Thomson Reuters Regains Its Dominance

Moving forward after the messy downsize.

| More on:
The Motley Fool

by Gaurav Seetharam

Better-than-expected third quarter results from Thomson Reuters (NYSE:TRI; TSX:TRI.to)  have been pushing the stock price higher since Tuesday. Upper management has made serious efforts at reorganizing the company and it’s finally showing results.

First, there’s the cost-cutting. Over 3,000 workers, mainly from the Financial and Risk division, are unfortunate victims of a necessary downsizing. Huge losses in the department have been almost balanced out by improving sales of the company’s signature Eikon desktops. Yet F&R revenue still declined by 2%. The layoffs come amid a shift away from acquisition growth, indicating that the company wants to simplify their business model. Markets have long been impatient with TR’s constant M&A, waiting for them to settle down and focus on organic sales growth. Well, CEO James Smith is telling us that time is here.

Mr. Smith worked his way up the ranks at the Thomson Corporation to become its Chief Operating Officer. After the merger with Reuters, he led the Professional division before being named CEO in January 2012. He understands that his company needs to earn the trust of the market while also focusing on their underlying business. The planned $1 billion share buyback and promise to keep increasing Free Cash Flow is meant to buy room for further debt financing.  It’s apparent that they are setting the stage for higher profitability ratios.

Excluding F&R, the quarter went fairly well for Thomson Reuters. Legal revenue saw a 1% organic increase, mainly from the strength of business law products. Tax & Accounting was the big winner at 7% organic growth, despite a substantial drop off in public sector purchases. Sales to governments fell by 19%, in parts due to a weak economy and shrinking budgets. However, a rush of new subscribers pushed Intellectual Property & Science up 5%.

The Foolish Bottom Line
This company has been a mess for some time, even though it’s conducive to cranking out free cash flow.  It seems that management is finally getting serious about cleaning up the operation by aiming to consolidate their dizzying lineup of products and concentrate on expanding margins.  If successful, improved profitability along with its prodigious free cash could lead to sizeable returns for investors

Three top stocks from The Motley Fool
Looking to expand your portfolio’s horizons? The Motley Fool has put together a Special FREE Report featuring “3 U.S. Stocks Every Canadian Should Own.” To get the names and ticker symbols of these three stocks, just click here to access your free copy!

Disclosure:  Gaurav Seetharam does not own any shares of Thompson Reuters.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

analyze data
Tech Stocks

Nuvei Stock Is on Fire This Year: Is it a Good Buy Today?

For investors looking for a prominent Canadian growth story, Nuvei stock has become a clear winner, but can the rally…

Read more »

stock analysis
Investing

Is BCE Stock a Buy?

BCE (TSX:BCE) stock looks incredibly attractive, as shares pick up again, while the yield remains bountiful.

Read more »

analyze data
Dividend Stocks

The Best Dividend Stocks in Canada Right Now

Earn worry-free income from these best Canadian dividend stocks.

Read more »

Value for money
Dividend Stocks

3 Top Canadian Value Stocks in December 2023

Not all undervalued stocks are worth buying. You should look into the fundamental strengths of the stocks and reconcile value…

Read more »

calculate and analyze stock
Investing

2 TSX Stocks to Dominate the Market in 2024

Two stocks with market-beating returns with one month to go this year are the frontrunners to dominate the market in…

Read more »

Young woman sat at laptop by a window
Investing

SPY Stock Is Just the Tip of the Iceberg for Canadians Investing in the U.S.

These two BMO ETFs are great alternatives to just buying SPY.

Read more »

TFSA and coins
Stocks for Beginners

How a BIG New TFSA Change Could Affect You in 2024

Canadians are in for a BIG surprise for the TFSA in 2024. Here's how TFSA changes could help you keep…

Read more »

Growing plant shoots on coins
Dividend Stocks

2 Under-the-Radar Dividend Payers With Solid Growth Prospects in 2024

These under the radar monthly dividend payers could provide good growth prospects in 2024 and beyond.

Read more »