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McGraw Hill Financial (MHFI)

Q3 2013 Earnings Call

October 22, 2013 8:30 am ET


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


Alex Kramm - UBS Investment Bank, Research Division

Andre Benjamin - Goldman Sachs Group Inc., Research Division

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

Peter P. Appert - Piper Jaffray Companies, Research Division

Craig Huber

Timothy McHugh - William Blair & Company L.L.C., Research Division

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

David Reynolds - Jefferies LLC, Research Division



Good morning, and welcome to McGraw Hill Financial's Conference Call. I'd like to inform you that this call is being recorded for broadcast. [Operator Instructions] To access the webcast and slides, go to That's M-H-F-I for McGraw Hill Financial, and click on the link for the third 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 for McGraw Hill Financial's Third Quarter 2013 Earnings Call. Presenting on this morning's call are: Harold McGraw III, Chairman, President and CEO; Doug Peterson, President and CEO Designate; and Jack Callahan, Chief Financial Officer. Also joining us is Ken Vittor, our General Counsel.

This morning, we issued a news release with our results. I trust you all had a chance to review the release. If you need a copy of the release and financial schedules, they can be downloaded at In today's earnings release and during the conference call, we are 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.

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 and 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 Forms 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% 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 we 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.

At this time, I would like to turn the call over to Harold McGraw III. Terry?

Harold Whittlesey McGraw

Okay. Thanks, Chip, and good morning, everyone. And let me quickly begin this morning by saying just how pleased we all are with the effort and the care that Chip Merritt demonstrates each and every day. And for those of you who have followed us for quite some time, you'll remember the great Don Rubin. Well, Chip is in that category now, and that's pretty high praise. So thanks for all that you're doing, Chip. And again, thanks for all of you for being with us this morning, and welcome to today's conference call.

I'd like to begin this call by summarizing the highlights that we will cover today. First and very importantly, after a very successful transition, Doug Peterson will become our President and CEO on November 1. We increased our investment also in CRISIL, India's largest rating agency. And that's up to 67.8%, a fine use of some of our x U.S. cash. Also the sale of Aviation Week was completed. We delivered several records during the third quarter, both S&P Capital IQ and S&P Dow Jones Indices delivered record quarterly revenue. And Commodities & Commercial Markets reported a record adjusted operating margin.

Despite difficult comparisons and lower issuance than the third quarter last year, Standard & Poor's Rating Services grew its revenue 8% and its adjusted operating profit at 5%. The company repurchased 5.7 million shares during the quarter, bringing the year-to-date total to 15 million shares. We reported 13% diluted adjusted EPS growth despite challenging year-over-year debt issuance comparisons. And lastly, as part of Jack Callahan's financial discussion, we will share our newly increased 2013 EPS guidance, guidance that has now been increased 2 quarters in a row.

We recently launched a brand awareness advertising campaign. And the purpose is to generate greater awareness among customers, the financial community, regulators and the media about the McGraw Hill Financial brand. The primary message is that we have combined the leading brands and ratings, benchmarks and analytics to become the world's foremost provider of financial intelligence. This is an example of one of the posters. COMBINED WE ARE is the theme that permeates this campaign.

Okay. Let's turn now to the financial performance during the third quarter. Revenue increased 7%, adjusted operating margin increased 130 basis points to 33.2% and diluted earnings per share grew 13%. Standard & Poor's Dow Jones Indices delivered the strongest revenue growth. But both Commodities & Commercial Markets and S&P Dow Jones Indices delivered the greatest adjusted operating profit growth of 24% and 23%, respectively. A reduction in shares outstanding from our continuing share repurchases has also contributed to the EPS increase. And these 2 pie charts should help put into perspective the revenue and operating earnings contribution of each of our business segments. Each of our segments is a major contributor to both revenue and operating profit.

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