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McGraw-Hill Profit Rises on Demand for Market Data, News

McGraw-Hill Cos., the finance and publishing company that’s splitting in two, said second-quarter profit rose 2.4 percent on increased demand for market data and news.

Net income rose to $216 million, or 76 cents a share, from $211 million, or 68 cents, a year earlier, the New York-based company said today in a statement. Earnings excluding some items related to its breakup and cost-cutting plan were 85 cents a share, beating the 76-cent average of analysts’ estimates compiled by Bloomberg.

McGraw-Hill, the owner of Standard & Poor’s, said Sept. 12 it will break into two companies, one focused on financial information and the other on educational publishing, by the end of this year. The company is also evaluating selling the education business instead of spinning it off, Chief Executive Officer Harold “Terry” McGraw III said on a conference call with analysts and investors.

“It’s fairly clear they are pursuing a dual track of full speed ahead on the spin and exploring a sale,” said Peter Appert, an analyst with Piper Jaffray & Co. in San Francisco. Because of tax implications “they need to get a meaningfully higher amount in a sale transaction than in a spin off.”

McGraw-Hill rose 2.6 percent to $46.14 at the close in New York. The shares have gained 5 percent in the past year.

The company has been bolstered by its S&P Capital IQ unit, which analyzes financial market data, and Platts, which provides news and prices for energy commodities, Appert said.

Commodities Division

Operating profit for McGraw’s Commodities & Commercial division, which includes Platts, rose 45 percent to $71 million, the company said. Adjusted operating profit for S&P Capital IQ and S&P Indices increased 17 percent to $115 million.

“Platts is the dominant player of the energy pricing business,” said Appert, who has an “overweight” rating on the shares and doesn’t own any himself. “It’s always been strong but was hidden deep in the bowels of McGraw-Hill’s media and information segment for many years.”

Profit per share was also driven by reduced share count, the result of the company buying back more than $1.5 billion in shares since 2010, Appert said.

Sales fell to $1.55 billion from $1.56 billion a year earlier, as education publishing revenue dropped 12 percent, McGraw-Hill said. State funding of K-12 education is at its lowest point in a decade, McGraw said on the conference call.

“We believe 2012 will be the low water mark in the K-12 space and that the market will show a modest recovery in 2013,” he said.

The company said full-year earnings would be “near the high end” of its April forecast of $3.25 to $3.35 a share.

The company began a strategic review of its businesses in 2010. On Aug. 22, Jana Partners LLC, a New York-based hedge fund and investor in McGraw-Hill, proposed a plan to break up the company after education revenue fell for three straight quarters.

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