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McGraw Hill Financial Reports First Quarter Results

McGraw Hill Financial Reports First Quarter Results

Revenue Increased 6%

Diluted EPS from Continuing Operations Increased 26% to $1.10

Adjusted Diluted EPS from Continuing Operations Increased 25% to $1.09

Operating Margin Increased 430 Basis Points to 39.4%

Adjusted Operating Margin Increased 380 Basis Points to 38.9%

Company Release - 4/28/2015 7:10 AM ET

NEW YORK, April 28, 2015 /PRNewswire/ -- McGraw Hill Financial, Inc. (NYSE: MHFI) today reported first quarter 2015 results with revenue of $1.27 billion, an increase of 6% compared to the same period last year. Net income and diluted earnings per share from continuing operations were $303 million and $1.10, respectively.

Adjusted net income from continuing operations increased 24% to $299 million and adjusted diluted earnings per share from continuing operations increased 25% to $1.09. The adjustments in the first quarter of 2015 were related to insurance recoveries for legal settlements largely offset by settlement charges.

"This is a good start to 2015," said Douglas L. Peterson, President and Chief Executive Officer of McGraw Hill Financial. "All of the Company's businesses delivered mid single-digit revenue growth despite the headwinds of a strong U.S. dollar.  This growth, coupled with excellent progress with ongoing productivity programs, led to a significant improvement in profitability."

Outlook: There is no change to the Company's guidance.  Adjusted diluted earnings per share guidance for 2015 remains $4.35 to $4.45.

Standard & Poor's Ratings Services:  Quarterly revenue increased 6% to $606 million in the first quarter of 2015 compared to the same period last year despite challenging changes in foreign exchange rates.

Transaction revenue grew 18% to $289 million compared to the same period last year. This was primarily the result of issuance increases in U.S. corporate debt and U.S. public finance offset somewhat by weakness in bank loan ratings.

Non-transaction revenue decreased 2% in the quarter, due to the strong U.S. dollar and a decline in entity credit ratings as fewer new customers were added during the quarter.  With the strength in transaction revenue, non-transaction revenue was 52% of Standard & Poor's Ratings Services' total revenue compared to 57% for the same period last year.

Domestic revenue increased 15% and international revenue decreased 4%. International revenue, impacted by a strong U.S. dollar and lower growth in Europe, represented 42% of Standard & Poor's Ratings Services' first-quarter revenue.

Expenses declined 4%.  Adjusted expenses in the quarter decreased due to recent restructuring actions, tight cost control, and favorable foreign exchange rate changes.

Operating profit increased 21% to $291 million with an operating profit margin that increased 580 basis points to 48%.

Adjusted operating profit increased 19% to $285 million with an adjusted operating profit margin that increased 480 basis points to 47%.  

S&P Capital IQ:  Revenue increased 6% to $320 million in the first quarter of 2015 compared to the same period last year.  Excluding previous portfolio rationalization, organic revenue growth was 7%.  Expenses increased 4% and operating profit increased 18% to $63 million. 

The S&P Capital IQ Desktop product had the most meaningful impact on revenue with low-teens revenue growth resulting from a similar increase in the number of users.

S&P Capital IQ's international revenue increased 6% to $108 million in the first quarter and represented 34% of the business unit's total revenue.

S&P Dow Jones Indices:  Revenue increased 5% to $143 million in the first quarter of 2015 compared to the same period last year.  Expenses increased 6% driven by timing of headcount additions. Operating profit increased 4% to $95 million.  Operating profit attributable to the Company increased 5% to $70 million.

Top-line growth in the quarter can be attributed to increased mutual funds' AUM, over-the-counter derivative trading licenses, and data subscriptions. Assets under management in exchange-traded funds based on the S&P Dow Jones Indices increased 22% to $810 billion at the end of the quarter. Trading volume of exchange-traded derivatives declined; notably, the SPX monthly contract (S&P 500 Index) and VIX (CBOE Volatility Index).  Revenue and operating profit growth was negatively impacted by a one-time revenue increase recorded in the first quarter of 2014.  As a result, revenue associated with exchange-traded funds declined modestly during the first quarter of 2015.

Commodities & Commercial Markets:  Revenue increased 7% to $225 million. Expenses decreased 1% due to tight cost control. Operating profit was $85 million in the first quarter of 2015, an increase of 23% compared to the same period last year.  These results exclude McGraw Hill Construction which was sold in 2014 and reclassified as a discontinued operation in the first quarter 2014 figures. 

Platts continued to experience steady revenue growth in the high single-digits as a result of strength in price assessments and market data subscriptions.  In addition, licensing revenue from Global Trading Services increased primarily due to The Steel Index derivative activity.

J.D. Power delivered high single-digit revenue growth driven by gains in the U.S. auto business.

Unallocated Expense:  Unallocated expense includes corporate center functions and certain non-performance related items such as excess real estate. Unallocated expense decreased by 3% to $33 million in the first quarter primarily due to ongoing productivity efforts.

Return of Capital:  First quarter return of capital to shareholders, in the form of share repurchases and dividends, was $204 million. During the quarter, the Company repurchased approximately 1.1 million shares. The Company has approximately 44.5 million shares remaining under the existing authorization from the Board of Directors.

Balance Sheet and Cash Flow:  To meet U.S. cash need, the Company raised $365 million of short-term debt during the quarter through the issuance of commercial paper and utilization of the revolving credit facility.  Cash and equivalents at the end of the first quarter were $1.2 billion, of which approximately $1.0 billion is held outside the United States. In the first three months of 2015, cash used for operating activities from continuing operations was $1,349 million.  Free cash flow from continuing operations was $(1,395) million, a decrease of $1,474 million from the same period in 2014. The significant decrease was the result of payments associated with recent legal settlements. 

Comparison of Adjusted Information to U.S. GAAP Information: Adjusted diluted earnings per share, adjusted diluted earnings per share from continuing operations, adjusted net income, adjusted operating profit and margin, adjusted expense, adjusted unallocated expense, and free cash flow are non-GAAP financial measures contained in this earnings release that are derived from the Company's continuing operations. This information is provided in order to allow investors to make meaningful comparisons of the Company's operating performance between periods and to view the Company's business from the same perspective as Company management. These non-GAAP measures may be different than similar measures used by other companies. Reconciliations for the differences between non-GAAP measures used in this earnings release and comparable financial measures calculated in accordance with U.S. GAAP are attached as Exhibits 5 and 7.

Conference Call/Webcast Details:  The Company's senior management will review the first quarter earnings results on a conference call scheduled for this morning, April 28, 2015, at 8:30 a.m. EDT. This call is open to all interested parties. Discussions may include forward-looking information. Additional information presented on the conference call may be made available on the Company's Investor Relations Website at http://investor.mhfi.com.

The Webcast will be available live and in replay at http://investor.mhfi.com/phoenix.zhtml?c=96562&p=irol-EventDetails&EventId=5188737. (Please copy and paste URL into Web browser.)

Telephone access is available. Domestic participants may call (888) 391-6568; international participants may call +1 (415) 228-4733 (long distance charges will apply). The passcode is "MHFI" and the conference leader is Douglas Peterson. A recorded telephone replay will be available approximately two hours after the meeting concludes and will remain available until May 28, 2015. Domestic participants may call (800) 759-1637; international participants may call +1 (203) 369-3019 (long distance charges will apply). No passcode is required.

Forward-Looking Statements:  This press release contains "forward-looking statements," as defined in the Private Securities Litigation Reform Act of 1995. These statements, which express management's current views concerning future events, trends, contingencies or results, appear at various places throughout this report and use words like "anticipate," "assume," "believe," "continue," "estimate," "expect," "forecast," "future," "intend," "plan," "potential," "predict," "project," "strategy," "target" and similar terms, and future or conditional tense verbs like "could," "may," "might," "should," "will" and "would." For example, we may use forward-looking statements when addressing topics such as: the outcome of contingencies; future actions by regulators; changes in our business strategies and methods of generating revenue; the development and performance of our services and products; the expected impact of acquisitions and dispositions; our effective tax rates; and our cost structure, dividend policy, cash flows or liquidity.

Forward-looking statements are subject to inherent risks and uncertainties. Factors that could cause actual results to differ materially from those expressed or implied in our forward-looking statements include, among other things:

  • the rapidly evolving regulatory environment, in the United States and abroad, affecting Standard & Poor's Ratings Services, Platts, S&P Dow Jones Indices, S&P Capital IQ and our other businesses, including new and amended regulations and our compliance therewith;
  • the outcome of litigation, government and regulatory proceedings, investigations and inquiries;
  • worldwide economic, financial, political and regulatory conditions;
  • the health of debt and equity markets, including credit quality and spreads, the level of liquidity and future debt issuances;
  • the level of interest rates and the strength of the credit and capital markets in the U.S. and abroad;
  • the demand and market for credit ratings in and across the sectors and geographies where we operate;
  • concerns in the marketplace affecting our credibility or otherwise affecting market perceptions of the integrity or utility of independent credit agency ratings;
  • our ability to maintain adequate physical, technical and administrative safeguards to protect the security of confidential information and data, and the potential of a system or network disruption that results in regulatory penalties, remedial costs and/or improper disclosure of confidential information or data;
  • the effect of competitive products and pricing;
  • consolidation in our end-customer market;
  • the impact of cost-cutting pressures across the financial services industry;
  • a decline in the demand for credit risk management tools by financial institutions;
  • the level of success of new product development and global expansion;
  • the level of merger and acquisition activity in the U.S. and abroad;
  • the volatility of the energy marketplace;
  • the health of the commodities markets;
  • the impact of cost-cutting pressures and reduced trading in oil and other commodities markets;
  • the level of our future cash flows;
  • our ability to make acquisitions and dispositions and to integrate, and realize expected synergies, savings or benefits from, the businesses we acquire;
  • the level of our capital investments;
  • the level of restructuring charges we incur;
  • the strength and performance of the domestic and international automotive markets;
  • our ability to successfully recover should we experience a disaster or other business continuity problem, such as a hurricane, flood, earthquake, terrorist attack, pandemic, security breach, cyber attack, power loss, telecommunications failure or other natural or man-made disaster;
  • changes in applicable tax or accounting requirements;
  • the impact on our net income caused by fluctuations in foreign currency exchange issues; and
  • our exposure to potential criminal sanctions or civil remedies if we fail to comply with foreign and U.S. laws and regulations that are applicable in the domestic and international jurisdictions in which we operate, including sanctions laws relating to countries such as Iran, Russia, Cuba, Sudan and Syria, anti-corruption laws such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act of 2010, local laws prohibiting corrupt payments to government officials, as well as import and export restrictions.

The factors above are not exhaustive.  The Company and its subsidiaries operate in a dynamic business environment in which new risks may emerge frequently. Accordingly, we caution readers not to place undue reliance on the above forward-looking statements, which speak only as of the dates on which they are made. The Company undertakes no obligation to update or revise any forward-looking statement to reflect events or circumstances arising after the date on which it is made. Further information about our businesses, including information about factors that could materially affect our results of operations and financial condition, is contained in the Company's filings with the SEC, including Item 1a, Risk Factors, in our most recently filed Annual Report on Form 10-K.

About McGraw Hill Financial: McGraw Hill Financial is a leading financial intelligence company providing the global capital and commodity markets with independent benchmarks, credit ratings, portfolio and enterprise risk solutions, and analytics. The Company's iconic brands include Standard & Poor's Ratings Services, S&P Capital IQ, S&P Dow Jones Indices, Platts, CRISIL, and J.D. Power. The Company has approximately 17,000 employees in 30 countries. Additional information is available at www.mhfi.com.

Investor Relations: http://investor.mhfi.com 
Get news direct from McGraw Hill Financial via RSS: 
http://investor.mhfi.com/phoenix.zhtml?c=96562&p=rssSubscription&t=&id=&  

Contact: 
Investor Relations: 
Chip Merritt
Vice President, Investor Relations
(212) 512-4321 (office)
chip.merritt@mhfi.com

News Media: 
Jason Feuchtwanger
Director, Corporate Media Relations
(212) 512-3151 (office)
jason.feuchtwanger@mhfi.com

 

Exhibit 1


McGraw Hill Financial

Condensed Consolidated Statements of Income

Three months ended March 31, 2015 and 2014

(dollars in millions, except per share data)



(unaudited)


2015


2014


%
Change










Revenue


$

1,273


$

1,196


6%


Expenses


772


776


(1)%


Operating profit


501


420


19%


Interest expense, net


16


14


13%


Income from continuing operations before taxes on income


485


406


20%


Provision for taxes on income


156


138


13%


Income from continuing operations


329


268


23%


Income from discontinued operations (a)



7


N/M


Net income


329


275


20%


Less: net income attributable to noncontrolling interests - continuing


(26)


(27)


(2)%


Net income attributable to McGraw Hill Financial, Inc.


$

303


$

248


22%










Amounts attributable to McGraw Hill Financial, Inc. common shareholders:








Income from continuing operations


$

303


$

241


26%


Income from discontinued operations



7


N/M


Net income


$

303


$

248


22%










Earnings per share attributable to McGraw Hill Financial, Inc. common shareholders:








Income from continuing operations:








Basic


$

1.11


$

0.89


25%


Diluted


$

1.10


$

0.87


26%


Income from discontinued operations:








Basic


$


$

0.02


N/M


Diluted


$


$

0.02


N/M


Net income:








Basic


$

1.11


$

0.91


22%


Diluted


$

1.10


$

0.89


23%










Weighted-average number of common shares outstanding:








Basic


273.5


271.8




Diluted


276.3


277.2













N/M - not meaningful


Note - % change in the tables throughout the exhibits are calculated off of the actual number, not the rounded number presented.


(a)

In the fourth quarter of 2014, the Company sold McGraw Hill Construction, which historically was included in our Commodities & Commercial segment. As a result, this business has been reflected as a discontinued operation for the three months ending March 31, 2014.

 

Exhibit 2


McGraw Hill Financial

Condensed Consolidated Balance Sheets

March 31, 2015 and December 31, 2014

(dollars in millions)


(unaudited)


March 31,



December 31,




2015



2014









Assets:







Cash and equivalents


$

1,176



$

2,497


Other current assets


1,512



1,469


Total current assets


2,688



3,966


Property and equipment, net


200



206


Goodwill and other intangible assets, net


2,351



2,391


Other non-current assets


209



208


Total assets


$

5,448



$

6,771









Liabilities and Equity:







Short-term debt


$

365



$


Unearned revenue


1,356



1,323


Other current liabilities (a)


858



2,644


Long-term debt


799



799


Pension, other postretirement benefits and other non-current liabilities


671



656


Total liabilities


4,049



5,422


Redeemable noncontrolling interest


810



810


Total equity


589



539


Total liabilities and equity


$

5,448



$

6,771











(a)

Includes an unpaid liability of $68 million and $1.6 billion related to legal and regulatory settlements as of March 31, 2015 and December 31, 2014, respectively.

 

 

Exhibit 3


McGraw Hill Financial

Condensed Consolidated Statements of Cash Flows

Three months ended March 31, 2015 and 2014

(dollars in millions)


(unaudited)


2015



2014









Operating Activities:







Income from continuing operations


$

329



$

268


Adjustments to reconcile income from operations to cash (used for) provided by operating activities from continuing operations:







Depreciation


22



21


Amortization of intangibles


11



12


Stock-based compensation


18



17


Other


72




Accrued legal and regulatory settlements


(1,559)




Net changes in other operating assets and liabilities


(242)



(204)


Cash (used for) provided by operating activities from continuing operations


(1,349)



114









Investing Activities:







Capital expenditures


(16)



(20)


Acquisitions, net of cash acquired


(2)



(15)


Changes in short-term investments


(1)




Cash used for investing activities from continuing operations


(19)



(35)









Financing Activities:







Additions to short-term debt, net


365




Dividends paid to shareholders


(94)



(82)


Dividends and other payments paid to noncontrolling interests


(30)



(15)


Repurchase of treasury shares


(110)



(164)


Exercise of stock options, excess tax benefits from share-based payments and other


89



165


Cash provided by (used for) financing activities from continuing operations


220



(96)


Effect of exchange rate changes on cash from continuing operations


(44)




Cash used for continuing operations


(1,192)



(17)


Cash (used for) provided by discontinued operations


(129)



6


Net change in cash and equivalents


(1,321)



(11)


Cash and equivalents at beginning of period


2,497



1,542


Cash and equivalents at end of period


$

1,176



$

1,531









 

 

Exhibit 4


McGraw Hill Financial

Operating Results

Three months ended March 31, 2015 and 2014

(dollars in millions)




(unaudited)


Revenue












2015


2014


% Change










S&P Ratings Services


$

606


$

569


6%


S&P Capital IQ


320


301


6%


S&P Dow Jones Indices


143


137


5%


Commodities & Commercial Markets


225


211


7%


Intersegment Elimination


(21)


(22)


4%


Total revenue


$

1,273


$

1,196


6%




















Expenses












2015


2014


% Change










S&P Ratings Services (a)


$

315


$

329


(4)%


S&P Capital IQ


257


248


4%


S&P Dow Jones Indices


48


46


6%


Commodities & Commercial Markets


140


141


(1)%


Intersegment Elimination


(21)


(22)


4%


Total expenses


$

739


$

742


—%




















Operating Profit












2015


2014


% Change










S&P Ratings Services (a)


$

291


$

240


21%


S&P Capital IQ


63


53


18%


S&P Dow Jones Indices


95


91


4%


Commodities & Commercial Markets


85


70


23%


Total operating segments


534


454


18%


Unallocated expense


(33)


(34)


(3)%


Total operating profit


$

501


$

420


19%












(a)

2015 includes a benefit of $35 million related to legal settlement insurance recoveries, partially offset by $29 million of legal settlement charges.

 


Exhibit 5


McGraw Hill Financial

Operating Results - Reported vs. Performance

Three months ended March 31, 2015 and 2014

(dollars in millions, except per share amounts)


(unaudited)


2015



2014



% Change




Reported


Non-GAAP
Adjustments


Performance



Reported


Non-GAAP
Adjustments


Performance



Reported


Performance






















S&P Ratings Services


$

291


$

(6)

a

$

285



$

240


$


$

240



21%


19%


S&P Capital IQ


63



63



53



53



18%


18%


S&P Dow Jones Indices


95



95



91



91



4%


4%


Commodities & Commercial Markets


85



85



70



70



23%


23%


Segment operating profit


534


(6)


528



454



454



18%


16%


Unallocated expense


(33)



(33)



(34)



(34)



(3)%


(3)%


Operating profit


501


(6)


495



420



420



19%


18%


Interest expense, net


16



16



14



14



13%


13%


Income before taxes on income


485


(6)


479



406



406



20%


18%


Provision for taxes on income


156


(2)


153



138



138



13%


12%


Income from continuing operations


329


(4)


325



268



268



23%


22%


Income from discontinued operations






7


(7)




N/M


N/M


Net income


329


(4)


325



275


(7)


268



20%


22%


Less: NCI net income - continuing


(26)



(26)



(27)



(27)



(2)%


(2)%


Net income - continuing


303


(4)


299



241



241



26%


24%


Net income - discontinued






7


(7)




N/M


N/M


Net income attributable to MHFI


$

303


$

(4)


$

299



$

248


$

(7)


$

241



22%


24%






















Diluted EPS - continuing


$

1.10


$

(0.01)


$

1.09



$

0.87


$


$

0.87



26%


25%


Diluted EPS - total


$

1.10


$

(0.01)


$

1.09



$

0.89


$

(0.02)


$

0.87



23%


25%























N/M - not meaningful


Note - Totals presented may not sum due to rounding


(a)

Includes a benefit of $35 million related to legal settlement insurance recoveries, partially offset by $29 million of legal settlement charges.

 

 

Exhibit 6


McGraw Hill Financial

Revenue Information

Three months ended March 31, 2015 and 2014

(dollars in millions)


Subscription / Non-Transaction vs. Non-Subscription / Transaction Revenue


(unaudited)


Subscription / Non-Transaction



Non-Subscription / Transaction




2015


2014


% Change



2015


2014


% Change

















S&P Ratings Services (a)


$

317


$

324


(2)%



$

289


$

245


18%


S&P Capital IQ (b)


287


272


6%



33


29


13%


S&P Dow Jones Indices (c)


29


26


14%



114


111


3%


Commodities & Commercial Markets (d)


149


141


6%



76


70


9%


Intersegment elimination


(21)


(22)


4%







Total revenue


$

761


$

741


3%



$

512


$

455


13%



















(a)

Non-transaction revenue is primarily related to annual fees for frequent issuer programs and surveillance, while transaction revenue is related to ratings of publicly-issued debt, bank loan ratings and corporate credit estimates. Non-transaction revenue also includes an intersegment revenue elimination, which mainly consists of the royalty of $20 million for the three months ended March 31, 2015, and $19 million for the three months ended March 31, 2014, charged to S&P Capital IQ for the rights to use and distribute content and data developed by S&P Ratings Services.



(b)

Subscription revenue is related to credit ratings-related information products, S&P Capital IQ Desktop, investment research products and other data subscriptions, while non-subscription revenue is related to certain advisory, pricing and analytical services.



(c)

Subscription revenue is related to data subscriptions, which support index fund management, portfolio analytics and research, while non-subscription revenue relates to fees based on assets underlying exchange-traded funds, as well as certain advisory, pricing and analytical services.



(d)

Subscription revenue at Platts is related to real-time news, market data, and price assessments, along with other information products, while non-subscription revenue is related to licensing of its proprietary market price data and price assessments to commodity exchanges, conference sponsorship, consulting engagements and events. Subscription revenue at J.D. Power is related to information products primarily serving the automotive market, while non-subscription revenue is related to syndicated and proprietary research studies, advertising, consulting engagements and events.

 

 

Domestic vs. International Revenue


(unaudited)


Domestic



International




2015


2014


% Change



2015


2014


% Change

















S&P Ratings Services


$

352


$

305


15%



$

254


$

264


(4)%


S&P Capital IQ


212


199


6%



108


102


6%


S&P Dow Jones Indices


114


108


6%



29


29


(1)%


Commodities & Commercial Markets


98


95


3%



127


116


10%


Intersegment elimination


(11)


(12)


(10)%



(10)


(10)


3%


Total revenue


$

765


$

695


10%



$

508


$

501


1%

















 

 


Exhibit 7




McGraw Hill Financial


Non-GAAP Financial Information


Three months ended March 31, 2015 and 2014


(dollars in millions)




 Computation of Free Cash Flow



(unaudited)

2015


2014


Cash (used for) provided by operating activities from continuing operations

$

(1,349)


$

114


Capital expenditures

(16)


(20)


Dividends and other payments paid to noncontrolling interests

(30)


(15)


Free Cash Flow

$

(1,395)


$

79








McGraw Hill Financial Organic Revenue


(unaudited)

2015


2014


% Change


Total revenue

$

1,273


$

1,196


6%


C&C Eclipse acquisition

(1)





S&P Capital IQ product closures and divestitures


(1)




Total Adjusted Revenue

$

1,272


$

1,195


6%





Adjusted S&P Capital IQ Revenue


(unaudited)

2015


2014


% Change


S&P Capital IQ revenue

$

320


$

301


6%


Product closures and divestitures


(1)




Adjusted S&P Capital IQ Revenue

$

320


$

300


7%





Adjusted Commodities & Commercial Markets Revenue



(unaudited)

2015


2014


% Change


C&C revenue

$

225


$

211


7%


Eclipse acquisition

(1)





Adjusted C&C Revenue

$

224


$

211


6%





Adjusted S&P Dow Jones Indices Net Operating Profit


(unaudited)

2015


2014


% Change


Operating profit

$

95


$

91


4%


Income attributable to noncontrolling interests

25


24




Adjusted Net Operating Profit

$

70


$

67


5%





 

 

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SOURCE McGraw Hill Financial