The McGraw-Hill Companies, Inc. (MHP: 29.66 -1.05 -3.42%), a publisher and provider of financial information and media services, reported better-than-expected second-quarter 2010 results on the heels of robust performance across Standard & Poor’s (S&Ps) indices, the U.S. higher education market and global energy information markets.The quarterly earnings of 61 cents a share topped the Zacks Consensus Estimate by a penny, and rose 5.2% from 58 cents posted in the prior-year quarter. The prior-year quarter earnings exclude 6 cents a share for net restructuring charges and a loss from a divestiture.
McGraw-Hill’s total revenue of $1,474.1 million fell short of the Zacks Consensus Revenue Estimate of $1,542 million but portrayed a slender increase of 0.6% from the prior-year quarter, helped by growth in Education and Financial Services segments but offset by a decline in its Information and Media segment.
A marginal increase in the top-line coupled with effective cost management enabled McGraw-Hill to register a 4.2% growth in total adjusted operating profit of $305.4 million.
The Education segment recorded a growth of 1.8% in revenue to $565 million, reflecting a revenue growth of 10.8% to $240.1 million at McGraw-Hill Higher Education, Professional and International Group, partially offset by a decline of 4% to $324.9 million witnessed at McGraw-Hill School Education Group.
The higher education and professional market was buoyed by double-digit gains registered in digital products and services, and the increase in demand for online study tools (e.g. McGraw-Hill Connect series) powered by higher enrollment in U.S. academic institutions last fall.
However, management cautioned that without a similar surge in enrollments this year, the U.S. higher education market is expected to rise by 5% to 7% in fiscal year 2010. Furthermore, management now expects the elementary-high school market to rise in the range of 4% to 6%, down from a growth rate of 6% to 7% forecasted earlier, due to sluggish sales of reading materials in California, South Carolina and Indiana markets on account of budget cuts, partially offset by robust performance in the Texas market.
The Financial Services segment revenue grew 1.6% to $684.8 million, driven by a revenue expansion of 0.1% to $457.9 million at S&Ps Credit Market Services, and a growth of 4.9% to $227 million at S&P’s Investment Services.
Transaction revenue at S&P Credit Market Services, which includes ratings of publicly-issued debt and bank loans and corporate credit estimates, rose 2.7% to $150.8 million, whereas non-transaction revenue at S&P Credit Market Services, which includes annual contracts, surveillance fees and subscriptions, dropped by 1.1% to $307 million.
McGraw-Hill informed that global issuances of industrial and speculative grade corporate paper is declining and credit spreads are widening on account of worries about the European capital market and the sluggish recovery in the U.S. Consequently, new issue volume in the United States dropped 40% and Europe issuance fell by 56.3% in the quarter.
S&P’s Investment Services benefited from the Capital IQ brand that increased its client base by 13.9% year-over-year to 3,200; and the launch of 32 exchange-traded funds on S&P indices.
Information & Media segment revenue tumbled 5.1% to $224.2 million, mainly due to a revenue decline of 7.8% to $198.9 million at Business-to-Business Group, but partially offset by an increase of 24% to $25.3 million at Broadcasting Group.
Excluding the divestiture of the BusinessWeek magazine (now part of Bloomberg), revenue for the Information & Media segment rose by 7.4%, whereas Business-to-Business Group jumped 5.6%.McGraw-Hill sold the magazine, which had long been grappling with a slump in advertising demand amid the global downturn, in December 2009 as advertisers migrated to the Internet due to increasing online readership and lower ad prices than print.
Moving forward, McGraw-Hill clarified that given the uncertainty prevailing in the market; it now expects fiscal 2010 earnings to be at the low-end of the guidance range of $2.55 to $2.65 per share provided earlier.
| Overall Summary: |  65%, Bullish 35%, Bearish |
| Analysts' Targets | |
| UBS Securities | $42 |
| Add | |
| Wednesday, January 27, 2010 | |
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