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THOMSON REUTERS CORP. (Toronto symbol TRI; www.thomsonreuters.com) sells information products in four areas: financial (55% of revenue, 37% of earnings); legal (27%, 41%); tax (10%, 12%); and intellectual property and science (8%, 10%). The Americas supply 60% of its revenue, followed by Europe (29%) and Asia (11%).
Thomson’s revenue rose 6.2%, from $13.0 billion in 2009 to $13.8 billion in 2011 (all amounts except share price and market cap in U.S. dollars). That’s partly due to acquisitions, particularly in developing markets like Brazil. These new businesses helped offset lower sales at its main financial division as banks and brokers cut their spending after the 2008/2009 financial crisis.
As part of a recent restructuring, Thomson sold its health care information business and other less-important operations. It’s also cutting the financial division’s workforce by 20%.
As a result, its revenue fell to $13.3 billion in 2012 and to $12.7 billion in 2013. Excluding currency exchange rates, revenue from ongoing businesses rose 2% in 2013.
Earnings fell 4.2%, from $1.6 billion in 2009 to $1.5 billion in 2010. Per-share earnings fell at a faster rate of 5.4%, from $1.85 to $1.75, on more shares outstanding. Earnings then improved to $2.11 a share (or a total of $1.8 billion) in 2012, but fell to $1.54 a share (or $1.3 billion) in 2013. If you exclude unusual items, per-share earnings fell 3.2%, from $1.89 in 2012 to $1.83 in 2013.
The power of dividends
With its solid yield, Thomson Reuters is a classic case of a dividend stock that combines safety with tremendous potential for growth. It’s a stock with the deep resources to reward investors while it makes changes that lead to a big payoff. This is how Pat McKeough’s safety-first philosophy so often produces big breakthroughs for his subscribers.
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Investing in stocks: New Eikon platform lets Thomson cut costs and improve service
Thomson is starting to see the benefits of its turnaround plan. In the second quarter of 2014, its earnings rose 3.0%, to $415 million from $403 million a year earlier. Thomson spent $353 million on share buybacks in the quarter, so earnings per share gained 6.3%, to $0.51 from $0.48. Revenue rose 1.6%, to $3.2 billion from $3.1 billion.
A big part of Thomson’s turnaround strategy involves phasing out its older electronic terminals, which deliver news and financial data to traders and portfolio managers, and upgrading these users to its new Eikon platform. That makes it easier for Thomson to launch new features and cuts its maintenance and support costs. Meantime, the company continues to get around 90% of its revenue from subscriptions, which gives it steadier revenue streams than one-time purchases.
Over 90% of its revenue also comes from electronic products, which cuts its printing and delivery costs.
Thomson’s cost cuts and share buybacks should increase its 2014 earnings to $1.92 a share. It trades at 20.0 times that forecast. That’s a reasonable p/e in light of the company’s niche products and high market share. The $1.32 dividend yields 3.4%.
Thomson Reuters is a buy recommendation of The Successful Investor.
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