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The McGraw-Hill Companies (MHP)

Q1 2011 Earnings Call

April 26, 2011 8:30 am ET

Executives

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

Jack Callahan - Chief Financial Officer and Executive Vice President

Donald Rubin - Senior Vice President of Investor Relations

Analysts

Douglas Arthur - Evercore Partners Inc.

Michael Meltz - JP Morgan Chase & Co

Sloan Bohlen - Goldman Sachs Group Inc.

Craig Huber -

Peter Appert - Piper Jaffray Companies

William Bird - Lazard Capital Markets LLC

Presentation

Operator

Good morning, and welcome to The McGraw-Hill Companies' First Quarter 2011 Earnings Call. I'd like to inform you that the call is being recorded for broadcast. [Operator Instructions] To access the webcast and slides, go to www.mcgraw-hill.com and click on the link for the earnings announcements conference call. At the bottom of the webcast page are 2 links. If you are listening by telephone, please select the first link for slides only. For both slides and audio via webcast, select the windows media link. [Operator Instructions] I would now like to introduce Donald Rubin, Senior Vice President of Investor Relations of The McGraw-Hill Companies. Sir, you may begin.

Donald Rubin

Thank you, and good day to our worldwide audience. We thank everyone for joining us today for McGraw-Hill's First Quarter 2011 Earnings Call. I'm Donald Rubin, Senior Vice President of Investor Relations for The McGraw-Hill Companies. With me today are Harold McGraw III, Chairman, President and CEO; and Jack Callahan, Executive Vice President and Chief Financial Officer. This morning, the company issued a news release with first quarter earnings results. We trust you all had a copy and a chance to review the release. If you need a copy of the release and financial schedules, they can be downloaded at www.mcgraw-hill.com. Once again, that is www.mcgraw-hill.com.

In today's earnings release and during the conference call, we are providing adjusted revenue, free cash flow and net cash information. This information is provided to enable investors to make meaningful comparisons of the company's operating performance between periods and to view the company's business from the same perspective as management's. The earnings release contains exhibits that reconcile the differences between the non-GAAP measures and 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 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.

We are aware that we do have some media representatives with us today on the call. However, this call is for investors, and we would ask that questions from the media be directed to Jason Feuchtwanger in our New York office at area code (212) 512-3151 subsequent to this call. Today's update will last approximately an hour. After our presentations, the meeting will be open to questions and answers.

It's now my pleasure to introduce the Chairman, President and CEO of The McGraw-Hill Companies, Harold McGraw.

Harold McGraw

Okay. Thank you, Don. And good morning, everybody, and welcome to our conference call. As Don said, with me today is Jack Callahan, our Chief Financial Officer. We're going to review the first quarter results and the outlook for The McGraw-Hill Companies for the rest of 2011. Following our presentations, obviously, Jack will discuss the key financials, and then we'll go to any questions or comments that anyone has.

As we reported earlier this morning in our news release on the first quarter results, a promising year is off to a good start. Earnings per share grew by 18.2% to $0.39 a share. Revenue grew by 7.7% to $1.3 billion. Our new segment, McGraw-Hill Financial, is unlocking new value. So let's start today's call by reviewing the performance and the prospect and begin with McGraw-Hill Financial.

McGraw-Hill Financial is off to a strong start, adding subscribers, 74% of the revenue comes from subscriptions, and growing in both international and domestic markets. In the first quarter, revenue with the addition of TheMarkets.com increased by 16.2% and 11.9% without the acquisition. Operating profit grew by 35.3%. The operating margin expanded to 29.7%.

McGraw-Hill Financial is focused on integrating and involving its capabilities into 1 scaled operation, offering global financial professionals our high-value content across all asset classes. We continue to make progress in leveraging our intellectual property across the new organization, while growing individual businesses. This activity involves developing innovative and integrated solutions for clients to manage investment and trading strategies. Case in point, a new leveraged loan index for our benchmark group that was created in collaboration between 2 McGraw-Hill Financial businesses, S&P Indices and S&P Leveraged Commentary & Data, designed to expand S&P's family of fixed income indices, the index became the basis of the first bank loan exchange-traded fund to hit the market.

Assets under management in the new Invesco PowerShares leveraged loan ETF hit $70 million in the first month. This is just 1 of 32 new exchange-traded funds based on S&P Indices that were introduced in the first quarter of 2011. 18 of the new ETFs by the way were launched outside the United States. We now have 333 exchange-traded funds linked to S&P Indices with $323 billion in assets under management, and by the way, that's a 27% year-over-year increase.

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