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Torstar cautious after strong Q2 results

TORONTO - Torstar Corp. says a recovery of advertising at its newspapers and websites helped to drive second-quarter growth, but it remains cautious about whether the positive trend will continue.

TORONTO - Torstar Corp. says a recovery of advertising at its newspapers and websites helped to drive second-quarter growth, but it remains cautious about whether the positive trend will continue.

The publisher of the Toronto Star and other newspapers, Harlequin books and numerous websites, said Wednesday it earned $22.7 million in the April-June period — its fourth profitable quarter in a row.

Strong national advertising in both print and digital media helped boost revenue, but currency fluctuations reduced the amount of growth that Torstar experienced from book sales.

"The newspaper and digital division was the primary driver of the growth," Torstar president and CEO David Holland said in a conference call with analysts.

"The modest revenue growth coupled with a continued emphasis on cost control yielded the earnings growth," he added.

However, the company remained cautious on its outlook for growth in the division, given the soft recovery in retail and employment advertising, which suggests that the strength of the economic recovery is still in question.

The Toronto-based media company, like many of its newspaper rivals, faces eroding readership of its print publications as readers turn to the free digital format, where advertisers pay significantly less.

The advertising conundrum was compounded during the recession, when cash-strapped companies started reducing their marketing budgets.

Torstar (TSX:TS.B) lost money during much of the 2008-2009 recession.

But, the company reported its earnings for the quarter ended June 30 bounced back to 29 cents per share— an improvement from the year-earlier period, when Torstar had a $4.4-million loss or six cents per share.

Overall revenue from its newspapers, books and digital publishing edged up to $376.5 million, $2.8 million higher than a year earlier.

The company's earnings fell short of the 41 cents per share analysts had been expecting, but beat their revenue estimates of $370.5 million.

Torstar said a strong Canadian dollar limited its revenue growth in the second quarter. The rising loonie is hitting revenues at its book publishing division, where U.S. and overseas sales are key.

Torstar's results were also hit by a $6.9-million loss at associated businesses, particularly CTVglobemedia. Torstar said that loss improved from a $27.7 loss during last year's second quarter.

Restructuring charges were $4.8 million in the quarter, including $2.8 million spent on a failed bid to purchase the newspaper and online businesses of Canwest LP. Those newspapers were sold to a group headed by Paul Godfrey, president and CEO of the National Post.

At Torstar's newspaper and digital segment, which includes the Star and other dailies as well as Toronto.com, Workopolis and other websites, Holland said the modest recovery in revenue was helped by lower newsprint pricing, lower pension costs and cost savings from job cuts as part of a restructuring.

Industry analyst Duncan Stewart said Torstar's improved earnings come as advertisers regain confidence in an economic recovery and begin to spend on advertising again.

However, he added, that doesn't change the fact that readership is moving online, where advertisers pay less for space.

"Torstar is tempering its projections based on the fact that there are two stories going on, a positive cyclical story, but a more challenging secular story," he said.

He added that its unlikely Torstar's revenue from advertising is unlikely to continue to accelerate at levels it has seen in the first part of the year.

"When you come out of a recession, you tend to experience good year-over-year growth, but it's more of a rebound. It's unlikely that we are entering a new growth phase for advertising."

The impact of newsprint pricing is also expected to be slightly negative in the second half of the year, Torstar said.

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

The company also owns Metroland Media Group, publishers of community and daily newspapers in Ontario, as well as Harlequin — the world's biggest publisher of romance fiction.

Shares in the company fell 32 cents to close at $10 Wednesday on the Toronto Stock Exchange.

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