The McGraw-Hill Companies Inc . ( MHP ), a
publisher and provider of financial information and media services,
recently posted second-quarter 2012 adjusted quarterly earnings of
85 cents a share that came way ahead of the Zacks Consensus
Estimate of 76 cents, and jumped 25% from the prior-year quarter's
earnings of 68 cents.
However, including one time items, earnings increased 11% year
over year to 76 cents a share. The company stated that the strong
performance of S&P Indices/ S&P Capital IQ and Commodities
& Commercial boosted the quarterly profits.
On a consolidated basis, management now expects earnings to be
at the higher end of the previous guidance of $3.25 to $3.35 a
share in fiscal 2012.
McGraw-Hill's total revenue inched down 1% year over year to
$1,547 million and came below the Zacks Consensus Estimate of
Earlier, the company updated its growth and value plan through
filing an initial Form 10 Registration Statement with the U.S.
Securities and Exchange Commission.
Through its growth and value plan the company's primary strategy
is to create two "focused companies" with optimal-size capital and
cost arrangement for enhancing client commitment while increasing
management's focus and responsibility. Further, management believes
the split will provide each of the independent companies with some
synergies and benefits.
(Read our full coverage on this: McGraw Hill Sticks to Value Plan )
Total revenue of McGraw-Hill Financial ,
which includes S&P Capital IQ/S&P Indices, Standard &
Poor's Ratings and Commodities & Commercial, increased 5% to
$1,073 million compared with $1,020 million in the prior-year
quarter. Adjusted operating income marked an increase 9.4% year
over year to $394 million.
S&P Capital IQ/S&P Indices
segment revenue grew 10% to $366 million, driven by an increase of
10% in both subscription and non-subscription revenue to $269
million and $97 million, respectively. Segment adjusted operating
income increased 17% to $115 million.
Revenue for S&P Capital IQ, which comprises Integrated
Desktop Solutions, Enterprise Solutions and Research &
Analytics, increased 9% to $277 million in the reported quarter.
Capital IQ had a client base of over 4,200 at the end of the
quarter, reflecting a growth of 13% from the prior-year, on the
back of increase in subscriptions and platform enhancements.
The company acquired Credit Market Analysis Limited (CMA) from
CME Group Inc. ( CME ),
at the end of the reported quarter.
London-based Credit Market Analysis Limited is an independent
data provider in the over-the-counter markets. The acquisition
strengthens S&P Capital IQ's position in the market, where it
competes with Thomson Reuters Corporation ( TRI ),
FactSet Research Systems Inc. ( FDS )
With growing needs of investors to access readily available
data, a fierce competition has emerged among the companies offering
financial information solutions to grab a wider market through
superior functionality and investor oriented services.
To grab its share of market, the company took a similar stance
in past and acquired QuantHouse, the provider of market statistics
and trading solutions along with R2 Financial Technologies that
offers risk and scenario-based analytics across different asset
classes to investors, risk and portfolio managers for pricing,
hedging and capital maintenance.
These moves enable McGraw-Hill to offer investors access to
global exchange pricing, securities valuations and asset analytics,
while facilitating S&P Capital IQ to create real-time
platforms, data base and analytics.
Further, the acquisition of TheMarkets.com by Capital IQ
strengthened its position in the highly competitive financial data
provider sector. The acquisition facilitates Capital IQ to provide
a comprehensive research package to its buy-side clients, which not
only include fundamental and quantitative research as well as
analysis solutions but also cover equity and market research
reports and earnings estimates with valuation models from leading
Moreover, CME Group and McGraw-Hill announced the commencement
of their index business with the launch of S&P-Dow Jones
Indices, on June 29, 2012.
CME Group owned 90% of the JV between CME Group and News
Corp. 's ( NWSA ) Dow Jones, which also owns Dow Jones
Indexes, before the JV between CME Group and McGraw-Hill was
established in November last year. The JV aims to tap the rapidly
growing index business.
The transaction is expected to be immediately accretive to
McGraw-Hill's earnings and S&P-Dow Jones Indices is expected to
drive profit growth through enhanced revenues, asset-class
expansion, cost synergies, highly efficient infrastructure and
reduced capital requirements, while generating free cash flow.
This is also validated by the fact that three of the top five
Equity Index Futures and Options contracts traded and cleared in
the first four months of 2012 were based on S&P-Dow Jones
Revenue increased by 12% to $89 million for S&P Indices
during the second quarter. The company witnessed increase in the
number of exchange-traded funds (ETFs), mutual funds and
Standard & Poor's Ratings segment
revenue inched up 1% to $483 million during the quarter. Operating
income decreased 2% to $208 million.
Transaction revenue, which includes ratings of publicly issued
debt and bank loan, and corporate credit estimates, increased 4% to
$203 million. The increase reflected a sharp rise in U.S. public
Non-transaction revenue, which includes annual contracts,
surveillance fees and subscriptions, inched down 2% to $280
million, reflecting negative impact of foreign exchange rates.
However, excluding the impact of currency fluctuations, revenue
Commodities & Commercial segment
revenue rose 9% to $241 million driven by strong performance in
Platts' revenue. Operating income jumped 45% to $71 million.
Commodities marked a growth of 19% to $121 million during the
period. Excluding the acquisition of Steel Business Briefing Group,
revenues increased 15% to $117 million.
Revenues inched down 1% in Commercial as increases in J.D. Power
and Associates were offset by declines at McGraw-Hill Construction
and Aviation Week.
McGraw-Hill Education segment
experienced a decrease of 12% in revenue to $474 million,
reflecting 20% decrease in revenue to $233 million in
School Education Group coupled with a 2%
decrease in revenue to $241 million in Higher
Education, Professional and International Group . The
Education segment marked a 36% improvement in operating profit $57
million during the quarter.
McGraw-Hill ended the quarter with cash and cash equivalents of
$836 million, long-term debt of $799 million, and shareholders'
equity of $1,730 million. The company incurred capital expenditures
of $42 million and generated negative free cash flow of $122
McGraw-Hill recently completed its accelerated share repurchase
program. The company repurchased $1.5 billion shares since January
2011. It currently has 22.7 million shares remaining under the
Currently, we have a long-term Neutral rating on McGraw-Hill,
which competes with Pearson plc ( PSO ).
Moreover, the company holds a Zacks #2 Rank, which translates into
a short-term Buy recommendation.
CME GROUP INC (CME): Free Stock Analysis Report
FACTSET RESH (FDS): Free Stock Analysis Report
MCGRAW-HILL COS (MHP): Free Stock Analysis
NEWS CORP INC-A (NWSA): Free Stock Analysis
PEARSON PLC-ADR (PSO): Free Stock Analysis
THOMSON REUTERS (TRI): Free Stock Analysis
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