NEW YORK (Reuters) - Thomson Reuters Corp (TRI.TO) (TRI.N) Chief Executive Tom Glocer said the company was coming to grips with the problems that led to a management shakeout last week, as he sought to allay investor concerns centered on its new flagship product for financial markets.
Second-quarter results released on Thursday again showed tepid growth in the company’s Markets division, highlighting the underperformance that resulted in the unit’s reorganization and exit of six top executives including division head Devin Wenig.
Overall revenue was in line with expectations and boosted by the company’s Professional division, which sells products to the legal, tax, accounting and scientific sectors.
Glocer has taken direct responsibility for the turnaround of Markets and is preparing a plan to boost revenue.
He has about a year to make it work, according to people familiar with the thinking of the board and the controlling shareholder, Canada’s Thomson family.
Thomson Reuters shares rose as much as 4 percent, helped by Glocer’s comments and better-than-expected operating margins.
“I am confident we can tune up the performance engine in Markets on a relative basis to perform more strongly than it has been,” Glocer said in an interview.
But he added: “I have to be realistic. There is a wave of cost cutting going across the financial services industries and that means ... we are going to have a much faster ship-shape vessel heading into a stiffer headwind.”
The company said its underlying operating profit margin rose to 20.9 percent in the second quarter, from 19.5 percent a year ago. Much of the gain was driven by follow-through cost-savings from Thomson Corp’s acquisition of Reuters Group Plc in 2008, as well as beneficial currency movements.
“The impact on margins is the good news and I think that is what is driving more positive sentiment, and the relief there is no bad news to follow the management changes last week,” said Claudio Aspesi, an analyst at Sanford Bernstein.
Overall revenue and profit were within the ranges Thomson Reuters provided last week.
Thomson Reuters has struggled to persuade traders and bankers to adopt its new flagship desktop, Eikon, which knits together dozens of disparate legacy products.
On a conference call with analysts, Glocer spent much of his time answering questions about his plan to turn around the Markets division, which competes with Bloomberg LP, News Corp’s Dow Jones (NWSA.O)and FactSet Research (FDS.N).
He was asked about the slow rollout of Eikon, if there were installation issues, and whether the problem was with the product or with the sales force.
Glocer said clients who had the platform liked it. He pointed the finger at a sales team reorganization last year, calling it disruptive. “We didn’t put our best foot forward in terms of service,” he said.
Eikon incorporates social media-like functions, and was designed to be more cost-effective and easier to install.
Thomson Reuters has sold more than 28,000 of the desktops since its launch last September, of which about 3,500 are to new users. Roughly 15 percent of high-end users of legacy products have been migrated to Eikon, the company said.
Thomson Reuters gets much of its revenue from long-term subscriptions, which means any pickup in Eikon sales won’t significantly boost financial results until next year.
Glocer affirmed the company’s 2011 outlook but declined to give a forecast on 2012 sales. He said in the interview that one of the reasons he acted “urgently” was so the company could enter next year with “decent momentum.”
The Markets division, which accounts for about 59 percent of overall revenue, reported 1 percent growth in revenue after backing out the impact of exchange rate movements. That was weaker than the first quarter’s 2 percent rise, and far short of the Professional unit’s 8 percent adjusted revenue growth.
The Markets division showed zero growth in organic revenue, which strips out acquisitions, divestitures and currency moves. Professional division organic revenue rose 4 percent.
“It’s ... clear the take-up in new products is somewhat slower than probably the company and the market has envisioned,” said Paul Sullivan, an analyst at Barclays Capital in London.
Swami Shanmugasundaram, an analyst at Morningstar, said he thought it would take at least a couple of quarters before the reorganization started to show results.
The Professional division, led by Jim Smith, counts on legal products for 69 percent of its operating profit. Its Westlaw legal database has been gaining market share in the United States against Reed Elsevier’s (REL.L) ELSN.AS LexisNexis.
“The Professional division has done a very good job of ... organic development, partnering and making acquisitions,” Glocer said on a call with analysts.
Revenue from the company’s legal business rose 9 percent, while revenue in tax and accounting rose 12 percent.
Thomson Reuters’ total revenue, excluding divestitures, was $3.20 billion, up 4 percent before currency adjustments. Adjusted earnings per share rose to 51 cents from 41 cents.
The average analyst forecast was for revenue of $3.16 billion and earnings per share of 49 cents, according to Thomson Reuters I/B/E/S.
Thomson Reuters reaffirmed its outlook, saying it expected revenue to grow in the mid-single digits in 2011.
The company’s stock rose 3.4 percent to close at $34.79 in New York, while its Toronto-listed shares gained 3.7 percent to C$33.10.
Additional reporting by Robert MacMillan; Editing by Tiffany Wu and Ted Kerr