McGraw Hill Financial, Inc. MHFI reported third-quarter 2015 adjusted earnings per share from continuing operations of $1.19, which increased 16% from the year-ago quarter and beat the Zacks Consensus Estimate of $1.08 per share.
Strong performance across the board led to a 5% year-over-year increase in revenues to $1,324 million. However, due to intensified currency fluctuations, revenues missed the Zacks Consensus Estimate of $1,327 million.
Operating profit grew 12% to $410 million while margin expanded 210 bps to 31%.
The company, which is looking for a strategic alternative for J.D. Power, increased its full-year guidance for adjusted earnings per share, which is now expected in the band of $4.45 to $4.50, up from the previous guidance of $4.35–$4.45. The current Zacks Consensus Estimate is pegged at $4.43 per share.
Segment Details
Standard & Poor’s Ratings Services segment revenues decreased 3% year over year to $587 million, negatively impacted by 20% fall in global issuance as well as foreign exchange rate. Adjusted operating profit grew 5% to $280 million while adjusted margin increased 380 basis points to 48%.
Transaction revenues, which include ratings of publicly issued debt and bank loan as well as corporate credit estimates, were down 9% from the year-ago quarter to $244 million primarily due to weak global bond issuance mainly in Asia and Latin America. However, non-transaction revenues, which include annual contracts, surveillance fees and subscriptions, increased 3% to $343 million, driven by increased demand for Rating Evaluation Service from heightened M&A activity along with growth at CRISIL.
Region-wise, the segment’s domestic revenue increased 8% but international revenues declined 14%.
S&P Capital IQ & SNL segment revenues grew 14% year over year to $356 million. S&P Capital IQ's international revenues increased 12% to $120 million. However, the segment’s operating income declined 18% to $53 million. The company completed the acquisition of SNL on Sep 1. Third-quarter results also comprise one month revenues from SNL.
S&P Dow Jones Indices revenues rose 9% to $156 million from the prior-year quarter, driven by steep growth in exchange-traded derivative activity related with S&P Dow Jones Indices, licensing revenue due to growth in assets under management (AUM) in mutual funds, derivative trading licenses and data subscriptions. The segment’s operating income increased 18% to $106 million.
The company noted that AUM in exchange-traded funds based on the S&P Dow Jones indices rose 2% year over year to $749 billion.
Commodities & Commercial Markets segment revenues grew 9% year over year to $248 million, reflecting strong performance at Platts. The segment’s adjusted operating income rose 11% to $93 million.
Financial Aspects
McGraw-Hill Financial ended the quarter with cash and equivalents of $1,411 million and long-term debt of $3,489 million. The company incurred capital expenditures of $74 million and generated a negative free cash flow of $497 million, marred by legal payments.
During the quarter, McGraw-Hill Financial repurchased 2.3 million shares. It has 40.6 million shares left under the current buyback authorization.
Zacks Rank
At present, McGraw Hill Financial is a Zacks Rank #4 (Sell) stock. Some better-ranked stocks are IHS Inc. IHS, Virtu Financial, Inc. VIRT and Ladder Capital Corp. LADR. All these stocks hold a Zacks Rank #2 (Buy).
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