McGraw-Hill Companies, Inc. (MHP), book publisher and owner of credit rating agency Standard & Poor's, on Tuesday reported a 44% increase in profit for the fourth quarter, aided by a recovery in global corporate debt issuance and strength in higher education in addition to cost-cutting measures.
This is the company's first quarterly increase in earnings per share since the third quarter of 2007. The company provided earnings outlook for fiscal year 2010 in line with analysts' consensus estimate.
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.
Net income attributable to the company for the fourth quarter was $167.29 million or $0.53 per share, up from $115.92 million or $0.37 per share in the prior-year quarter. In the preceding third quarter, the company had reported net income of $336.1 million or $1.07 per share.
The results for the latest quarter include an after-tax gain of $6.7 million, or $0.02 per share from the sale of the weekly business magazine BusinessWeek in December to Bloomberg L.P., while the year-ago quarter's results include an after-tax restructuring charge of $16.4 million or $0.05 per share.On average, six analysts polled by Thomson Reuters expected the company to report earnings of $0.40 per share for the fourth quarter. Analysts' estimates typically exclude special items.
Revenues for the quarter increased 3.3% to $1.46 billion from $1.42 billion reported in the same quarter last year, but dropped from $1.88 billion in the previous quarter. Analysts had a consensus revenue estimate for the quarter of $1.40 billion. This was the first quarterly increase since the third quarter of 2007.
Harold McGraw III, chairman, president and chief executive officer of The McGraw-Hill Companies, said, "Continued recovery in the corporate new issue market here and overseas at Standard & Poor's Credit Market Services and an upswing in higher education, professional and international markets enabled us to finish 2009 positively and set the stage for more growth in 2010. Increased revenue and tight cost controls contributed to substantial improvement in our operating margin in the fourth quarter compared to the same period last year."
Among McGraw Hill's rivals, Moody's Corp. (MCO) will release its financial results for the fourth quarter before the market opens on February 4, with analysts expecting earnings of $0.39 per share on revenues of $451.48 million. Moody's had earlier raised its fiscal 2009 earnings outlook to a range of $1.60 - $1.68 per share from the prior range of $1.45 - $1.55 per share.
Quarterly revenues for McGraw-Hill education increased 2.6% from the year-ago quarter to $519.96 million. Segment operating profit for the quarter was $33.47 million, compared to loss of $12.73 million in the year-ago period, which included restructuring charges of $11.4 million. The company noted that foreign exchange rates increased revenue by $8.2 million, but reduced operating profit by $2.0 million.
McGraw-Hill school education group revenues decreased 7.6%, and revenues for the McGraw-Hill higher education, professional and international group increased 7.5%. The company noted that the elementary-high school market showed signs of recovery in the final months of 2009.
Revenues for financial services, which includes Standard & Poor's ratings services, increased 10.6% from a year ago to $689.20 million. Operating profit for the segment grew 14.6% from the prior-year quarter to $249.97 million and includes a $26.2 million increase in incentive compensation. The year-ago quarter's results included a a pre-tax restructuring charge of $6.6 million. Foreign exchange rates benefited revenue by $16.5 million, but negatively impacted operating profit for the quarter by $8.1 million.
Revenues for Standard & Poor's credit market services climbed 19.4% to $473.4 million. A surge in debt issuance produced a 62.5% increase in transaction revenue to $153.0 million, or 32.3% of credit market services' revenue for the quarter.
Non-transaction revenue, which includes annual contracts, surveillance and subscription fees, grew by 6.0% to $320.3 million, driven by increases in subscriptions and annual fees, and favorable foreign exchange rates. Meanwhile, Standard & Poor's investment services revenues declined 4.8% to $215.8 million.
Information & media, which includes J.D. Power & Associates, reported a 11.4% decline in revenues from a year ago to $253.34 million. Segment operating profit surged 40.6% to $45.93 million and includes a pre-tax gain of $10.5 million on the divestiture of BusinessWeek in December. The prior-year quarter's results include a pre-tax charge of $5.3 million for restructuring.
Revenues for the business-to-business group decreased 9.5% to $230.0 million and reflects revenue for two months from BusinessWeek. Other brands in the group include Aviation Week, J.D. Power and Associates, McGraw-Hill Construction and Platts.
Broadcasting group revenues for the quarter decreased 26.6% to $23.3 million. National and local-time sales declined in the fourth quarter. The company noted that the absence of political advertising in a non-election year was the biggest factor in the decrease in both fourth quarter and full year results.
Total expenses declined 2.4% from a year ago to $1.18 billion. Income from operations for the fourth quarter surged 42.2% to $292.95 million from $206.03 million in the prior-year quarter.
For fiscal year 2009, McGraw-Hill reported net income of $730.50 million or $2.33 per share, down from $799.49 million or $2.51 per share in the previous year. Analysts expected the company to report earnings of $2.26 per share for the year.
The results for the year included a loss of $0.03 per share on the divestiture of Vista Research, net restructuring charges of $0.03 per share and a gain on the divestiture of BusinessWeek of $0.02 per share. The prior year's results included restructuring charges of $0.14 per share.
The company had earlier projected full-year earnings at the top end of its prior forecast in a range of $2.20- $2.25 per share.
Revenue for the year declined 6.3% to $5.95 billion from $6.36 billion last year. Analysts had a consensus revenue estimate for the year of $5.89 billion. The company had expected revenues for the year to decline by about 7%.
For fiscal year 2010, the company forecasts earnings per share in a range of $2.55-$2.65. This compares to earnings of $2.33 per share in 2009. Analysts expect the company to report earnings of $2.56 per share for the year.
In Tuesday's regular trading session, MHP is trading at $34.03, up $0.63 or 1.88% on a volume of 0.40 million shares. In the past 52 weeks, the stock has been trading in a range of $17.22-$35.24.
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