The McGraw-Hill Companies Inc. (MHP), which
will be rechristened as McGraw Hill Financial and commence trading
under a new symbol “MHFI” on May 14, posted better-than-expected
first-quarter 2013 earnings of 80 cents a share that outpaced the
Zacks Consensus Estimate of 72 cents, and jumped 29% year over
year. However, management reiterated its 2013 earnings guidance of
$3.10 to $3.20 per share.
The company reclassified its Education segment as discontinued
operations, which was divested to Apollo Global Management
LLC (APO) for $2.4 billion in cash.
Total revenue of this Zacks Rank #2 (Buy) stock escalated 14%
year-over-year to $1,181 million, but fell short of the Zacks
Consensus Estimate of $1,185 million.
Segment Details
Standard & Poor’s Ratings
Services segment revenue augmented 20% to
$561 million attributable to strength witnessed across corporate
issuance and sustained recovery experienced in the U.S. structured
finance issuance. Operating income increased 39% to $259
million.
Transaction revenue, which include ratings of publicly issued
debt and bank loan, and corporate credit estimates, surged 36% to
$264 million. On the other hand, non-transaction revenue, which
includes annual contracts, surveillance fees and subscriptions,
elevated 9% to $297 million.
S&P Capital IQ segment revenue
grew 5% to $288 million, driven by an increase of 5% in
subscription revenue to $260 million. Non-subscription revenue also
jumped 5% to $28 million. S&P Capital IQ's international
revenue climbed 12% to $98 million. Segment’s operating income fell
9% to $56 million.
The company acquired Credit Market Analysis Limited (CMA) from
CME Group Inc. (CME). London-based Credit Market
Analysis Limited is an independent data provider in the
over-the-counter markets. The acquisition strengthens S&P
Capital IQ’s position in the market, where it competes with
Reuters, FactSet and Bloomberg.
With the growing need of investors to access readily available
data, fierce competition has emerged among the companies offering
financial information solutions to grab a wider market through
superior functionality and investor oriented services.
To grab its share of the market, the company took a similar
stance in the past and acquired QuantHouse, the provider of market
statistics and trading solutions along with R2 Financial
Technologies that offers risk and scenario-based analytics across
different asset classes to investors, risk and portfolio managers
for pricing, hedging and capital maintenance.
These moves enable McGraw-Hill to offer investors access to
global exchange pricing, securities valuations and asset analytics,
while facilitating S&P Capital IQ to create real-time
platforms, data base and analytics.
Further, 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 cover equity and market research reports and
earnings estimates with valuation models from leading brokers. The
number of S&P Capital IQ Desktop Solutions users rose 10%
year-over-year.
S&P Dow Jones Indices revenue
soared 45% to $115 million during the first quarter. However,
excluding the revenue related to the Dow Jones Indexes,
revenue marked an increase of 9% to $86 million. Segment’s
operating income surged 47% to $67 million.
The company noted that assets under management in
exchange-traded funds surged 26% to $450 billion on S&P's
indices. Moreover, assets under management came in at $525
billion, including the Dow Jones Indexes.
The company along with CME Group announced the commencement of
their index business with the launch of S&P-Dow Jones
Indices.
CME Group owned 90% of the joint venture (JV) between CME Group
and News Corp.’s (NWSA) Dow Jones, which also owns
Dow Jones Indexes, before the JV between CME Group and McGraw-Hill
was established in November last year. The JV aims to tap the
rapidly growing index business.
The transaction is expected to be accretive to McGraw-Hill’s
earnings and S&P-Dow Jones Indices is expected to drive profit
growth through enhanced revenue, asset-class expansion, cost
synergies, highly efficient infrastructure and reduced capital
requirements, while generating free cash flow.
Commodities & Commercial Markets
segment revenue inched up 1% to $236 million, as the strong
performance at Platts was offset by sluggish revenue result at
Commercial market due to lower advertising at J.D. Power and
Associates. Aviation Week also faced tough comparison. Segment
operating income tumbled 2% to $62 million.
Commodities marked growth of 10% to $130 million during the
period. However, revenue fell 8% at Commercial Markets.
Financial Aspects
McGraw-Hill ended the quarter with cash and cash equivalents of
$1,905 million, long-term debt of $799 million and shareholders’
equity of $1,082 million. The company incurred capital expenditures
of $22 million and generated negative free cash flow of $86
million.
Concurrent to the sale of its education division, McGraw-Hill on
Mar 25 announced an accelerated share repurchase program of $500
million.
APOLLO GLOBAL-A (APO): Free Stock Analysis Report
CME GROUP INC (CME): Free Stock Analysis Report
MCGRAW-HILL COS (MHP): Free Stock Analysis Report
NEWS CORP INC-A (NWSA): Free Stock Analysis Report
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