Reuters' Slow Comeback (RTRSY)

Reuters Group Plc (NASD:RTRSY), the huge trading terminal and financial information company, has been in the midst of a turnaround for several years. The results have been mixed.

In 1997, the company posted revenue of $4.747 billion and operating income of $975 million. Revenue continued to rise, but expenses rose faster. In 2001, the top line hit $5.753 billion but operating profit had dropped to $435 million. In 2002, the company had an operating loss of $216 million on revenue of $5.513 billion.

Since 2002, the management of Reuters has been pursuing, to some extent, an exercise in cost cutting. Competitors like Bloomberg and Bridge Information Systems mounted vigorous competition for the Reuters trading terminal base, with some success, though Bridge went bankrupt. But the competition took its toll. By last year, revenue had come down to $4.397 billion, however, thanks to cost management, operating income rose to $378 million.

Three years ago, Reuters started something called Fast Forward, a restructuring of the company. That program is now close to completion. The hallmarks of the initiative seem to be the sale of non-strategic businesses like Instinet and the lay-offs of a lot of people.

The market remains highly competitive, primarily because of Bloomberg. Because it is a private company, it can make investments and financial moves to compete that a public company like Reuters would find more difficult. If Bloomberg wants to start a new product line that involves large capital outlays, it does not have to be concerned with shareholder reaction.

Since Fast Forward is in its late stages, it is safe to assume that most of what Reuters thinks can be done on a restructuring basis is now over.

Reuters recently announced Q1 06 revenue of $1.13 billion. What the company calls "underlying revenue" -- which is mostly the trading screen business and is adjusted for currency changes -- grew 4%. According to the Associated Press, Reuters now claims 27% of the global financial information screen market, the same level as Bloomberg.

Reuters is now enjoying a positive environment, as the financial markets are doing well. Trading terminal sales tend to be hurt by poor markets as financial institutions cut costs and personnel.

The company's share price is now at $42.48, against a 52-week high of $48.74 and a low of $37.10. With the restructuring largely behind the company, and very little growth on the horizon, there is no reason to believe that the stock is likely to make a run.

RTRSY 1-yr chart:

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at [e-mail].