The McGraw-Hill Companies Inc
) posted fourth-quarter 2012 adjusted quarterly earnings of 72
cents per share that came in line with the Zacks Consensus
Estimate but jumped 56% year over year.
The company reclassified its Education segment as discontinued
operations as it entered into an agreement with
Apollo Global Management LLC
) to divest its education division for $2.5 billion. The company
expects to close the deal during the first-quarter of 2013.
On a consolidated basis, including McGraw Hill Financial and
McGraw-Hill Education, earnings came in at 75 cents a share.
Total revenue of this Zacks Rank #3 (Hold) stock escalated 22%
year over year to $1,226 million, reflecting strong performance
across all its divisions.
Following the healthy results, management now expects adjusted
earnings to be in the range of $3.10 to $3.20 per share for 2013,
reflecting a growth of 15% year over year.
S&P Capital IQ
segments revenues grew 8% to $290 million, driven by an increase
of 9% in subscription revenues to $281. Non-subscription revenues
remained flat at $30 million. Segment's adjusted operating income
inched down 1% to $53 million.
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
competes with Reuters, FactSet 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 cover equity and market research
reports and earnings estimates with valuation models from leading
S&P Dow Jones Indices
revenues soared 38% to $110 million during the fourth quarter.
However, excluding the revenues related to the Dow
Jones Indexes, revenues marked an increase of 5% to $84
million. Segment's adjusted operating income jumped 16% to
The company noted that assets under management in
exchange-traded funds surged 28% to $402 billion on S&P's
indices. Moreover, assets under management came in at $466
billion, including the Dow Jones Indexes.
The company along with CME Group announced the commencement of
their index business with the launch of S&P-Dow Jones
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 revenues augmented 34% to $584 million, whereas adjusted
operating income increased 63% to $254 million, benefiting
largely from increased refinancing activities on account of low
Transaction revenues, which include ratings of publicly issued
debt and bank loan, and corporate credit estimates, surged 97% to
$292 million. The increase reflected a sharp rise in U.S. and
European corporate issuance.
Non-transaction revenues, which include annual contracts,
surveillance fees and subscriptions, elevated 2% to $292 million.
Commodities & Commercial Markets
segment revenues rose 9% to $260 million, driven by strong
performance in Platts' revenues. Adjusted operating income jumped
27% to $59 million.
Commodities marked growth of 15% to $129 million during the
period. Revenues increased 4% in Commercial, reflecting strong
performance of J.D. Power and Associates.
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.
Lawsuit Bringing Trouble
The United States Department of Justice recently filed a civil
lawsuit against the McGraw-Hill subsidiary, Standard & Poor's
Rating Services (S&P) for deliberately providing high ratings
in 2007 to U.S. collateralized debt obligations (CDOs) and
residential mortgage backed securities (RMBS) that underperformed
and fueled the collapse of the housing market.
The U.S. Government stated that S&P did not properly
highlight the credit risks related to the mortgage securities
issued by the investment banks in order to get more business from
However, S&P stated that the ratings were provided on the
basis of subprime mortgage data that was accessible to others as
well as government officials, who in 2007 claimed that subprime
woes have limited impact.
(Read our full coverage on the story at:
McGraw-Hill Hit by S&P Lawsuit
McGraw-Hill ended the quarter with cash and cash equivalents
of $761 million, long-term debt of $799 million, and
shareholders' equity of $840 million. The company incurred
capital expenditures of $97 million and generated free cash flow
from continuing operations of $626 million in 2012.
During 2012, the company repurchased $300 million shares and
distributed $300 million in dividends. Moreover, the company paid
a special dividend of $700 million in Dec 2012.
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