May 4, 2010 / 11:11 AM / 8 years ago

UPDATE 6-Thomson Reuters Q1 beats Street, CEO sees pickup

* Adjusted Q1 EPS 36 cents vs Wall Street view 31 cents

* Q1 rev from ongoing business $3.14 bln vs view $3.11 bln

* Markets division rev flat, Professional rev up 2 pct

* Sees 2010 rev flat/slightly down,net sales strengthening

* Shares down 0.8 pct in New York, up 0.5 pct in Toronto (Adds link to Table showing revenue detail)

By Robert MacMillan and Jennifer Saba

NEW YORK, May 4 (Reuters) - News and data provider Thomson Reuters Corp TRI.NTRI.TO reported a stronger-than-expected quarterly profit on Tuesday as the recovery from the financial crisis accelerated in its main businesses.

Revenue was flat in the Markets division, which serves financial industry customers and competes with companies such as Bloomberg LP and News Corp NWSA.O.

Revenue rose 2 percent in the Professional division, which sells databases and other information reservoirs to lawyers, accountants, scientists and healthcare workers.

“We’re past the bottom in terms of real economic activity,” Chief Executive Tom Glocer told analysts in a conference call.

“Customers are still cautious when it comes to spending, but things are definitely picking up,” he said.

While revenue was essentially flat, the company reiterated that net sales would strengthen in 2010.

Operating margins slid for the fourth quarter in a row to 17.7 percent, as the company spends $1 billion to roll out new products for financial market traders and lawyers.

Thomson Reuters reported a first-quarter underlying profit of $555 million, down 6 percent from $590 million last year.

Adjusted earnings per share fell to 36 cents from 40 cents in the same quarter last year, but beat the average analyst forecast of 31 cents, according to Thomson Reuters I/B/E/S.

“We are starting to see some momentum,” said Benchmark Co analyst Edward Atorino.

Revenue from ongoing businesses rose 1 percent to $3.14 billion. Analysts, on average, were expecting $3.11 billion. Excluding the impact of the weaker dollar in the latest quarter, revenue fell 2 percent.

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For table showing divisional revenue click [ID:nN03205585]

Graphic showing Thomson Reuters underlying profit margins:

here

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LEGAL TURNING AROUND

Markets division revenue depends heavily on long-term subscriptions, and the financial crisis triggered massive layoffs and cancellations of trading terminals.

“The key question for investors is the shape of the Markets division and how it will perform in 2010,” said Sanford Bernstein & Co analyst Claudio Aspesi.

While the economy has improved, many of these cancellations have shown up in recent quarterly results.

The legal business is similar. Many law firms cut staff as they struggled in the recession, and cash-strapped clients sought to reduce their legal bills.

Legal revenue slipped 1 percent. Subscription revenue in that unit rose, however, led by 15 percent growth in its FindLaw business, which provides resources to lawyers and people seeking legal help.

“The legal business is turning around,” Glocer said in an interview. “The net sales trends that were already evident in Q3 or Q4 in Markets have continued into the first quarter of this year.”

Times are tough in the legal information business.

Anglo-Dutch publishing and exhibitions group Reed Elsevier ELSN.ASREL.L said in April that legal, scientific and medical information clients cut spending in the first quarter.

Reed, which owns the Lexis Nexis legal database, said business trends that it saw in the second half of 2009 were continuing in 2010. [ID:nLDE63I2CF].

The company has been losing market share to Thomson Reuters’ Westlaw database and expects a lower operating margin this year as it reinvests in the business.

Dutch competitor Wolters Kluwer WLSNc.AS will provide a trading update on May 12.

Among the new products to be rolled out is Thomson Reuters Eikon, a desktop for financial and trading clients. It also debuted a new version of Westlaw, a deep database for lawyers.

HITTING SINGLES, DOUBLES

When asked about the company’s acquisition strategy, Glocer said, “I sort of like hitting a lot of singles and doubles.”

“There’s nothing wrong with swinging for the occasional home run,” he said. “But I think we create more value for shareholders by focusing on our batting average and hitting the good singles and doubles.”

Thomson Reuters had considered trying to buy financial data provider Interactive Data Corp IDC.N, Glocer said.

The company instead will go to private equity firms Silver Lake and Warburg Pincus for $3.4 billion in cash, including a $2 billion payment to majority owner Pearson Plc PSON.L. [ID:nLDE6430HC]

“This is one of those times where we think that it makes sense not to spend the $3 billion-odd that it would have taken to buy it, but instead to just keep investing in our business,” he said.

Thomson Reuters and IDC compete in providing financial data.

The company’s New York shares were down 0.8 percent at $36.18, while the Toronto-listed shares were up 0.5 percent at C$36.97. Stocks were down in both markets as fears grew that the financial rescue package for Greece may not be enough to prevent a sovereign debt crisis from spreading.

“We’ve been reporting on what it would take for Greece to pull out of the euro, which is unprecedented and there is no mechanism for,” Glocer said in the conference call.

“It could drive very significant continued volatility in currency rates, all of which I think are positive trends, but ultimately we care about the health of the economies we operate in,” he said. “Like everyone else we would be affected by a true crisis brought on by domino insolvency.”

Reporting by Robert MacMillan and Jennifer Saba. Additional reporting by Georgina Prodhan in London; Editing by Ted Kerr

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