Despite foreign exchange headwinds, McGraw Hill Financial, Inc MHFI has reported yet another better-than-expected quarter. First-quarter 2015 adjusted earnings per share from continuing operations came in at $1.09, which increased 25% from the year-ago quarter. Including one-time items, earnings per share were $1.10, up from 89 cents reported in the prior quarter.
The Zacks Consensus Estimate for the quarter was $1.00 per share.
Strong performance across the board led to a 6% increase in revenues to $1,273 million, which also surpassed the Zacks Consensus Estimate of $1,272 million.
However, management still expects fiscal 2015 earnings to be around $4.35–$4.45 per share compared with adjusted earnings of $3.88 reported in 2014. The current Zacks Consensus estimate is pegged at $4.40 per share and is likely to be revised upward.
Operating profit grew 19% to $501 million while margin expanded 430 bps to 39.4%. Adjusted operating margin increased 380 bps to 38.9%.
Segment Details
Standard & Poor’s Ratings Services segment revenues increased 6% year over year to $606 million. Adjusted operating profit grew 19% to $285 million.
Transaction revenues, which include ratings of publicly issued debt and bank loan as well as corporate credit estimates, jumped 18% from the year-ago quarter to $289 million. However, non-transaction revenues, which include annual contracts, surveillance fees and subscriptions, fell 2% marred by forex headwinds and lesser number of new customers in the quarter.
Region-wise, the segment’s domestic revenue increased 15% but international revenues declined 4%. Slow growth in Europe along with currency headwinds took the shine off international revenues.
S&P Capital IQ segment revenues grew 6% year over year to $320 million. Excluding portfolio restructuring, organic revenues rose 7%. S&P Capital IQ's international revenues increased 6% to $108 million. Moreover, the segment’s operating income rose 18% to $63 million.
S&P Dow Jones Indices revenues rose 5% to $143 million from the prior-year quarter, driven by growth in assets under management (AUM) in mutual funds, higher over-the-counter derivative trading licenses and data subscriptions. The segment’s operating income increased 4% to $95 million.
The company noted that AUM in exchange-traded funds based on the S&P Dow Jones indices rose 22% year over year to $810 billion.
Commodities & Commercial Markets segment revenues grew 7% year over year to $225 million, reflecting strong performance at Platts and J.D. Power. Segment operating income rose 23% to $85 million.
Financial Aspects
McGraw-Hill Financial ended the quarter with cash and equivalents of $1,176 million and long-term debt of $799 million. The company incurred capital expenditures of $16 million and generated a negative free cash flow of $1,395 million marred by legal payments.
During the quarter, McGraw-Hill Financial repurchased 1.1 million shares. It has 44.5 million shares left under the current buyback authorization.
Zacks Rank
At present, McGraw Hill Financial is a Zacks Rank #3 (Hold) stock. Better-ranked stocks in the same sector include National Research Corp. NRCIB and Verisk Analytics, Inc. VRSK. Both carry a Zacks Rank #2 (Buy).
Another player in the same field Dun & Bradstreet Corp. DNB is scheduled to report first quarter 2015 earnings on May 4.
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