By Jennifer Saba
NEW YORK (Reuters) - Thomson Reuters Corp (TRI)(TRI.TO) on Wednesday reported a steeper-than-expected drop in fourth-quarter earnings, hurt by cutbacks at financial institutions in Europe and in emerging markets, sending its shares down more than 5 percent.
Chief Executive Officer Jim Smith said headwinds at the end of last year were stronger than anticipated, and he saw financial markets remaining "challenged" for some time to come as the global banking system restructures.
The global news and information company forecast that 2014 revenue would be flat, compared with a 2 percent increase to $12.5 billion in 2013, excluding divestitures and currency changes.
"It's still a volatile time everywhere," Smith said in an interview. "We did see more weakness in Europe and in Asia than we expected in the fourth quarter."
Thomson Reuters said fourth-quarter underlying operating profit dropped 50 percent from a year ago, partly due to previously announced charges related to job cuts and other restructuring expenses. Excluding the charges, operating profit fell 5 percent to $577 million in the fourth quarter.
It reported adjusted fourth-quarter earnings of 49 cents per share, below the average analyst estimate of 52 cents, according to Thomson Reuters I/B/E/S. Revenue rose 1 percent to $3.265 billion, roughly in line with expectations.
About one-half of revenues come from banks and other financial institutions, and about one-quarter from the legal profession. Both sectors have lowered spending, trimmed costs and consolidated. For instance, Britain's third-biggest bank, Barclays Plc (BARC.L), said on Tuesday it would slash 12,000 jobs this year.
"Ultimately it's still a tough environment," said Claudio Aspesi, an analyst with Bernstein & Co. "The scrutiny of costs is high and spending levels are subdued," he said about Thomson Reuters' customer base.
Revenue in the Financial & Risk division, which caters to banks, retail brokers and other types of firms, fell 2 percent to $1.6 billion as product cancellations outpaced new sales.
Smith declined to comment on new sales in the current quarter, but said he was pleased with the way the year had begun and expected "gradually improving net sales to continue."
Thomson Reuters said its flagship product for financial institutions, Eikon, was installed on 123,000 desktops as of January 31, 2014, compared with 96,000 at September 30, 2013.
By region, Financial & Risk revenue fell 3 percent in Europe, Middle East and Africa, was off 3 percent in the Americas, and rose 2 percent in Asia.
Revenue at the legal division, known for its Westlaw legal database, was up 2 percent to $868 million, mainly due to acquisitions. Organic revenue, excluding acquisitions, fell 2 percent, largely due to weakness in Latin America and a drop in U.S. print revenue as law firms spent less on print case law books.
Smith said Thomson Reuters, which employs about 60,000 people globally, is cutting costs and pushing for innovation in an effort to transform its business. During the fourth quarter, it cut 3,000 positions.
The company reported a net loss of $343 million in the quarter, including a restructuring charge of $275 million. That compared with a net profit of $368 million a year earlier. It said it expects to take another $120 million in charges in 2014.
Thomson Reuters shares fell 5.2 percent to $34.71 in early trading in New York.
"While the external headwinds were stronger than anticipated at year-end, particularly in Europe and the emerging markets, I am pleased with the progress we continued to make inside the company and with our customers," Smith said.
(Editing by Tiffany Wu and Jeffrey Benkoe)