unsustainable, but it leaves Torstar more reliant on a turnaround in its media business.
The softer revenue number for the media business - which publishes the Toronto Star and a string of regional and commuter newspapers and is Torstar's largest unit - was offset by cost cuts that improved margins, RBC Capital Markets analysts Haran Posner and Drew McReynolds wrote in a note.
But reflecting the challenges management faces as it cuts costs, journalists at the Star withheld their bylines in both the print and online editions of the newspaper on Wednesday to protest what their union said was management's attempt to create 17 digital-first positions at 60 percent of current wages.
"We can't stand for a backdoor approach to rewriting our contract and savagely reducing salaries in the future," said Dan Smith, a Toronto Star editor and union representative. About 225 staff in the Toronto Star newsroom are represented by Unifor, Canada's largest private sector union.
On a conference call with analysts, Torstar executives said cost reductions have been wide-reaching but that the biggest savings had come from contracting out page layout and other work deemed peripheral to the creative and news-gathering processes.
The company said net income attributable to shareholders was C$7.1 million ($6.52 million), or 9 Canadian cents a share, in the three months to the end of March, compared with C$4.2 million, or 5 cents a share, a year earlier.
Operating revenue from Torstar's media business fell to C$211.3 million from C$229.8 million, while total sales slipped 7 percent to C$292.4 million.
Torstar has struggled to offset a broad decline in print advertising in recent quarters, as advertisers follow readers and move more of their spending online. Torstar is aiming to make up for losses in its traditional print business with revenue from readers who pay for access to the online version of the Toronto Star.
But overall digital media revenue declined 2.7 percent in the quarter, weighed down by softness at daily deals site WagJag and job search site Workopolis.
The company said the outlook for advertising revenue for the rest of the year is unclear. It expects to save C$17.1 million in the remainder of 2014 from restructuring moves completed in the first quarter.
On an adjusted basis, which excludes restructuring and other costs, Torstar earned 14 Canadian cents a share, in line with the average of analyst estimates. The revenue figure missed the average analyst expectation of C$299.2 million, according to Thomson Reuters I/B/E/S.
Torstar's shares slipped slightly to C$7.66 on the Toronto Stock Exchange on Wednesday morning. They had jumped to levels last seen in early 2013 after the company announced the Harlequin sale. ($1=$1.09 Canadian) (Reporting by Alastair Sharp in Toronto; additional reporting by Sayantani Ghosh in Bangalore; Editing by Savio D'Souza, Chizu Nomiyama and Peter Galloway)