McGraw-Hill First-Quarter Net Income Rises on Demand for Credit Ratings

McGraw-Hill Cos., the publisher and provider of financial data, said first-quarter profit rose on demand for bond ratings from its Standard & Poor’s unit.

Net income rose 16 percent to $120 million, or 39 cents a share, from $103.3 million, or 33 cents, a year earlier, the New York-based company said in a statement. Profit beat the 37- cents-a-share average estimate of six analysts surveyed by Bloomberg.

Standard & Poor’s, which generated 35 percent of the company’s revenue and 89 percent of its operating profit, is benefiting from an increase in new bond issues, said Peter Appert, an analyst at Piper Jaffray & Co. in San Francisco. Revenue from McGraw-Hill’s financial services segment grew 16 percent after its September acquisition of TheMarkets.com, a stock-research company.

“The S&P business really drives the profitability,” Appert said in a phone interview. “The debt markets have roared back to life after a near-death experience in 2008, 2009.”

First-quarter revenue rose 7.7 percent to $1.28 billion, from $1.19 billion a year earlier, according to the statement.

McGraw-Hill fell 85 cents, or 2.2 percent, to $38.74 at 10:19 a.m. in New York Stock Exchange composite trading. The shares have gained 8.3 percent this year through yesterday.

McGraw-Hill maintained its forecast of earnings per share of $2.79 to $2.89 per share.

‘Good Start’

“It’s just one quarter, the start of the year,” said Harold “Terry” McGraw, chairman and chief executive officer, said on a conference call with analysts. “What’s pleasing is that it’s a good start and everything is falling into shape the way we were hoping it would.”

McGraw-Hill’s textbook publishing business, which made up 40 percent of its 2010 revenue, had a loss in the first quarter because schools don’t order classroom material until later in the year, said Appert, who has an “overweight” rating on the company’s shares.

“The valuation of the stock is negatively impacted by the education business,” Appert said.

McGraw-Hill’s textbook business faces uncertainties as state and local governments struggle to fund education, Appert said. School districts are reluctant to spend on materials when they are unable to pay teachers’ salaries, he said.

“When push comes to shove, the last thing they want to do is fire Mrs. Jones when you can defer spending on textbooks,” he said.

To contact the reporter on this story: Oliver Staley in New York at ostaley@bloomberg.net

To contact the editor responsible for this story: Jonathan Kaufman at jkaufman17@bloomberg.net

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