BUSINESS

Torstar Earnings Report: Q3 Profit Falls, Revenue Down

10/31/2012 06:55 EDT | Updated 12/31/2012 05:12 EST
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TORONTO - A decline in advertising revenues pulled down the third-quarter results of newspaper and book publisher Torstar Corp. and executives at the company warned Wednesday that uncertainty in the ad market will prevail in the coming months.

The company, which owns the Toronto Star and other newspapers, as well as the romance novel brand Harlequin, said advertising sales started off strong as the third quarter got underway, but quickly eroded through the three-month period and into October.

"The advertising environment continues to feel challenging and visibility remains limited on how advertising revenues will evolve over the balance of the year," said chief financial officer Lorenzo DeMarchi in a conference call.

Torstar (TSX:TS.B) said its third-quarter net income fell to $14.1 million, or 18 cents per share, from $25.2 million or 32 cents per share a year earlier.

Revenue for the three months ended Sept. 30 was $355.3 million, down from $378.7 million a year before.

Adjusted earnings, which exclude restructuring expenses and other items, fell to 29 cents per share, missing analyst expectations of 33 cents per share, according to a poll by Thomson Reuters.

Meanwhile, the company is looking at ways to further reduce expenses in its media division, said president and chief executive David Holland.

"Given this challenging revenue environment, we are committed to and continue to pursue opportunities to reduce cost," he told analysts.

The company expects to book $5.2 million of cost savings in the fourth quarter and $9.5 million of incremental savings in 2013 from restructuring initiatives that were taken through the third quarter of 2012.

On Monday, Toronto Star publisher John Cruickshank told readers in note that it plans to launch a digital subscription model that will fall in step with its competitors, which include The Globe and Mail and the National Post.

The announcement comes as Canadian publishers look for new ways to drive revenues as more readers gravitate towards the online version of their daily papers, using their computers, tablets and smartphones. The shift is eroding print advertising revenues in favour of less lucrative online ad sales.

Cruickshank said that a paywall with contribute to "changing the culture a little bit" by encouraging readers to pay for digital content. Torstar expects the paywall will also help increase subscribers to physical print copies of the newspaper, he said.

The paywall, or pay meter as many media companies prefer to call it, allows readers to access a limited number of news articles for free each month before locking the website's content.

Torstar executives were asked during Wednesday's call whether putting a wall up would have a negative impact on advertising revenues.

"The thing about metering is that we really can calibrate it pretty carefully to make sure that we don't reduce too dramatically the kind of traffic we're getting," Cruickshank responded.

In the third quarter, the media division earned an operating profit $10.6 million, down from $23.8 million a year ago. Revenue totalled $247.5 million, down from $263 million a year ago, despite an increase of $9.5 million from acquisitions made in 2011.

In the Harlequin book publishing division revenues dropped to $107.8 million from $115.7 million, a decline that the company partly blamed on the blockbuster sales of the "50 Shades of Grey" series, which was published by a division of competitor Random House.

"The sales of those three books are bigger than our entire retail division in North America, so it's quite a significant impact for anyone who is in the romance category, including us," said Donna Hayes, publisher and CEO of the Harlequin division.

"We have actually put out half a dozen books that we had in our backlists that are doing very well in the U.S. market."

Harlequin operating profit weakened to $19.8 million from $24.8 million as the operating faced higher costs for its North American digital business.

Harlequin also expects to a weaker fourth quarter due to higher digital royalty rates for its authors, and weakness in the global economy.

Torstar has about 6,600 employees across its operations, which includes the Star Media Group led by the Star, Canada's largest daily newspaper and digital properties including Thestar.com, Toronto.com, Travelalerts.ca, daily deal website WagJag.com, Workopolis, Olive Media, and EyeReturn Marketing.

The company also owns the Metro free daily newspaper chain, Metroland Media Group, publishers of community and daily newspapers in Ontario, as well as Harlequin.

TorStar also owns one third of The Canadian Press, the national wire service.

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