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McGraw-Hill: Mcgraw Hill Financial Reports THIRD QUARTER RESULTS

The following excerpt is from the company's SEC filing.

Revenue Increased 5%; Excluding Foreign Exchange Impact, Revenue Increased 7%

Diluted EPS from Continuing Operations Increased 35% to $0.92

Adjusted Diluted EPS from Continuing Operations Increased 16% to $1.19

Operating Margin Increased 210 Basis Points to 31.0%

Adjusted Operating Margin Increased 230 Basis Points to 39.9%

2015 Adjusted Diluted EPS Guidance Increased to a Range of $4.45 to $4.50

Strategic Alternatives for J.D. Power Under Consideration

McGraw Hill Financial, Inc. (NYSE: MHFI) today reported third quarter 2015 results with revenue of $1.32 billion, an increase of 5% compared to the same period last year. Net income and diluted earnings per share from continuing operations were $252 million and $0.92, respectively.

Adjusted net income from continuing operations increased 16% to $325 million and adjusted diluted earnings per share from continuing operations increased 16% to $1.19. The adjustments in the third quarter of 2015 were associated with an estimated provision for potential legal settlements primarily in Australia, transaction costs related to the SNL acquisition, partially offset by insurance recoveries related to legal settlements.

“The performance in the quarter demonstrates the balance across the portfolio as the Company continued to deliver solid revenue growth, margin expansion and adjusted EPS growth during the third quarter despite a significant decline in global bond issuance,” said Douglas L. Peterson, President and Chief Executive Officer of McGraw Hill Financial. “This year's margin expansion is the result of top-line growth and a concerted focus across the Company to deliver on our productivity targets. As we look to continue to build shareholder value, we are ever more excited with the addition of SNL and the synergy potential with S&P Capital IQ and Platts to create an offering that is distinctive and essential to the global financial markets. Lastly, we remain committed to actively repurchasing our shares – having repurchased 4.9 million shares in the last nine months."

Strategic Alternatives for J.D. Power Under Consideration

During the fourth quarter, the Company commenced a process to explore strategic alternatives for J.D. Power, a global marketing information services company providing performance improvement, social media and customer satisfaction insights and solutions. In 2016, J.D. Power is currently estimated to have annual revenues approaching $350 million. The Company is increasingly focused on an interrelated set of businesses that serve the capital and commodities markets.

Return of Capital:

"The Company remains committed to meaningful return of capital," said Jack F. Callahan, Jr., Executive Vice President and Chief Financial Officer. "With the share price continuing to present a compelling value, we have increased our share repurchases in each of the last three quarters and anticipate continuing share repurchases in the fourth quarter, subject to market conditions." During the third quarter, the Company repurchased approximately 2.3 million shares. Year-to-date, the Company's return of capital is $775 million, which includes approximately $500 million for the repurchase of 4.9 million shares. The Company has authorization from the Board of Directors to repurchase up to an additional 40.6 million shares.


Based upon the strong results in the quarter, and its view of the remainder of the year, the Company is increasing its full-year guidance for adjusted earnings per share to a range of $4.45 to $4.50. However, the Company remains cautious given the continuing volatility in the fixed income and equity markets.

S&P Capital IQ and SNL:

Soon after the close of the SNL transaction on September 1, the Company began integrating the S&P Capital IQ and SNL organizations. The business unit is led by Mike Chinn, the previous CEO of SNL. "The integration is well underway and we are building a team that leverages the strength of each organization. Our confidence is growing that we are well positioned to meet and likely exceed our initial synergy target of $70 million by 2019," said Douglas L. Peterson.

Third quarter results include one month of operations for SNL as the acquisition closed on September 1. Revenue increased 14% to $356 million in the third quarter of 2015 compared to the same period last year; excluding SNL, revenue grew 7%.

Expenses increased 23% primarily due to the combined impact of SNL's operating costs as well as acquisition-related costs. Operating profit decreased 18% to $53 million. Adjusted expenses, which excluded acquisition-related costs, increased 11% primarily due to the addition of SNL operating costs. Adjusted operating profit increased 25% to $85 million.

Revenue from SNL products increased in September in the mid-teens compared to September 2014 when SNL was not owned by the Company. Annual amortization related to the transaction is anticipated to be approximately $53 million.

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

International revenue increased 12% to $120 million in the third quarter and represented 34% of the business unit’s total revenue.

Standard & Poor’s Ratings Services:

John Berisford is now President of Standard & Poor’s Ratings and is no longer in an acting role. “Since he was appointed Acting President on September 8, John has done an outstanding job in aligning the organization to focus on quality analytics within an environment that promotes a culture of risk and compliance consciousness,” said Douglas L. Peterson.

Revenue declined 3% to $587 million in the current quarter, primarily due to a 20% decline in global bond issuance and foreign exchange rates which unfavorably impacted revenue by 4 percentage points.

Transaction revenue decreased 9% to $244 million compared to the same period last year. This was in part due to very weak global bond issuance, especially in Asia and Latin America. Excluding the impact of foreign exchange, transaction revenue growth decreased 7%.

Non-transaction revenue increased 3% to $343 million in the quarter. Excluding the impact of foreign exchange, non-transaction revenue increased 8% due primarily to increased demand for Rating Evaluation Service from heightened M&A activity and growth at CRISIL.

Domestic revenue increased 8% while international revenue, impacted by weak debt issuance, decreased 14%. International revenue represented 42% of third-quarter revenue.

Adjusted expenses in the quarter decreased 9% due to reduced legal fees and, to a lesser extent, decreased compensation and incentive costs primarily resulting from 2014 restructuring actions, partially offset by increased risk and compliance costs.

Operating profit increased 6% to $194 million with an operating profit margin that increased 280 basis points to 33%. Adjusted operating profit increased 5% to $280 million with an adjusted operating profit margin that increased 380 basis points to 48%, driven by decreased expenses.

S&P Dow Jones Indices:

Revenue increased 9% to $156 million in the third quarter of 2015 compared to the same period last year. Operating profit increased 23% to $106 million. Adjusted operating profit increased 18% to $106 million. Adjusted operating profit attributable to the Company increased 19% to $80 million.

As the volatility of equity markets increased during the quarter, trading volumes of exchange-traded derivative contracts increased. Top-line growth in the quarter was primarily due to this sharp increase in exchange-traded derivative activity associated with S&P Dow Jones Indices. In addition, licensing revenue associated with increased exchange-traded fund AUM, mutual fund AUM, and data subscriptions all increased. AUM in exchange-traded funds based on S&P Dow Jones Indices increased 2% to $749 billion at the end of the quarter.

Commodities & Commercial Markets

: Revenue increased 9% to $248 million. Organic revenue, excluding revenue from recently acquired Petromedia and NADA Used Car Guide, grew 5%. Operating profit grew 30% to $93 million and adjusted operating profit grew 11% to $93 million in the third quarter of 2015 compared to the same period last year.

Platts continued to experience steady revenue growth in the high single-digits as a result of strength in petroleum price assessments and market data. Subscription revenue from Metals, Agriculture & Petrochemicals (MAPS) delivered the highest rate of growth.

Excluding revenue from the NADA Used Car Guide, J.D. Power revenue declined due largely to the economic slowdown in China.

Unallocated Expense:

Unallocated expense includes corporate center functions and certain non-allocated items...