Torstar has no plans yet for Harlequin proceeds, reports higher Q2 profit
TORONTO - Besides paying off debt, Torstar Corp. (TSX:TS.B) says it hasn't decided what do with the proceeds from the recent $455-million sale of romance book publisher Harlequin.
"I think we're going to step back and take our time. I don't think there's anything (obvious investments) that's right in front of us," Torstar chief financial officer Lorenzo DeMarchi said Wednesday in a quarterly conference call with analysts.
"We're going to take some time to reflect on what should the Torstar of the future look like... We want to be thoughtful on how we move forward. And that it fits within our broader game plan."
In May, after nearly four decades of ownership, Torstar announced it would sell Harlequin Enterprises Inc. to global media company News Corp., which will make it a division of HarperCollins Publishers. The all-cash deal was expected to close by the end of the week.
DeMarchi said it's unlikely the proceeds will be used to increase shareholder dividends.
"My bias is to see us employ the capital back into the business," DeMarchi said.
Torstar, the owner of the Toronto Star newspaper and other publications, reported Wednesday a slightly higher profit in its latest quarter but falling print advertising revenues.
The media company said Wednesday it had a profit of $19.7 million, up from $18.1 million a year ago, but revenue was lower due to a drop in print ads.
The profit amounted to 25 cents per share in the three-month period ended June 30, compared with 23 cents per share in the second quarter of 2013.
Consolidated operating revenue fell seven per cent to $225.6 million from $243.6 million a year earlier.
John Cruickshank, publisher of the Toronto Star and president of Star Media Group, said the company expects ad sales to continue to fall for the rest of the year due to reduced advertising by the auto sector.
"The auto revenues has been softening probably for the last 12 months or so," Cruickshank told analysts during a conference call following the release of the results.
Cruickshank said it's not fair to compare the impact of the weak auto sector with the financial sector, which has also generally been pulling back print ads for the last few quarters.
"Every one of these categories are distinct and of course they're very much influenced by how they're doing...and how they're introducing new products. I don't want to say that this is a trend like the other," he said.
Excluding Harlequin, Torstar reported a profit from continuing operations of $18.1 million, or 23 cents per share, up from $12.6 million, or 16 cents per share, in the second quarter of 2013.
Haran Posner, an analyst with RBC Dominion Securities, said there are a number of factors that could work against Torstar's shareholder value, including a renewed economic slowdown that could lead to companies decreasing their advertising spending or switching to other media besides print, along with the possibility of higher than expected costs associated with transformation plans at the company.
Torstar said it had restructuring and other charges of $4.4 million in the quarter related to the reduction of about 125 jobs. Excluding impairment, restructuring and other one-time gains and charges, the company said it earned an adjusted profit of 20 cents per share in the quarter, down from 21 cents, in the same quarter last year.
The company has been shuttering some of its publications in an effort to lower costs. Earlier this month, it announced it will no longer be running print editions of its free daily Metro newspapers in Regina, Saskatoon and London, Ont. The move resulted in 25 job losses.
Torstar also announced that it was shutting down its free weekly publication, The Grid TO, and laying off 22 jobs including journalists, designers, production and sales staff.
Along with the Toronto Star, Torstar publishes the Hamilton Spectator, Waterloo Region Record and the Guelph Mercury and more than 100 community newspapers in Ontario.
In addition, Torstar owns Free Daily News Group Inc. (Metro English Canada), which publishes the English language Metro newspapers in several Canadian cities. Torstar also operates digital businesses such as WagJag.com, eyeReturn Marketing Inc., goldbook.ca, Save.ca, toronto.com and workopolis.com.
The Canadian Press is jointly owned by Torstar and the parent companies of the Globe and Mail and Montreal's La Presse.
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