Thomson Reuters Earnings: Organic Revenue Growth Steady; Margins Impress

Narrow moat-rated Thomson Reuters TRI reported a slight revenue miss but strong profits partly due to expense timing. Revenues missed the FactSet consensus estimate by 1% but adjusted EBITDA of $632 million beat the consensus estimate of $585 million. Management maintained its 2023 margin outlook of 39% and attributed the expense beat to timing, but we believe this may prove conservative for the full year. As we tweak our model, we are modestly increasing our fair value estimate on Thomson Reuters’ shares to $112 from $109 primarily due to time value of money. While Thomson Reuters’ businesses have many positive attributes, we regard shares as a touch pricey at current levels.

Overall, we are not concerned with the slight revenue miss as organic growth of 6% was roughly consistent with the 5% seen in the second quarter and 6% seen in the first quarter. Organic growth rates were generally steady across the firm’s larger segments amidst macroeconomic uncertainty which underpins our Morningstar Uncertainty rating of low.

Adjusted EBITDA margins of 39.6% were up substantially from 34.0%. Management noted the timing of certain expenses such as incentive compensation was favorable in the quarter but is expected to normalize. We note that in the second quarter, margins were also elevated and expected to normalize. Overall, our model assumes 2023 adjusted EBITDA margins of 39.6% which is above the firm’s forecast of about 39%.