McGraw Hill's Profit Beats Estimates Despite Decline at S&P

  • Ratings business revenue drops 9% on weak global bond issuance
  • Maintains 2016 outlook; J.D. Power sale to close 3rd quarter

McGraw Hill Financial Inc., owner of Standard & Poor’s, the world’s largest credit rater, reported a 5 percent increase in first-quarter profit, beating analysts’ estimates.

Adjusted net income increased 5 percent to $349 million from a year earlier, the New York-based company said today in a statement. Excluding income from portions of a joint venture and an investment in a business the company doesn’t fully own, net income increased to $320 million.

While overall revenue rose 5 percent to $1.34 billion, it declined 9 percent to $552 million at the S&P ratings business. The company attributed this to "very weak global bond issuance," which it said fell 14 percent globally and 64 percent in high-yield.

The credit rater will continue to face a difficult bond-issuance market, which is likely to pressure growth in 2016, according to Bloomberg Intelligence analyst Joshua Yatskowitz.

‘Good Start’

The company is "off to a good start in 2016" despite slower sales of new bonds this year, Jack Callahan, chief financial officer, said on an earnings call Tuesday.

Revenue gains were paced by a 27 percent jump to $407 million in the S&P Global Market Intelligence unit, according to the statement. Revenue increased 13 percent to $254 million in its commodities and commercial markets business, and rose 5 percent to $151 million in its S&P Dow Jones Indices unit.

The company continued to project 2016 adjusted earnings in the range of $5 to $5.15 per share. Its $1.1 billion sale of market-research business J.D. Power to XIO Group is expected to close in the third quarter, according to the statement.

Profit, excluding certain items including insurance recoveries and charges from government ratings probes, was $1.20 a share, topping the $1.15 average estimate of 13 analysts in a Bloomberg survey.

McGraw Hill’s shares rose 1.9 percent to $105.08 at 10:06 a.m. in New York. They were up 4.7 percent this year through Monday.

(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.mhfi.com)

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