News and data provider Thomson Reuters Corp forecast a return to growth this quarter on stronger sales of financial terminals for traders and the new WestlawNext database for lawyers.
The company, which reported lower than-expected quarterly results, is slowly emerging from the shadow of the financial crisis, which triggered Wall Street layoffs and cancellations of subscriptions to its terminals and other products.
We knew Q2 was going to be the last of the weak quarters, said RBC Capital Markets analyst Drew McReynolds. I don't think the slight miss on organic revenue growth is going to be a major factor for investors out there.
The company's shares, which have risen more than 17 percent this year, slipped more than 2 percent in morning trading. Analysts noted that margins had been squeezed by investment in new products.
Thomson Reuters reiterated its forecast that 2010 revenue would be flat to slightly down compared to 2009, although it expected net sales to strengthen this year.
Underlying operating profit fell 17 percent to $655 million in the second quarter, while adjusted earnings per share fell to 47 cents from 58 cents a year earlier.
Analysts on average were expecting earnings of 48 cents per share, according to Thomson Reuters I/B/E/S.
I think the hit in the second-half margin (that) it sort of alluded to was more significant than I think people were expecting, said Citi analyst Thomas Singlehurst. It still counts as a slight disappointment.
Revenue from ongoing businesses fell 2 percent to $3.22 billion. Analysts on average were expecting $3.23 billion.
Net sales have been positive for the firm as a whole for three quarters, and increasingly positive toward the end of the second quarter, CEO Thomas Glocer said in an interview.
The company had forecast growth in the second half of the year, most likely the fourth quarter, he said, but sales have been encouraging enough that we think we actually will turn positive earlier. He declined to provide forecasts for 2011.
Thomson Reuters shares fell 2.1 percent on the New York Stock Exchange and 2.3 percent on the Toronto Stock Exchange.
The New York shares rose about 19 percent from the beginning of the year through Wednesday while the Toronto shares were up 17 percent.
This has been a very robust performer, Citi's Singlehurst said. I think it's one of those things where it's just no real surprise shares are slightly down. The fundamentals are still there. It's a good company.
Thomson Reuters, like Bloomberg LP and other companies that serve financial customers, gets much of its revenue from long-term subscriptions.
While net sales improved in the quarter, revenue was still down compared with the same quarter a year ago due to the delayed impact of canceled subscriptions.
Thomson Reuters is investing heavily in new products for financial market traders and lawyers, and this has pressured margins. Its operating margin fell to 20.4 percent from 24.2 percent a year earlier.
In the Markets division, which serves the financial industry, revenue fell 4 percent from the same quarter a year earlier. Revenue from the division was up from the first quarter, excluding adjustments for currency, marking the second consecutive quarter of sequential growth.
Revenue rose 2 percent in the Professional division, which sells databases and other information reservoirs to lawyers, accountants, scientists and healthcare workers.
Thomson Reuters said sales of WestlawNext, a new version of the company's Westlaw deep information database for lawyers, were well ahead of expectations, with about 5,700 customers buying the product since launch in February.
The real strength that's turning the ship around is very strong pickup in legal of WestlawNext and in markets, they had the most positive June in two years... in terms of growth in net sales, Glocer said.
Competition is growing in the legal market from Bloomberg Law, a rival to Westlaw and Reed Elsevier's Lexis Nexis.
Reed Elsevier said earlier on Thursday that underlying revenue returned to growth in the first half, beating expectations. It said, however, that the recovery of its professional publications would be slow.
Dutch competitor Wolters Kluwer on Wednesday reported a rise in first-half profit, though revenue was flat, and analysts said the results were as good as could be expected in a difficult market.
The Reuters news agency business reported a 3 percent fall in revenue, but net sales turned positive after it won a contract with Time Warner Inc's CNN cable news network.
Thomson Reuters said its online video news service, Reuters Insider, which launched in the quarter, had 40,000 subscribers in about 8,000 companies. That was well ahead of expectations, Glocer said.
Thomson Reuters shares were trading at $38.80 in Toronto and $37.41 in New York.
(Additional reporting by Georgina Prodhan in London. Editing by Tiffany Wu and Ted Kerr)