Torstar Corp. swings to profit as cost-cutting offsets impact of lower revenue
Torstar Corp. ended 2017 with higher quarterly profit than expected due to cost-cutting initiatives that offset sustained declines in legacy print revenue.
The publisher of the Toronto Star, Canada’s largest circulation newspaper, and dozens of other daily and community newspapers reported a profit of $8.7 million in the three months ended Dec. 31, up from $1.1 million in the same period in 2016.
This wrapped a year marked by the closure of the Toronto Star Touch tablet app and numerous community newspapers. For the full year, Torstar posted adjusted earnings per share of 1 cent, reversing the loss of 47 cents per share in 2016.
“All things considered, we were very pleased with the results,” Torstar president John Boynton said in a conference call with the investment community Wednesday.
“While print ad revenue trends in the quarter reflected ongoing pressures, revenue from subscribers and distribution continued to be more resilient.”
Segmented revenue fell 9.2 per cent to $189.5 million from $208.7 million the prior year, led by a 16 per cent drop in print advertising revenue. The flyer distribution business dipped 8.9 per cent, mostly due to financial challenges faced by some retailers including Sears Canada Inc., which closed permanently in early 2018. Subscriber revenue was relatively flat.
Digital revenue dipped 1.1 per cent due to lower revenue from Star Touch and WagJag, a discount website sold in October for $0.5 million.
But success from VerticalScope, a digital publishing business in which Torstar owns a majority stake, increased quarterly earnings by $6.6 million. Management said VerticalScope will grow through acquisitions in 2018.
The results came in slightly ahead of analysts’ expectations, RBC Dominion Securities analyst Drew McReynolds wrote in a note to clients. While legacy publishing trends are expected to continue in 2018, McReynolds noted that digital revenue is expected to increase.
Digital revenue is becoming more important to the entire newspaper industry, which is struggling to fill the gap left by declines in print advertising. These challenges led to a deal between Torstar and Postmedia Network Inc., owner of the Financial Post. In November, they swapped 41 newspapers and announced plans to close 36 of them, eliminating 291 jobs.
Torstar expects to save between $5 million and $7 million from the closures, though management expects overall revenue to fall about $17 million in 2018 due to scaled back operations.
Torstar also discontinued its Star Touch app in July after sinking about $23 million into the new product. It laid off 30 employees after the app failed to attract enough readers.
Boynton, who was hired last spring to help the newspaper transition into the digital world, said Torstar will spend $5 million in 2018 on technology platforms that will help transform the business model. But he wouldn’t elaborate on the new strategy.
“As we launch products and initiatives, we’ll have more to say,” Boynton said when asked whether Torstar would consider reintroducing paywalls for key websites such as thestar.com.
Torstar is, however, considering merging its defined benefit pension plan with CAAT Pension Plan, a jointly-sponsored plan that manages pensions for businesses that would rather focus on core operations. The parties are in discussions with union representatives.
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