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Tax & Accounting Leads Thomson Growth

James Smith, Thomson ReutersWith Thomson Reuters continuing to point to the future for good results from its financial services businesses, it was recently able to discuss double-digit growth for its Tax & Accounting operations. As net income dropped and revenue was flat, Tax & Accounting produced a 12.3-percent rise in operating profit on a 14-percent upturn in income for the third quarter ended June 30.

Operating profit for the most recently ended quarter hit $65 million, up from $57 million a year ago. Second-quarter revenue was $324 million, compared to $288 million in last year's corresponding period. And with analysts on a recent earnings webcast spending most of their time asking the still difficult market for Thomson's financial services products, Tax & Accounting's performance gave company executives something to talk about in completely positive terms.

CEO James Smith said the growth rate is sustainable and while he pointed to steady improvements in selling to public accounting professionals he noted, "Our real growth has come from outside United States." Not too long ago, the business was overwhelmingly domestic but now 20 percent of revenue is from outside this country and Smith said he could foresee the international business becoming a third of the total as the corporate business grows.

Thomson is also investing in Tax & Accounting, he noted.
"We've allowed that business to hold margins flat so we can invest in feet on the street in particular in growth geographies," Smith said.

The story was not so rosy overall with net income falling slightly to $260 million from $262 million a year ago. Revenue of $3.169 billion in the second quarter was down by $4 million from last year. Operating profit in for the June quarter dropped to $381 million, down 34.5 percent from $597 million. All of these numbers are on an IFRS basis. Thomson pointed to the better non-IFRS results which showed revenue rising $50 million to $3.158 billion, a 2-percent increase from a year ago.

Thomson was hurt by the continuing decline in print revenue, which also impacts rival Wolters Kluwer. The weak European economy, although improving, was also a drag on results and charges taken this year siphoned off earnings. The big problem continued to be weak sales of the Eikon trading software last year, leading to weak revenue this year. There was also a decline in transaction revenue because of the lack of volatility in market trading.

Smith was optimistic about the continued improvement with sales of its Eikon trading software. Asked about factors in the upturn he said, "It's executing better in a still tough environment. We are winning our fair share of those competitive bake offs." However, he told a questioner that it is still too early to increase Eikon prices to generate more revenue.

Bob Scott
Bob Scott has provided information to the tax and accounting community since 1991, first as technology editor of Accounting Today, and from 1997 through 2009 as editor of its sister publication, Accounting Technology. He is known throughout the industry for his depth of knowledge and for his high journalistic standards.  Scott has made frequent appearances as a speaker, moderator and panelist and events serving tax and accounting professionals. He  has a strong background in computer journalism as an editor with two former trade publications, Computer+Software News and MIS Week and spent several years with weekly and daily newspapers in Morris County New Jersey prior to that.  A graduate of Indiana University with a degree in journalism, Bob is a native of Madison, Ind
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