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McGraw Hill Lifts Earnings Forecast as Profit Tops Estimates

Oct. 22 (Bloomberg) -- McGraw Hill Financial Inc. boosted earnings’ forecasts as the owner of the world’s largest credit rater reported third-quarter profit that topped analysts’ estimates on higher U.S. corporate-bond sales.

Net income rose to $235 million from $151 million, the company said today in a statement distributed by PR Newswire. Earnings excluding certain items were 80 cents a share, exceeding the average estimate of 77 cents in a Bloomberg survey of seven analysts. The company raised its forecast for adjusted earnings per share this year to a range of $3.25 to $3.30 from $3.15 to $3.25.

The adjustments exclude the impact of the gain on the sale of Aviation Week, and India Index Services by credit-rater CRISIL, as well as one-time costs, according to the statement.

McGraw Hill is benefiting from interest rates at about historic lows, spurring companies to raise cash by selling bonds. The 125-year-old company has transformed into a financial-services provider following its publishing division sale earlier this year. Douglas Peterson, president of the ratings unit, is succeeding Chief Executive Officer Harold “Terry” McGraw III Nov. 1, who is retiring from the position he has held since 1998 while retaining his role as chairman.

Bond Sales

Revenue at Standard & Poor’s, which makes up about half of the company’s sales by rating debt, increased 8 percent to $540 million from $502 million a year earlier, according to data compiled by Bloomberg. Shares rose 1.2 percent today to $70.65, the highest level since June 2007, advancing 29.2 percent this year.

Corporate bond sales in the U.S. increased to $395.2 billion in the three months ended Sept. 30 from $376.9 billion in the same period last year, Bloomberg data show. Yields on debt from the most creditworthy to the riskiest U.S. borrowers have averaged 3.81 percent this year, below the five-year average of 5.38 percent since October 2008, according to the Bank of America Merrill Lynch U.S. Corporate & High Yield index.

Apollo Global Management LLC bought the education division from McGraw Hill in March for $2.4 billion. The company decided in September 2011 to sell the unit, which McGraw’s great-grandfather started 125 years ago, after pressure from Jana Partners LLC, a New York-based hedge fund, and the Ontario Teachers’ Pension Plan. The former owner of Chemical Engineering and Modern Plastics sold Aviation Week in July.

The U.S. Department of Justice sued the company Feb. 4, alleging that its S&P ratings unit inflated grades to win business from Wall Street banks. S&P said the following day it will defend itself “vigorously” against the “meritless” claims.

The U.S. is seeking as much as $5 billion from New York-based McGraw Hill in its lawsuit, alleging the company deliberately understated the risk of bonds backed by loans made to the riskiest borrowers.

Moody’s Corp., the company’s biggest competitor, is scheduled to report third-quarter earnings on Oct. 25.

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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