McGraw Hill Financial, Inc. (MHFI)

MHFI 
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McGraw Hill Financial Inc (MHFI)

Q2 2013 Earnings Call

July 25, 2013 8:30 am ET

Executives

Robert S. Merritt - Vice President of Investor Relations

Harold Whittlesey McGraw - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Douglas L. Peterson - President

John F. Callahan - Chief Financial Officer and Executive Vice President

Kenneth M. Vittor - Executive Vice President and General Counsel

Analysts

William G. Bird - Lazard Capital Markets LLC, Research Division

Manav Patnaik - Barclays Capital, Research Division

Alex Kramm - UBS Investment Bank, Research Division

Craig Huber

Peter P. Appert - Piper Jaffray Companies, Research Division

Douglas M. Arthur - Evercore Partners Inc., Research Division

Patrick J. O'Shaughnessy - Raymond James & Associates, Inc., Research Division

David Reynolds - Jefferies LLC, Research Division

Edward J. Atorino - The Benchmark Company, LLC, Research Division

Presentation

Operator

Good morning, and welcome to McGraw Hill Financial's Conference Call. I'd like to inform you this call is being recorded for broadcast. [Operator Instructions] To access the webcast and slides, go to www.mhfi.com -- that's MHFI for McGraw Hill Financial, Inc. dot-com -- and click on the link for the second quarter earnings webcast. [Operator Instructions] I would now like to introduce Mr. Chip Merritt, Vice President of Investor Relations for McGraw Hill Financial. Sir, you may begin.

Robert S. Merritt

Good morning. Thank you for joining us this morning for McGraw Hill Financial's Second Quarter 2013 Earnings Call. Presenting on this morning's call are Harold McGraw III, Chairman, President and CEO; Doug Peterson, President of Standard & Poor's Ratings Services; and Jack Callahan, Chief Financial Officer. Also joining us is Ken Vittor, our General Counsel.

This morning, we issued a news releases with our results. I trust you've all had a chance to review the release. If you need a copy of the release and financial schedules, they can be downloaded at www.mhfi.com.

In today's earnings release and during the conference call, we're providing adjusted financial information. This information is provided to enable investors to make meaningful comparisons of the corporation's operating performance between periods and to view the corporation's business from the same perspective as management's. The earnings release contains exhibits that reconcile the difference between the non-GAAP measures and the comparable financial measures calculated in accordance with U.S. GAAP. The results also reflect the reclassification of McGraw-Hill Education as discontinued operation.

Before we begin, I need to provide certain cautionary remarks about forward-looking statements. Except for historical information, the matters discussed in the teleconference may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including projections, estimates and descriptions of future events. Any such statements are based on current expectations and current economic conditions and are subject to risks and uncertainties that may cause actual results to differ materially from results anticipated in these forward-looking statements. In this regard, we direct listeners to the cautionary statements contained in our Form 10-Ks, 10-Qs and other periodic reports filed with the U.S. Securities and Exchange Commission.

I would also like to call your attention to a new European regulation. Any investor who has or expects to obtain ownership of 5% or more of McGraw Hill Financial should give me a call to better understand the impact of this legislation on the investor and, potentially, the company.

We're aware that we do have some media representatives with us on the call. However, this call is intended for investors and would ask that questions from the media be directed to Jason Feuchtwanger in our New York office at (212) 512-3151 subsequent to this call.

Now I would like to turn the call over to Harold McGraw III. Terry?

Harold Whittlesey McGraw

Okay. Thank you, Chip. And Chip, you do such a great job representing all our shareholders. I thank you for that. Good morning, everyone, and thanks for being with us, and welcome to today's conference call.

I'd like to begin this call by summarizing the highlights that we will cover today. Our second quarter results contributed to the strong momentum that we have delivered since reporting McGraw Hill Financial results separately. In fact, so far this year, our revenue has increased 15%, and adjusted diluted EPS has increased 30%. We will provide a legal update. I know this is a topic that many are watching closely. We also have our next President and CEO, Doug Peterson, on today's call to make some comments about his new role and discuss the results of Standard & Poor's Ratings Services, the business he is currently running, and to give you a chance to ask him any questions during the Q&A. We will also discuss our plans to take a larger stake in CRISIL. This is India's largest rating agency. We'll also discuss very briefly our recent announcement to sell the Aviation Week group. And lastly, as part of Jack Callahan's financial discussion, we will share our newly increased 2013 EPS guidance.

All right, so let's turn to the financial performance during the second quarter. Our initial full year 2013 guidance called for a high single-digit revenue growth and approximately 15% diluted adjusted EPS growth. However, during the second quarter, we delivered 17% revenue growth and 31% diluted adjusted EPS growth, reaching $0.92 per share. Our 3 strongest benchmark businesses led the growth again this quarter: Standard & Poor's Rating Services, Platts and S&P Dow Jones Indices. Cost control and accelerated share repurchase program also contributed to the EPS increase.

While we're clearly off to a very solid start, keep in mind that comparisons will become a little bit more difficult because of each quarter of 2012, we delivered sequential increases in revenue and diluted adjusted earnings per share. In addition, Doug will discuss recent trends in issuance, of which we need to be mindful of.

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