The Thomson Corporation (NYSE: TOC; TSX: TOC), a leading global provider of information services to business and professional customers, today reported that revenues for the first quarter of 2007 increased 11%, to $1.7 billion, and operating profit increased 8%, to $226 million.
Diluted earnings per share increased to $0.35 in the first quarter, from $0.21 in the year-ago period.
"We continued to build momentum in the first quarter, successfully executing on our business and efficiency strategies to drive organic revenue growth and broad-based margin expansion in our operating businesses," said Richard J. Harrington, president and chief executive officer of Thomson. "We achieved solid organic growth of 6%, generated high levels of recurring revenue and improved retention rates as we continued to set the standard for the delivery of must-have electronic solutions, software and services to business and professional customers. Our corporate initiatives to improve operational performance across the organization resulted in higher margins in the business units, and we remain on track to meet our full-year 2007 savings targets. With the pending sale of Thomson Learning, our ability to invest in our businesses and leverage our world-class technology will further enhance our growth and profitability prospects.
"The Thomson Learning sales process is on schedule and has attracted a very high level of interest from prospective buyers. We anticipate announcing a buyer at the end of the second quarter and closing the transaction in the third quarter. We will use the proceeds from the sale to pursue opportunities aligned with our growth strategy and business model. We will be disciplined in reinvesting the proceeds and will focus on opportunities that drive growth and create value for shareholders."
Consolidated First-Quarter Financial Highlights:
- Revenues increased 11%, to $1.7 billion, led by strong growth in the Legal and Tax & Accounting business segments. Organic revenue growth was 6% in the quarter, with each business segment across Thomson contributing to the increase.
- Operating profit increased 8%, to $226 million, as a result of strong operating performance, partly offset by $34 million of investments in THOMSONplus initiatin THOMSONplus initiatives. Operating profit margin was 13.5%, compared with 13.9% in the first quarter of 2006. Excluding THOMSONplus expenses, operating profit increased 20% and the margins increased 130 basis points, to 15.6%, in part reflecting efficiencies derived from the savings initiatives.
- Earnings attributable to common shares were $223 million, or $0.35 diluted earnings per share, compared with $136 million, or $0.21 diluted earnings per share, in the first quarter of 2006. Earnings in the first quarter of 2007 included $35 million of one-time tax benefits. After adjusting for these items, as well as other income, results of discontinued operations and the normalization of the tax rate, earnings were $145 million, or $0.23 per share, compared with $131 million, or $0.20 per share, in the first quarter of 2006.
- Net cash provided by operations was $287 million, compared with $229 million, in the first quarter of 2006. Free cash flow increased 25%, to $137 million, from $110 million.
First-Quarter Operational Highlights:
- Operating performance of the businesses reflected successful execution of the Thomson business model, as well as savings generated by THOMSONplus efficiency initiatives.
- Approximately 85% of Thomson's revenues were derived from electronic solutions, software and services, which grew 12%. In addition, approximately 84% of Thomson revenues were recurring in nature.
- To date, THOMSONplus initiatives have generated approximately $50 million in annual run-rate savings. Thomson remains on track to generate total annual run-rate savings of approximately $150 million by year-end 2008.
First-Quarter Business Segment Highlights:
- Revenues grew 10%, to $747 million. Organic revenue growth was 7%, foreign exchange contributed 2% and acquisitions added 1%.
- Organic revenue growth was fueled by strong double-digit online growth. Westlaw continued to drive growth, delivering a strong performance across all of its customer segments. Thomson's legal software and services also continued to be strong revenue drivers, posting double-digit increases in the first quarter. The revenue increase for software and services reflected continued strong growth from FindLaw, as well as growth in consulting services.
- Segment operating profit grew 17%, to $207 million, aided by strong revenue growth and efficiency initiatives, resulting in a margin increase of 160 basis points, to 27.7%.
- Revenues increased 8%, to $527 million. Organic growth was 4%, and acquisitions and foreign exchange each contributed 2%.
- Organic revenue growth was driven by the strong performance of the investment management, corporate services and investment banking segments. Revenues from Europe and Asia grew at double-digit rates, and a Japanese-language version of Thomson ONE for investment management was launched in the quarter.
- Fixed income-related revenue was affected by softness in the U.S. Treasuries markets, resulting in lower volumes within Thomson's fixed-income transaction business. Revenues declined slightly in the retail wealth management segment, as the business exited a low-margin contract and experienced declines in low-margin legacy desktops.
- Segment operating profit grew 20%, to $95 million, as a result of strong revenue growth and efficiency initiatives, and the corresponding margin increased 180 basis points, to 18.0%.
Tax & Accounting
- Revenues increased 13%, to $160 million. Organic revenue grew 9%, and growth from acquisitions was 4%.
- Thomson Tax & Accounting achieved strong organic growth across its research and guidance, and professional and corporate software and services customer segments, driven by higher new sales and improved retention levels.
- Segment operating profit grew 27%, to $38 million, as a result of strong operating performance and efficiency initiatives, raising the operating margin by 270 basis points, to 23.8%.
- Revenues grew 7%, to $149 million. Organic revenues grew 4%, foreign exchange contributed 2% and acquisitions added 1%.
- Revenue growth continued to be driven by the strong performance of Web of Science and Web of Knowledge, corporate solutions and Thomson Pharma. The acquisition of ScholarOne also contributed to revenue growth in the first quarter of 2007. Revenue growth was offset by declines in legacy online products, as well as print and CD offerings.
- Segment operating profit grew 21%, to $34 million, as a result of strong operating performance and efficiency initiatives, raising the operating margin by 270 basis points, to 22.8%.
- Revenues grew 42%, to $92 million. Revenues from acquisitions contributed 39% and organic revenues grew 3%. Because the first quarter is a relatively small quarter, growth rates were significantly affected by the timing of new customer contracts, as well as contract cancellations.
- Revenue growth was largely driven by the acquisition of Solucient in the fourth quarter of last year. Solucient's offerings further strengthened Thomson's management decision support products for hospitals, and posted solid revenue growth year-over-year.
- Segment operating profit was affected by acquisition-related costs and remained flat year-over-year.
- First-quarter performance of the Healthcare segment is not indicative of its anticipated full-year results, as historically less than 20% of its revenue and 10% of its operating profit have been earned in the first quarter.
Corporate and Other
Corporate and Other expenses in the first quarter of 2007 increased $42 million, to $91 million, compared with $49 million in the prior-year period. The increase was primarily due to $34 million of THOMSONplus-related costs and certain additional costs related to the company's organizational realignment.
The former Thomson Learning market group accounted for the majority of results in Discontinued Operations. Discontinued Operations also includes results of certain businesses sold or held for sale, which were formerly managed in Thomson's Legal and Healthcare segments.
The Board of Directors declared a quarterly dividend of $0.245 per common share payable on June 15, 2007 to holders of record as of May 24, 2007.
Normal Course Issuer Bid
Thomson plans to renew its share repurchase program (normal course issuer bid) for an additional 12-month period and expects to repurchase up to 15 million of its common shares (representing approximately 2.3% of its issued and outstanding shares as of April 24, 2007). Purchases under the new program may commence on May 7, 2007 and will terminate no later than May 6, 2008. Thomson may repurchase shares in open market transactions on the Toronto Stock Exchange or the New York Stock Exchange. Under its existing normal course issuer bid, which began on May 5, 2006 and expires on May 4, 2007, Thomson has purchased 6,285,000 common shares through April 24, 2007 at an average price of US$40.55 per share. Since beginning share repurchases in May 2005, Thomson has purchased approximately 19.6 million common shares for a total cost of approximately $736.9 million. As of April 24, 2007, Thomson had 639,999,563 issued and outstanding common shares. Decisions regarding the timing of future repurchases will be based on market conditions, share price and other factors. Thomson may elect to suspend or discontinue the bid at any time. Shares repurchased under the bid will be cancelled.
From time to time, when Thomson does not possess material nonpublic information about itself or its securities, it may enter into a pre-defined plan with its broker to allow for the repurchase of common shares at times when Thomson ordinarily would not be active in the market due to its own internal trading blackout periods, insider trading rules or otherwise. Any such plans entered into with Thomson's broker will be adopted in accordance with the requirements of applicable Canadian securities laws and Rule 10b5-1 under the U.S. Securities Exchange Act of 1934.
The business outlook for 2007 that was provided on February 8, 2007 remains unchanged.
- Revenue growth is expected to be at the high end of the company's long-term target range of 7%-9%, prior to the deployment of the proceeds from the sale of Thomson Learning.
- Operating margin is expected to be at or above 2006 levels, despite increasing investments in efficiency initiatives.
- Cash generated by continuing operations is expected to grow, excluding cash generated through deployment of the Thomson Learning sale proceeds.
Thomson expects its performance to further strengthen in 2008. The company expects to sustain its long-term revenue growth rates; operating margin is expected to increase to above 20%; and free cash flow is expected to strengthen, as improvements in operating performance are projected to more than offset the loss of Thomson Learning's free cash flow, even before deployment of the Thomson Learning sale proceeds.
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