MT Insider: Thomson Reuters Internal Video To Employees Suggests Further Cost Cutting Measures Needed


As a backdrop, the Wall Street Journal, which is a subsidiary of News Corp ( NWS ), published an article on 10/1 regarding an internal video sent to employees by Thomson Reuters ( TRI ) CEO Jim Smith.

According to the article, Smith discussed the "...need to attack internal bureaucracy" and "...ample opportunity inside the business for us to continue to take costs out..." In response to the article, management of TRI had no comment.

It is worth noting that TRI's legacy Financial & Risk (F&R) systems are slated to be shut down while further operational efficiencies are likely in headcount and systems consolidation.

Areas of focus are in legacy "Legal" in addition to "Financial & Risk" or F&R. This implies that prior efforts at restructuring F&R may not be going as well as expected given the need for further cuts.

Goldman Sachs, which has a neutral rating and a $37 price target on the stock, views this as a modest positive (potential for stronger EBITDA growth owing to additional expense reductions).

Recall that at the Communacopia Conference in September, Thomson Reuters CEO Smith indicated that demand is mixed from sell-side clients, although trends from buy-side customers are better.

Additionally, Smith noted that legacy shutdowns remain on schedule, and TRI is seeing 1.5% to 2.5% price increases on renewals. During Q&A, when asked about a potential break-up of the company, he deflected, stating that it wasn't a focus.

On valuation, TRI trades at 10x next twelve-month earnings, which assumes 2% revenue growth and 30% EBITDA margins, per GS estimates.

NWS 16.29 0.00 0.00

TRI 35.19 0.00 0.00

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Copyright (C) 2014 All rights reserved. Unauthorized reproduction is strictly prohibited.

This article appears in: Investing , Commodities

Referenced Stocks: NWS , TRI

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