Thomson Reuters Cuts Jobs Despite Beating Earnings
Shares of Thomson Reuters (TSE:TRI, NYSE:TRI) rallied four percent on Tuesday in Toronto and New York after the company beat earnings expectations in its third-quarter results.
“It is encouraging to see our continued progress flow through in the third-quarter numbers,” said Jim Smith, president and chief executive officer of Thomson Reuters. “Our core subscription businesses are moving in the right direction, our cost controls are working and we are increasingly confident in our execution capability. That is why we are going to pick up the pace of our transformation efforts.” (Source: “Thomson Reuters to cut 2,000 jobs; profit tops estimates,” Reuters, November 1, 2016.)
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There was a slight drop in net income to $286.0 million from $293.0 million a year ago, but profits per share stayed level at $0.36. Although revenue jumped a tiny one percent, it was ultimately wiped out by currency depreciation.
The four-percent surge in TRI stock could be perplexing given the company’s less-than-stellar results, but the newfound optimism becomes clear once you look at the company’s forward guidance.
Thomson Reuters expects to cut 2,000 jobs in the near future as part of a restructuring effort. The slimming down will cost anywhere between $200.0 million and $250.0 million in the fourth quarter, but it would yield a sharper, more adaptable firm.
“It’s about simplification and taking out bureaucracy and taking out layers all of which have added complexity and slowed us down,” said Smith. “These actions are not driven by any reaction to market conditions or in any way coming on the back of underperformance.”
The CEO laid particular stress on the fact that TRI is not playing the “quarterly capitalism” game, where CEOs try to game investor expectations for the next three months.
Smith wants the market to understand the job cuts as a long-term move meant to reposition Thomson Reuters in a changing industry. His comments show a keen awareness about the media landscape, which is currently festooned with lean and hungry competitors.
On the information and data services side of things, investors were pleased to see growth in the “Financial & Risk” segment. There was a net positive increase in sales for the tenth straight quarter, not to mention that pre-currency earnings were up for the first time since June 2015.
That being said, analysts still want to see whether the company can expand revenues independent of cost-cutting measures.
