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McGraw Hill Financial Inc (MHFI)
Q1 2014 Earnings Conference Call
April 29, 2014 08:30 am ET
Chip Merritt - Vice President, Investor Relations
Doug Peterson - President, Chief Executive Officer, Director
Jack Callahan - Chief Financial Officer, Executive Vice President
Ken Vittor - Executive Vice President, General Counsel
Manav Patnaik - Barclays
Alex Kramm - UBS
Andre Benjamin - Goldman Sachs
Joseph Foresi - Janney Capital Markets
Peter Appert - Piper Jaffray
Doug Arthur - Evercore
Tim McHugh - William Blair
Craig Huber - Huber Research Partners
Bill Warmington - Wells Fargo Securities
Ed Atorino - Benchmark
Previous Statements by MHFI
» McGraw Hill Financial Management Discusses Q4 2013 Results - Earnings Call Transcript
» McGraw Hill Financial Management Discusses Q3 2013 Results - Earnings Call Transcript
» McGraw Hill Financial Inc at Barclays Global Financial Services Conference - Transcript
To access the webcast and slides, go to www.mhfi.com for [www.mcgraw-hill.com] and click on the link for the first quarter earnings webcast. (Operator Instructions)
I would now like to introduce Mr. Chip Merritt, Vice President of Investor Relations for McGraw Hill Financials. Sir, you may begin.
Thank you and good morning. Thanks all online for joining us for McGraw Hill Financial's First Quarter 2014 Earnings Call. Presenting on this morning's call are Doug Peterson, President 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 have 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 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.
This 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 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 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, and 10-Qs and other periodic reports filed with the U.S. Securities and Exchange Commission.
I would also like to call your attention to the recent European regulation. Any investor who has who expects to obtain ownership of 5% or more of McGraw Hill Financial's should give me a call to better understand the impact of this legislation on the investor and potentially the company. We are aware that we do have some media representatives with us on the call. However, this call is intended for investors and we will ask the question from the media to 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 Doug Peterson. Doug?
Thanks, Chip, and good morning. It was great to have a chance to meet with many of you during our recent Investor Day, and we thank you for your participation and feedback on the event. Most of the key messages we delivered on Investor Day, are focused on creating growth and driving performance. Setting annual growth goals and maintain disciplined capital allocation, more actively managing businesses, completing our portfolio rationalization and driving productivity savings are all part of this focus.
The year is off to a solid start, despite the decrease [reported] increases in both, revenue and earnings for the quarter. Platts and S&P Dow Jones Indices delivered double-digit revenue growth, driving the overall MHFI growth in the quarter. During Investor Day, we spoke about our global footprint and the opportunities we see for international growth and during the first quarter international revenue growth of 7% was more than twice that of domestic growth.
During the quarter, we reported free cash flow $85 million and returned $246 million in dividends and share repurchases, which continues to demonstrate our commitment to returning capital to shareholders.
If we look at the financial performance during the quarter, revenue increased 5% year-on-year and 6% from organic growth. Adjusted operating profit increased 8%. We achieved a 100-basis point improvement in the operating margin and adjusted diluted EPS increased 12%. The strength of our portfolio is clearly evident this quarter. Weak issuance hindered the growth at S&P rating services, but S&P Dow Jones Indices in commodities and commercial markets delivered double-digit operating profit increases. This chart shows how our non-ratings businesses comprised 48% of operating profit, up from 41% a year ago. S&P Dow Jones Indices and Platts once only small parts of our portfolio have grown into major contributors.
Now let me turn to the individual business segments, and I will start with Standard & Poor's Ratings Services. During the quarter, revenue increased 1%, operating profit decreased 4% and the operating margin decreased 220 basis points to 42.2%. As is widely understood the marketplace bond issuance was erratic during the quarter, but overall it was weak.