McGraw-Hill Earnings Top Estimates on Higher Ratings Demand

McGraw-Hill Cos. (MHP), owner of the world’s largest credit rater, reported first-quarter sales that beat analysts’ estimates on higher ratings revenue.

Adjusted net income increased to $228 million, up from $176 million, the New York-based company said today in a statement distributed by PR Newswire. Net income fell 3.2 percent to $153 million from $158 million a year earlier. Earnings excluding certain items were 80 cents a share, topping the average estimate of 73 cents in a Bloomberg survey of seven analysts.

McGraw-Hill is transforming itself into a financial products and data provider after the 125-year-old company completed the sale of its education unit last month for $2.4 billion in cash to Apollo Global Management LLC (APO) The remaining firm, to be renamed McGraw Hill Financial Inc. pending shareholder approval, has at its center Standard & Poor’s Ratings Services, which was sued Feb. 4 by the U.S. Justice Department for fraud.

Revenue at S&P climbed 20.4 percent to $561 million on higher transaction sales, up from $466 million a year earlier. The U.S. is seeking as much as $5 billion from McGraw-Hill, alleging the company deliberately understated the risk of bonds backed by loans made to the riskiest borrowers to win business from Wall Street banks. The lawsuit sent shares down the most in 25 years.

McGraw-Hill has since rebounded 25.3 percent, gaining 2.8 percent yesterday to close at $53.45, after the company settled lawsuits over the ratings of structured investment vehicles. McGraw-Hill paid about $77 million to settle the two claims, according to the earnings release.

S&P made up 45 percent of the company’s revenue last year. Corporate bond issuance worldwide fell 7.5 percent to $1.1 trillion in the first three months of the year from $1.2 trillion in the same period of 2012, according to data compiled by Bloomberg.

The company’s biggest competitor, Moody’s Corp., reports first quarter earnings May 3. (MCO)

(McGraw-Hill will hold a conference call for analysts and investors at 8:30 a.m. New York time. To listen, access the company’s website at {http://investor.mcgraw-hill.com})

To contact the reporter on this story: Matt Robinson in New York at mrobinson55@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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