The McGraw-Hill Companies Inc
), a publisher and provider of financial information and media
services, recently posted third-quarter 2012 adjusted quarterly
earnings of $1.33 per share that came ahead of the Zacks
Consensus Estimate of $1.30, and increased 10% from the
prior-year quarter's earnings of $1.21.
The company stated that the strong performance of S&P
Indices / S&P Capital IQ and Commodities & Commercial
boosted the quarterly profits. However, including one time items,
earnings decreased 9% year over year to $1.10 per share.
Following the healthy results, management now expects adjusted
earnings to be in the range of $3.35 to $3.40 per share for
fiscal 2012, up from its earlier guidance of $3.25 to $3.35.
McGraw-Hill's total revenue escalated 2% year over year to
$1,953 million but fell short of the Zacks Consensus Estimate of
The company remains on track with its "Growth and Value Plan."
Through THIS plan, the company's primary strategy is to create
two "focused companies" with optimal-size capital and cost
arrangement for enhancing client commitment while bolstering
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
, which includes S&P Capital IQ/S&P Indices, Standard
& Poor's Ratings and Commodities & Commercial, jumped 15%
to $1,117 million compared with $971 million in the prior-year
quarter. Adjusted operating income marked an increase of 21% year
over year to $402 million.
S&P Capital IQ/S&P Indices
segment revenue grew 13% to $393 million, driven by an increase
of 12% in subscription revenue to $281 million along with a 15%
rise in non-subscription revenue to $112 million. Segment
adjusted operating income increased 5% to $119 million.
During the quarter, the segments international revenue marked
an augmentation of 10% to $117 million and now represents about
30% of the segment's total revenue.
Revenue for S&P Capital IQ, which comprises Integrated
Desktop Solutions, Enterprise Solutions and Research &
Analytics, strengthened 9% to $284 million during the reported
quarter. Capital IQ had a client base of over 4,400 at the end of
the quarter, reflecting growth of 15% from the prior-year, on the
back of increased subscriptions and platform enhancements.
The company acquired Credit Market Analysis Limited (CMA) from
CME Group Inc.
). 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
Thomson Reuters Corporation
FactSet Research Systems Inc.
) and Bloomberg.
With the growing need of investors to access readily available
data, 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 the market, the company took a similar
stance in the 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 brokers.
S&P Indices' revenue soared 24% to $109 million during the
third quarter, benefiting largely from the newly formed S&P
Dow Jones Indices. Excluding the impact of the S&P Dow Jones
Indices joint venture, revenue marked a decline of 7%.
The company noted that assets under management in
exchange-traded funds surged 40% to $390 billion on S&P's
indices. Moreover, assets under management came in at $454
billion, including the Dow Jones Indexes.
The company along with the CME Group announced the
commencement of their index business with the launch of
S&P-Dow Jones Indices.
CME Group owned 90% of the joint venture (JV) between CME
) 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
The transaction is expected to be 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.
Standard & Poor's Ratings
segment revenue augmented 22% to $502 million (highest in 19
quarters). Adjusted operating income increased 28% to $217
Transaction revenue, which includes ratings of publicly issued
debt and bank loan, and corporate credit estimates, surged 64% to
$215 million. The increase reflected a sharp rise in U.S. and
European corporate issuance.
Non-transaction revenue, which includes annual contracts,
surveillance fees and subscriptions, elevated 3% to $287 million.
Commodities & Commercial
segment revenue rose 5% to $239 million, driven by strong
performance in Platts' revenue. Adjusted operating income jumped
29% to $66 million.
Commodities marked growth of 13% to $121 million during the
period. Revenues inched down 2% in Commercial as increases in
J.D. Power and Associates were offset by declines at other
To further strengthen the Platts division, the company
announced the acquisition of Switzerland-based Kingsman SA,
provider of price information and analytics for the worldwide
sugar and biofuels markets.
segment experienced a decrease of 11% in revenue to $836 million,
reflecting a 16% decrease in revenue to $352 million in
School Education Group
coupled with a 6% decrease in revenue to $484 million in
Higher Education, Professional and International Group
. The Education segment marked a 15% decrease in adjusted
operating profit, which came in at $268 million during the
McGraw-Hill ended the quarter with cash and cash equivalents
of $1,245 million, long-term debt of $799 million, and
shareholders' equity of $1,862 million. The company incurred
capital expenditures of $79 million and generated free cash flow
of $420 million, year-to-date.
During the quarter, the company repurchased 5.9 million shares
for approximately $295 million, with an average price of $50.35
Currently, we have a long-term Neutral recommendation on
McGraw-Hill, which competes with
). Moreover, the company holds a Zacks #2 Rank, which translates
into a short-term Buy rating.
CME GROUP INC (CME): Free Stock Analysis
FACTSET RESH (FDS): Free Stock Analysis
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
To read this article on Zacks.com click here.