UPDATE The financial information giant Reuters announced its quarterly earnings today, perfectly reflecting the uncertainty of the worldwide economic situation.
Though the company reported increases in revenues (to $2.75 billion for the first half of the year), its profit before tax was down 21 percent from the same period last year, to $506 million.
Like many other corporations, Reuters blames "increasingly challenging conditions" for business, but the company has also experienced some unique expenses. These include spending $75 million (and promising to spend another $200 million) to acquire much of Bridge Information Systems, the ailing U.S.-based financial news agency, and $68 million to acquire a French back-office services agency called Diagram.
But perhaps the longest-term expense Reuters faces is the category it optimistically labels its "business transformation programme," and consists largely of layoffs and consolidations. The company confirmed reports that surfaced this past weekend in the British press that it will eliminate as many as 1,100 jobs over the next two years. These are the largest job cutbacks in 150 years of Reuters history. An additional 240 jobs will be cut at Instinet, which remains 85 percent Reuters-owned.
Though those reports initially gave the company's stock a small boost, it hit a new 52-week low at midday of 713 pence. Investors' reaction may be due to the expense that the layoffs represent. Reuters and its publicly traded subsidiary Instinet will take one-time charges of $64 million against earnings later this year to pay for the reduced headcount.
Moreover, many analysts point to the slowdown of the stock market as a reason for the company's declining performance. Instinet, for example, is an electronic securities trading platform whose revenues depend on trading volume. With the continued doldrums of worldwide stock markets, the growth of Instinet's volume is thought to be threatened. However, the company's announcement indicated that Instinet's revenues, market share and profits are all up from last year.
In an analysts' call, CEO Tom Glocer acknowledged that the company's revenue growth has been decelerating through the year, and that it expected that downward growth to continue. He argued, however, that Reuters was better off than its financial and media clients because of the company's diverse services, its increased market share and the health of its software services division.
Though many of Reuters' direct investments into Internet projects have yet to show any payoff, Glocer insisted that the Internet is having a profound effect on the internal organization of Reuters' business. He claimed, for example, that the company has seen a sevenfold increase in division revenues in the 18 months since it began delivering information to certain customers through an Internet protocol.
Reuters officials also said they expect a substantial boost to their bottom line from their eventual acquisition of Bridge. Glocer said that though the acquisition would cost more than $275 million, it would add $400 million in revenues. That acquisition is still being reviewed by the U.S. Justice Department; Glocer said the company hopes to complete the deal this quarter.
