Lagging newspaper and digital sales continued to plague Torstar Corp. (TSX:TS.B) as the company turned a year-ago loss into a modest profit in the third quarter on lower corporate costs and continued growth at its book publishing division.
The media company that owns the Toronto Star and other newspapers, as well as the Harlequin book-publishing business, reported Wednesday net income of $4 million or five cents per share in the quarter ended Sept. 30.
This was an improvement from a year-ago loss of $740,000 or one cent per share.
Revenues for the quarter totalled $343.7 million, down 7.4 per cent from $371.3 million last year.
"We felt we had a reasonable quarter in the operations given the challenges of the current economic environment," David Holland, Torstar's interim president and chief executive, told a conference call with analysts.
"The newspapers and digital divisions went down, Harlequin continued to perform very well and corporate costs were down," he said.
Revenue in the company's newspapers and digital operations was down 12.6 per cent to $221.2 million for the quarter.
Much of this came from a decline in employment and real estate advertising sales, which Holland said were particularly vulnerable to the slumping economy.
This was partly offset by positive news in the company's Harlequin romance fiction book business which posted revenue of $122.5 million, a 3.7 per cent increase from last year.
Holland added that the quarter's results were significantly affected by losses from associated business.
In particular, Torstar said its 20 per cent stake of CTVglobemedia, owner of CTV Inc. and The Globe and Mail newspaper, amounted to a loss of $13.6 million in the third quarter.
This was quadruple the loss of $2.8 million a year ago. Torstar has a minority stake in the television and newspaper operator, which is a partnership between the Thomson family's Woodbridge investment company, with 40 per cent, The Ontario Teachers Pension Plan Board, with 25 per cent and Bell Canada, with 15 per cent.
Holland added however that Torstar was committed to its stake to CTVglobemedia and had no plans to pull out before its five-year investment, which began in 2006, is up.
As revenue declined, Torstar said cost-cutting efforts were mitigating part of the slide in sales on the company's newspaper and digital side. Holland said this aggressive cost containment trend would continue in the next quarter.
Evidence of this is already being seen. On Tuesday, Torstar announced a major restructuring at the Toronto Star, which would see employees in all parts of Torstar's flagship newspaper offered voluntary buyouts.
The company said restructuring and related charges in the newspapers and digital division amounted to $1.1 million in the third quarter, compared to $3.4 million a year ago.
Torstar said the charges reflect the ongoing focus on reducing operating costs in the Star Media group and the Metroland Media group, which includes daily newspapers in Hamilton, Waterloo Region and Cambridge and community papers throughout southern Ontario.
The restructuring is expected to bring about $1.3 million in annual savings and a reduction of about 18 positions. Torstar said additional savings of $7.9 million are expected in the fourth quarter related to restructuring efforts that took place in 2008 and in the first six months of 2009.
Given the challenges confronting us, efforts on restructuring are on going," said Holland. "We don't have the luxury of not acting on a opportunity that presents itself."
Star publisher John Cruickshank reassured investors and customers however that the restructuring at Canada's largest circulation daily paper would not compromise the products it produces.
"We're going to do this in a way that will protect our ability to go on generating great stories," he said.
Cruickshank added that the Star would be negotiating with the Communications, Energy and Paperworkers union over the outsourcing of copy editing and pagination jobs while staying committed to maintaining pre-press quality.
On the community newspaper side, Metroland president Ian Oliver said lower expenses from cost control initiatives and lower newsprint costs helped offset high pension costs.
The sluggish sales on the newspaper side isn't expected to pick up soon.
"Looking forward we continue to experience the impact of this economic downturn on our Newspapers and Digital division," said Holland. "We are anticipating difficult revenue trends to continue until the economy in this region starts to gain some momentum."
Holland added however that newsprint pricing, which had a favourable impact in the third quarter, was expect to continue positively until the end of the year.
Torstar also said it expects Harlequin to continue posting stable results in the fourth quarter which include the benefits of foreign exchange.
Torstar shares fell 21 cents, or almost three per cent, to $7.25 in Wednesday trading on the Toronto Stock Exchange.
