Book publisher McGraw-Hill Cos., Inc. (MHP), owner of credit rating agency Standard & Poor's, on Tuesday reported a 22.7% year-over-year decline in profit for the second quarter, hurt by a drop in revenues across all business segments as well as restructuring charges. Citing weakening market conditions in advertising and school education, the company trimmed the top-end of the prior earnings outlook for fiscal 2009, and also 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.
In a statement, president and chief executive officer, Harold McGraw III said, "Strength in U.S. higher education, the global corporate bond market and at Platts, our worldwide energy information service, were offset by softness in the elementary-high school market, structured finance and advertising in the second quarter. In the face of challenging economic conditions, we reduced costs and expenses by 9.5% in the second quarter. Cost containment will be a priority all year."
Second Quarter Results
The New York-based publisher of BusinessWeek posted net income of $164.09 million for the second quarter, down 22.7% from $212.29 million in the prior-year quarter. On a per share basis, earnings declined 21.2% to $0.52 from $0.66 in the year-ago quarter.
The results for the latest quarter include an after-tax restructuring charge of $9.7 million or $0.03 per share related to a workforce reduction of about 550 positions, and a pre-tax loss of $13.8 million or $0.03 per share on the sale of Vista Research in May 2009. The year-ago quarter results included $0.05 per share of restructuring charge.
On average, six analysts polled by Thomson Reuters expected the company to report earnings of $0.55 per share for the second quarter. Analysts' estimates typically exclude special items.
Revenues for the quarter declined 12.4% to $1.47 billion from $1.67 billion in the same quarter last year, and missed four Wall Street analysts' consensus estimate of $1.54 billion.
Among McGraw-Hill's peers, New York-based Moody's Corp. (MCO) is scheduled to report financial results for the second quarter on July 29. Analysts expect the company to report earnings of $0.40 per share on revenues of $426.57 million for the second quarter.
Segmental Details
Revenues for McGraw-Hill education decreased 17.2% from the year-ago quarter to $555.19 million, while segment operating profit plunged 70.1% to $21.01 from the prior-year quarter million. McGraw-Hill school education group revenues decreased 22.7%, and revenues for the McGraw-Hill higher education, professional and international group declined 6.9%.
Financial services, which includes Standard & Poor's ratings services, revenues decreased 8.4% from a year ago to $673.79 million. Operating profit for the segment declined 8.8% from the prior-year quarter to $276.35 million. Unfavorable Foreign exchange hurt segment revenues by $26.0 million and operating profit by $8.0 million. Revenues for Standard & Poor's credit market services decreased 9.9%, and Standard & Poor's investment services revenues declined 4.9%. Information & media, which includes J.D. Power & Associates and BusinessWeek, reported a 11.5% decline in revenues from a year ago to $236.20 million. Segment operating profit dropped 41.8% from the same quarter last year to $14.42 million. Revenues for the business-to-business group decreased 10.2%, and broadcasting group revenues also declined 23.1%.
Other Metrics
Income from operations for the second quarter slid 18.7% to $296.33 million from the prior-year quarter, and expenses were $1.17 billion, down 10.7% from the year-ago quarter.
Provision for taxes on income for the quarter increased 24.6% to $96.09 million from $127.38 million in the comparable quarter a year ago. Other losses for the quarter totaled $13.85 million, compared to nil last year.
On July 13, the company said it is exploring strategic options for its world-renowned weekly business magazine, BusinessWeek, in the wake of a significant slump in advertising revenues for the weekly in recent quarters. Three days later, the company said it initiated several measures including realignment of select business operations and a workforce reduction of about 550 positions, in an effort to strengthen core offerings and help manage costs.
Standard & Poor's and its peers Moody's Investors Service, Inc. and Fitch, Inc. have been under fire for their role in the ongoing crisis in the global financial markets. The credit rating agencies have been targeted for being responsible for assessing the risks of mortgage-backed securities. Conflicts of interest were largely responsible as securities insurers pay the agencies for issuing ratings and hence the agencies' interests can override those of the investors.
Earlier in the month, The California Public Employees' Retirement System, or Calpers, the largest U.S. public pension fund, reportedly filed a lawsuit against three of the biggest credit-ratings agencies in California Superior Court in San Francisco over what it terms "wildly inaccurate and unreasonably high" risk assessments. Calpers accusing them of causing it hundreds of millions of dollars in losses in structured investment vehicles, a highly complex package of securities. Calpers is seeking damages, but did not specify an amount.
Half Yearly Highlights
For the first six months, McGraw-Hill reported net income of $227.10 million, down 22.6% from $293.40 million in the year-ago period. Earnings per share also declined 19.8% to $0.73 from $0.91 in the prior-year period. Revenue for the year-to-date period declined 9.6% to $2.61 billion from $2.89 billion in the same period last year.
Looking Ahead.......
"In view of the trend in California and Florida, we are cutting our estimate for this year's state new adoption market to a range of $500 million to $550 million. Our previous range was $550 million to $600 million for state new adoptions in 2009. We still expect the elementary-high school market to decline 15% to 20% in 2009," added McGraw III.
For fiscal 2009, citing weakening market conditions in advertising and school education, McGraw-Hill trimmed the top-end of the prior earnings forecast to a range of $2.20 to $2.25 per share from the prior outlook in the range of $2.20 to $2.30 per share. The full year projection excludes second quarter restructuring charge and the divestiture of Vista Research. The Street is looking for full-year 2009 earnings of $2.24 per share.
The company also said that it anticipates full year 2009 revenues to decline 5.5% to 6.5% from last year, reflecting revenues between $5.95 billion and $6.01 billion. Earlier, the company projected a revenue decline of 4.0% to 5.0%. Analysts expect the company to report revenues of $6.03 billion for fiscal 2009.
Stock Quote
MHP closed Monday's regular trading session at $33.16, up $0.73 on a volume of 1.87 million shares, lower than the three-month average volume of 2.55 million shares. In the past 52-week period, the stock has been trading in a broad range of $17.15 to $47.13.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.