The McGraw-Hill Companies Inc. (MHP), a publisher and provider of financial information and media services, posted better-than-expected first-quarter 2011 results on the heels of strong performance across Standard & Poor’s (S&P’s) unit.
The quarterly earnings of 39 cents a share beat the Zacks Consensus Estimate of 37 cents, and rose 18.2% from 33 cents earned in the prior-year quarter.
The Zacks Consensus Estimate for the quarter remained stagnant prior to the earnings release with one out 8 analysts following the stock revising the estimate upward and another analyst lowering the estimate in the last 30 days.
McGraw-Hill continues to expect fiscal 2011 earnings between $2.79 and $2.89 per share. The current Zacks Consensus Estimate for fiscal 2011 is $2.86, which lies at the high end of the guidance range.
McGraw-Hill’s total revenue of $1281.9 million handily beat the Zacks Consensus Estimate of $1,266 million, and jumped 7.7% from the prior-year quarter aided by growth in the McGraw-Hill Financial, Standard & Poor’s and Information & Media segments, offset by a decline at its Education segment.
Segment Details
McGraw-Hill Financial segment revenue grew 16.2% to $324 million, driven by an increase of 16.3% in subscription revenue to $240.2 million and 16.1% in non-subscription revenue to $83.8 million. Excluding, the acquisition of TheMarkets.com, revenue jumped 11.9% to $311.9 million.
The acquisition of TheMarkets.com by Capital IQ strengthened its position in the highly competitive financial data provider sector.The acquisition facilitates Capital IQ to provide a comprehensive research package to its buy-side clients, which not only include fundamental and quantitative research as well as analysis solutions but also cover equity and market research reports and earnings estimates with valuation models from leading brokers.
Capital IQ had a client base of approximately 3,600 at the end of the quarter, reflecting a growth of 23% from the prior-year.
Standard & Poor’s (S&P) segment revenue climbed 10.4% to $442.9 million during the quarter. Transaction revenue, which includes ratings of publicly issued debt and bank loan, and corporate credit estimates, soared 17.2% to $176.3 million, whereas non-transaction revenue, which includes annual contracts, surveillance fees and subscriptions, grew 6.3% to $266.6 million.
McGraw-Hill informed that an record new issuance in the global high-yield corporate bonds, rise in demand for ratings of bank loans and robust gains in the U.S. investment-grade corporate market benefited S&P’s transaction revenue.
The Education segment recorded a drop of 4.6% in revenue to $302.7 million, reflecting revenue declines of 4.8% to $106.2 million at McGraw-Hill School Education Group and 4.5% to $196.5 million at McGraw-Hill Higher Education, Professional and International Group.
The higher education and professional market witnessed strong double-digit growth rate across digital products and services, and the increase in demand for online study tools (e.g. McGraw-Hill Connect series, McGraw-Hill Create).
Information & Mediasegment revenue rose 10.3% to $227.5 million mainly driven by revenue growth of 10.3% to $206.9 million at Business-to-Business Group, and 10.2% to $20.6 million at Broadcasting Group.
Financial Aspects
McGraw-Hill ended the quarter with cash and cash equivalents of $1,269.6 million, long-term debt of $1,198 million, and shareholders’ equity of $2,315.7 million. The company incurred capital expenditures of $18.4 million and generated negative free cash flow of $74.1 million during the quarter. The company also bought back 3.3 million shares at $37.44 each, aggregating $123.6 million.
Currently, we have a long-term Neutral rating on McGraw-Hill, which competes with Pearson plc (PSO). Moreover, the company holds a Zacks #3 Rank, which translates into a short-term Hold recommendation, and correlates with our long-term view.
MCGRAW-HILL COS (MHP): Free Stock Analysis Report
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