Shares in global financial information provider Reuters Group Plc slumped on Wednesday after it reported weaker-than-expected revenues for the third quarter and painted a worsening outlook.
The stock, which has already lost around 70% of its value this year, took a new hit after the company lowered its revenue forecasts for the second half of this year. It also warned investors that the decline in its core business would accelerate into the first half of 2003.
Reuters — which supplies real-time news and data to banks, brokerages and fund managers — has fallen on hard times as its clients struggle with tumbling share markets and as profits collapse at its US-based electronic trading unit Instinet.
The shares were 16% lower at 174 pence in morning trade, as analysts began to trim their 2003 profit forecasts. The wider European media sector was down 2,5%. ”You’re going to see earnings downgrades for next year’s forecasts,” said David Ferguson, analyst with Barclays Private Capital.
Reuters reported revenues of 855-million pounds for the three months ended September 30, compared with market forecasts of around 880-million pounds and down seven percent on the same quarter last year. Core recurring revenues — coming largely from monthly subscription income and making up the bulk of all turnover — fell 5,7% year-on-year.
It has underperformed the rest of the European media sector by more than 50% this year. Fund managers said on Wednesday that while the worst appeared to be over for the rest of the media sector, which relies on advertising income, the worst was still to come for Reuters’ big customers.
Chief Executive Tom Glocer said the outlook for the group’s banking and brokerage customers was ”pretty ugly” and that the next 12 to 18 months would be very challenging for them.
”Our customers are enduring the toughest market conditions for decades, and recent weeks have seen further sharp declines,” Glocer said in the third-quarter trading update.
”Looking ahead, we see market conditions worsening as financial services firms retrench still further. As a result, we expect our recurring revenue to decline by between seven percent and nine percent in the first half of next year,” he added.
The investment banking and broking industry, which accounts for almost a third of core revenues, is estimated to have cut more than 60 000 jobs world-wide since early 2001 to cope with some of the worst market conditions in three decades. Lost jobs can mean lost terminal sales for Reuters on dealing room floors.
Reuters’ major rival at the top end of the financial information market is unlisted Bloomberg LP. Concerns that Reuters is losing market share to Bloomberg helped drag the stock down to 12-year lows last week.
Reuters lowered its core recurring revenue expectations for the second half of this year, saying it expected a fall of six to seven percent compared with its previous forecast of a decline of five to six percent. The guidance excludes revenues from recently acquired ex-rival Bridge Information Systems.
Reuters also lowered its outlook for outright revenues — which tend to come from information technology services such as software and IT consulting — after a 38% fall in the third quarter. ”Outright revenue for the year is now expected to decline by around 20%,” the company said.
Like recurring revenues, consulting and technology sales have also been hurt by cost-cutting by banks and brokerages.
The company said it was still confident of meeting its target for a core operating profit margin of 12%this year but was unable to predict an improvement in margin in 2003.
Reuters has shed about 1 660 jobs or a tenth of its core workforce in the year to June 30. The company reported its first underlying loss as a listed firm in July, caused largely by heavy restructuring charges to pay for the job cuts and to streamline the business.
It said it expected to exceed its cost cutting target this year by around 30-million pounds, and that further jobs were likely to be lost. It gave no numbers. – Reuters