The McGraw-Hill Companies Inc.
), a publisher and provider of financial information and media
services, recently posted healthy fourth-quarter 2011 results. The
quarterly earnings of 63 cents a share came way ahead of the Zacks
Consensus Estimate of 57 cents, and jumped 17% from the prior-year
quarter's earnings of 54 cents.
The company stated that the strong performance of S&P
Indices, S&P Capital IQ, Platts and healthy performance in U.S.
higher education boosted the quarterly profits.
However, on a reported basis, including one-time items, earnings
decreased 4% to 47 cents a share compared with 49 cents in the
Buoyed by healthy results, the company now expects earnings of
$3.25 to $3.35 in fiscal 2012 on a consolidated basis.
McGraw-Hill's total revenue inched up 2% to $1,520 million
compared with $1,496 million in the prior-year quarter. However,
the reported revenue fell short of the Zacks Consensus Estimate of
S&P Capital IQ/S&P Indices
(Earlier McGraw-Hill Financial) segment revenue grew 8% to $348
million, driven by an increase of 7% in subscription revenue to
$256 million and 10% in non-subscription revenue to $92
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
Revenue for S&P Capital IQ increased 8% to $268 million in
the reported quarter. Capital IQ had a client base of over 3,800 at
the end of the quarter, reflecting a growth of 14% from the
The company also witnessed increase in the number of
exchange-traded funds (ETFs) on S&P indices, which currently
stands at 378, portraying a recovery in the worldwide market and
fresh investments from investors as 14 new ETFs were launched
during the quarter under review.
Standard & Poor's Ratings
(Earlier Standard & Poor's) segment revenue decreased 8% to
$434 million during the quarter, reflecting sluggishness in global
credit markets. Transaction revenue, which includes ratings of
publicly issued debt and bank loan, and corporate credit estimates,
came down 26% to $148 million. McGraw-Hill notified that the
lingering concerns over European sovereign crisis, increasing
credit spreads and waning economy dented S&P's transaction
Non-transaction revenue, which includes annual contracts,
surveillance fees and subscriptions, grew 5% to $286 million,
reflecting growth in the new corporate credits, gains at CRISIL and
non-issue based analytical services.
Commodities & Commercial
(Earlier Information & Media) segment revenue rose 8% to $239
million driven by strong performance in Platts' revenue. The
company stated that the reported quarter reflects the
reclassification of the Broadcasting Group as discontinued
McGraw-Hill completed the sale of its Broadcasting group to
The E. W. Scripps Company
) for $212 million during the quarter.
The divestiture is part of the company's attempt to restructure
its portfolio of businesses and concentrate more on global brands,
thereby enhancing shareholder value through proper capital
segment experienced an increase of 4% in revenue to $516 million,
reflecting 8% increase in revenue to $385 million in McGraw-Hill
Higher Education, Professional and International Group. Revenue
declined 5% to $131 million at McGraw-Hill School Education
The higher education and professional market witnessed strong
double-digit growth rate across digital products and services, and
the increase in demand for online study tools.
Update on Growth and Value Plan
McGraw-Hill through its value plan will split into two
independent entities, McGraw-Hill Financial and McGraw-Hill
Education with optimal-size capital and cost arrangement for
amplifying client commitment while improving strategic and economic
McGraw-Hill Financial will focus on capital and commodities
markets and will include the iconic brands like S&P Ratings,
S&P Capital IQ, S&P Indices, Platts and Commercial
Moreover, McGraw-Hill's Education division will focus on
education services and digital learning while speeding up and
supplementing its growth through digital services and buyouts.
In addition, the company will focus on abridging costs
drastically to ensure competent operating channels. Moreover,
McGraw-Hill intends to save approximately $100 million through
McGraw-Hill reduced approximately 800 jobs in the quarter under
review including 10% or 550 jobs at its education division. The
company plans to develop its education division more into a
subscription-based model through capitalizing on growth
opportunities and developing education services and digital
products and solutions.
Moreover, to restrict its future liabilities and better forecast
its costs related to retirement plan, McGraw-Hill will be altering
its pension program to bring its retirement program at par with
market practice. The company will freeze its defined-benefit
pension plan as of April 1, 2012.
McGraw-Hill added that the above moves will generate
approximately $50 million in annual cost savings, which will
supplement the company to surpass its announced cost savings of
McGraw-Hill ended the quarter with cash and cash equivalents of
$944 million, long-term debt of $798 million, and shareholders'
equity of $1,584 million. The company incurred capital expenditures
of $119 million and generated free cash flow of $807 million during
the fiscal 2011.
During the quarter under review, McGraw-Hill repurchased $845
million shares, including $500 million through an accelerated share
repurchase transaction. In fiscal 2011, the company repurchased
$1.5 billion shares.
Currently, we have a long-term Neutral rating on McGraw-Hill,
which competes with
). Moreover, the company holds a Zacks #2 Rank, which translates
into a short-term Buy recommendation.
MCGRAW-HILL COS (
): Free Stock Analysis Report
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