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SAN FRANCISCO/LONDON (Reuters) - News and information publisher Thomson Reuters Corp reported slower revenue growth as the U.S. credit crisis forced investment banks to cut budgets and lay off thousands of workers, sending its shares down 5 percent.
The company affirmed its 2008 outlook, citing resilience in its Professional division, which sells databases and tools to accountants, lawyers, tax, health and other professionals.
Investors, however, worried that the real test would come when customers set their 2009 budgets.
Thomson Reuters said on Tuesday second-quarter pro forma revenue rose 11 percent from a year earlier to $3.4 billion, slowing from a 12 percent rise to $3.3 billion in the first quarter.
The pro forma results assume Thomson and Reuters had been operating as one company in the second quarter of last year.
Revenue in the Markets division, which includes the Reuters and Thomson news operations as well as financial data and tools for investment banks and other financial firms, rose 12 percent to $2.1 billion.
But the unit's closely watched organic growth rate -- which excludes the impact of currency exchange fluctuations and acquisitions -- was 7 percent, slower than the first quarter's 9 percent. Analysts had been looking for organic growth of 7 percent to 8 percent for the second quarter.
"The results were not great. The market was pricing in half-decent figures and that's what it got," said Manoj Ladwa, a derivatives trader at TradIndex in London.
Thomson Corp of Canada bought London-based Reuters Group Plc in April this year for about $16 billion in cash and stock, aiming to expand its market beyond North America.
For Reuters, the deal was aimed at reducing its exposure to financial markets.
Profit per share, excluding exceptional charges and integration costs but including amortization expenses, amounted to 43 cents in the quarter, above the average Wall Street forecast of 40 cents, according to Reuters Estimates.
"In the real world it's a good set of numbers -- a decent earnings beat and 7 percent underlying organic growth on the top line," said London-based Citigroup analyst Thomas Singlehurst.
"However, in light of the share price movement going into the results, the in-line underlying performance and unchanged guidance signify no incremental positives."
Ahead of the earnings report, the London-listed shares of Thomson Reuters had gained nearly 38 percent since hitting a year-low in mid-July.
The stock fell as much as 8 percent on Tuesday before recovering to 1481 pence. Shares listed in Toronto were down 0.35 percent at C$36.67.
Chief Executive Tom Glocer said net sales in the Markets unit were positive in the first seven months of 2008.
While the rest of the year will be difficult, he said there was a glimmer of hope for 2009 in lower oil prices and the stronger dollar. "Nobody's feeling we're out of the woods here, but there's a distinctively more positive tone," Glocer said.
The company said revenue growth in Markets was driven by strength in sales and trading, investment and advisory, and enterprise businesses, particularly in Asia.
Glocer said the fall in oil prices and stronger dollar could take the shine off the commodity-fueled boom in emerging markets, but at the same time it could help big clients in the United States and Britain.
The Professional division reported a 10 percent rise in revenue to $1.4 billion, with organic revenue up 6 percent.
Professional sales growth outpaced the competition, Glocer said. Thomson Reuters competes with companies such as Reed Elsevier and Wolters Kluwer in the Professional sector.
In the Markets area, competition includes privately held Bloomberg LP and News Corp's Dow Jones unit.
Thomson Reuters said pro forma underlying profit -- excluding amortization and other items -- rose 15 percent to $708 million in the second quarter.
The company stood by the forecasts it gave in May for 2008 pro forma revenue growth of 6 percent to 8 percent, excluding currency effects, as well as a pro forma underlying profit margin of 19 percent to 21 percent.
UBS analyst Polo Tang said that if Thomson Reuters achieved the bottom end of its guidance, it would still suggest a significant slowdown in the Markets unit in the second half.
"We believe this slowdown will accelerate throughout 2008 given the lag factor between revenues and investment banking job cuts and that Markets will see very limited growth by Q4," he wrote in a research report.
On a GAAP basis, second-quarter revenue rose to $3.1 billion from $1.8 billion a year earlier, primarily due to Thomson's acquisition of Reuters.
Earnings attributable to common shareholders were $172 million, or 22 cents per share, down from $375 million, or 58 cents per share, a year earlier, with acquisition and integration-related costs offsetting the increase in revenue.
The company said it completed its $500 million share buyback program in July and that it would repurchase shares from time to time in the future.
Additional reporting by Mark Potter in London and Tiffany Wu in New York; editing by Ted Kerr