Owner of credit rating agency Standard & Poor's and book publisher McGraw-Hill Cos., Inc. (MHP) on Monday reported a 14% year-over-year decline in profit for the third quarter, hurt by a drop in revenues across all business segments. However, Standard & Poor's credit market services registered the first quarterly increase in revenue since the third quarter of 2007.
Earnings per share for the quarter declined, but topped analysts' expectations by two cents. The company also raised its fiscal 2009 earnings forecast to be at the top-end of the prior outlook, and forecasted a higher decline in full year revenues from last year.
McGraw-Hill Companies provides information services in sectors like financial services, education and business information markets. Its most famous brands include BusinessWeek, Standard & Poor's, McGraw-Hill Education, and J.D. Power and Associates.
However, McGraw-Hill agreed earlier this month to sell its world-renowned weekly business magazine, BusinessWeek to Bloomberg L.P., with the transaction expected to close during the fourth quarter of 2009. The divestiture of BusinessWeek will enable McGraw-Hill to continue focusing resources on building the size, scale and global presence of its leading brands across fast-growing worldwide markets in financial services, education and business information. In July, the company had started exploring strategic options for BusinessWeek, in the wake of a significant slump in advertising revenues in recent quarters.
Third Quarter Results
The New York-based company posted net income of $336.11 million or $1.07 per share for the third quarter, down about 13.5% from $390.17 million or $1.23 per share in the prior-year quarter. The results for the year-ago quarter included $0.05 per share of an after-tax restructuring charge.
On average, six analysts polled by Thomson Reuters expected the company to report earnings of $1.05 per share for the third quarter. Analysts' estimates typically exclude special items.
Revenues for the quarter declined 8.4% to $1.88 billion from $2.05 billion reported in the same quarter last year, and missed four Wall Street analysts' consensus estimate of $1.94 billion.
Segmental Details
Revenues for McGraw-Hill education decreased 11.6% from the year-ago quarter to $1.0 billion, while segment operating profit declined 15.9% to $298.14 million from the prior-year quarter. McGraw-Hill school education group revenues decreased 19.6%, and revenues for the McGraw-Hill higher education, professional and international group edged down 1.8%. The company noted that it produced good growth in the U.S. college and university market, while the elementary-high school market declined.
Revenues for financial services, which includes Standard & Poor's ratings services, decreased 2.2% from a year ago to $636.98 million. Operating profit for the segment declined 10.1% from the prior-year quarter to $256.18 million. Revenues for Standard & Poor's credit market services edged up 0.7%, while Standard & Poor's investment services revenues declined 7.6%. The company noted that Standard & Poor's credit market services registered the first quarterly increase in revenue since the third quarter of 2007. Information & media, which includes J.D. Power & Associates and the recently divested BusinessWeek, reported a 10.1% decline in revenues from a year ago to $238.90 million. Segment operating profit increased 29.3% from the same quarter last year to $29.54 million. Revenues for the business-to-business group decreased 8.7%, and broadcasting group revenues also dropped 23.9%. The company added that Platts, our worldwide energy information service, again turned in solid results, partially offset declines in print and television advertising.
Other Metrics
Income from operations for the third quarter slid 14.8% to $555.97 million from the prior-year quarter, and total expenses were $1.32 billion, down 5.4% from the year-ago quarter.
The company noted that cost containment remains a priority, and reduced total costs and expenses by 5.4% in the third quarter, including the impact of a $23.4 million pre-tax restructuring charge last year. This was despite a $68 million increase in incentive compensation after substantial reductions in 2008.
Provision for taxes on income for the quarter decreased 16.3% to $195.88 million from $234.10 million in the comparable quarter a year ago. Net interest expense were $17.83 billion, down 19.0% from last year.
Nine Month Highlights
For the nine month period, McGraw-Hill reported net income of $563.21 million or $1.80 per share, down from $683.57 million or $2.13 per share in the year-ago period. Revenue for the year-to-date period declined 9.1% to $4.49 billion from $4.94 billion in the same period last year.
Looking Ahead..........
"The new earnings per share guidance excludes the second quarter restructuring charge of $0.03, a $0.03 loss on the divestiture of Vista Research in May and a projected $0.02 gain ($9.3 million pre-tax and $5.9 million after-tax) on the sale of BusinessWeek in the fourth quarter," added McGraw III.
For fiscal 2009, McGraw-Hill currently expects earnings at the top end of its prior forecast in the range of $2.20 to $2.25 per share. Earlier, the company had anticipated earnings at the low end of that range. Analysts currently expect the company to report earnings of $2.24 per share for full year 2009.
The company also now expects revenues to decline by about 7%, reflecting revenues of $5.91 billion. Earlier, the company had projected a revenue decline of 5.5% to 6.5%. The Street is looking for fiscal 2009 revenues of $5.96 billion.
Stock Quote
MHP closed Friday's regular trading session at $30.49, down $0.37 on a volume of 3.97 million shares, lower than the three-month average volume of 4.22 million shares. In the past 52-week period, the stock has been trading in a broad range of $17.22 to $34.10.
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