TORSTAR CORP. $6.25 (Toronto symbol TS.B; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 79.0 million; Market cap: $493.8 million; Price-to-sales ratio: 0.4; Dividend yield: 5.2%; SI Rating: Above Average) publishes The Toronto Star, which is Canada’s largest daily newspaper in terms of circulation. The company also publishes three other daily papers and over 100 weeklies, mainly in southern Ontario. Newspapers and web sites account for about 70% of Torstar’s revenue, and 60% of its earnings.
The company’s other main business is wholly owned Harlequin Enterprises Ltd., the world’s leading publisher of romance novels. Harlequin also publishes non-fiction titles, such as self-help and diet books.
Torstar’s aggressive cost cutting has helped it stay profitable in the face of falling advertising revenue and increased competition from the Internet. For example, it has cut roughly 8% of its workforce over the past year. These layoffs lowered the company’s expenses by $26.2 million in the first three quarters of 2009. Torstar expects to realize an additional $8.2 million in savings in the fourth quarter.
In the three months ended September 30, 2009, Torstar earned $4.0 million, or $0.05 a share. That’s down 75.6% from $16.6 million, or $0.21 a share, a year earlier. The latest earnings included $1.1 million in restructuring charges related to previously announced job cuts.
Revenue fell 7.4%, to $343.7 million from $371.3 million. Revenue fell 12.6% at the newspaper division, but rose 3.7% at Harlequin. The book publisher sells most of its products outside of Canada, so the weaker Canadian dollar (compared to a year earlier) increased the value of its overseas sales by $3.9 million.
Torstar will probably earn $0.75 a share in 2009. The stock trades at 8.3 times that estimate. That’s a low p/e ratio in light of the company’s well-known brands and high market share.
Torstar is a buy.
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