The
McGraw-Hill Companies Reports First Quarter EPS of $0.25
NEW
YORK,
April 29 /PRNewswire-FirstCall/ -- The McGraw-Hill Companies (NYSE: MHP)
today
reported diluted earnings per share of $0.25 in the first quarter of 2008
compared to $0.40 for the same period last year. Included in the first quarter
2007 results is a $0.03 per diluted share gain ($10.3 million after tax)
on the
divestiture of a mutual fund data business.
Net
income for the first quarter was $81.1 million.
Revenue
for the first quarter declined 6.1% to $1.2 billion.
“Double-digit
growth at Standard & Poor's Investment Services, our diversification
strategy at Standard & Poor's Credit Market Services and tight cost controls
in the segment helped mitigate the steep decline in structured finance in
the
first quarter,
”
said
Harold
McGraw III, chairman, president and chief executive officer of The McGraw-Hill
Companies. “Another good year is shaping up for McGraw-Hill Education even
though our elementary-high school business got off to a slow start in a
seasonally small quarter. A solid performance by our global information products
for the energy market was key to improvement at Information & Media.
”
Education:
“Revenue for this segment decreased 0.5% to $330.2 million in the
first
quarter compared to the same period last year. The operating loss was reduced
by
0.5% to $90.3 million. Foreign exchange rates positively impacted revenue
by
$4.4 million and had no material impact on the reduced operating
loss.
“Revenue
for the McGraw-Hill School Education Group declined 4.8% in the first quarter
to
$138.8 million. Revenue for the McGraw-Hill Higher Education, Professional
and
International Group grew by 2.9% to $191.4 million.
“Revenue
in the seasonally slow first quarter for the elementary-high school market
depends more on purchases of fill-in copies and supplemental materials than
on
new business. Last year, the McGraw-Hill School Education Group benefited
from
early ordering by North Carolina, where there were excellent opportunities
for
its programs in K-5 reading, K-12 art and music, and 6-12 vocational subjects.
Despite a good start in this year's 6-12 social studies and business education
adoptions, our first-quarter results in North Carolina did not match last
year's
success. The School Education Group also experienced a decline in supplemental
sales compared to the first quarter of 2007.
“North
Carolina was the only adoption state to place substantial orders for newly
adopted materials in the first quarter, but early indicators this year in
such
key adoption states as Texas, California and Florida are encouraging. We
still
expect the state new adoption market to grow by 10% to 15% in 2008. There
are
also, at least for the McGraw-Hill School Education Group, some promising
opportunities developing in the open territory.
“In
testing, first-quarter revenue increased modestly as sales from Acuity, our
new
formative testing program, and LAS Links, our new assessments for
English-language learners, helped to offset timing shifts in work on several
state contracts that caused revenue on the custom side of the business to
decline in comparison to the first quarter of 2007.
“In
the
U.S. college and university market, second-semester ordering contributed
to the
revenue increase for the McGraw-Hill Higher Education, Professional and
International Group.
“In
international markets, favorable foreign exchange as well as improved sales
of
higher education, professional and English-language training products in
the
Pacific Rim countries and India overcame softness in the
Spanish-language
markets.
“Revenue
in the U.S. professional market decreased very slightly as a decline in the
sales of older backlist titles could not be wholly offset by an increase
in
subscription revenue for digital products and the introduction in mid-March
of
the new, seventeenth edition of Harrison's Principles of Internal Medicine,
which is expected to generate domestic and international sales throughout
the
remainder of 2008.
Financial
Services:
“Revenue for this segment declined 11.6% to $644.3 million in
the first quarter compared to the same period last year. Operating profit
decreased 25.3% to $260.0 million versus $348.0 million last year, which
included a pre-tax gain of $17.3 million on the sale of a mutual fund data
business in March 2007. The segment benefited in the first quarter of 2008
from
cost containment including lower incentive compensation. Foreign exchange
rates
positively impacted revenue by $14.8 million and operating profit by $6.5
million.
“Revenue
for Standard & Poor's Credit Market Services, which provides independent
global credit ratings, credit risk evaluations, and
ratings-related
information and products, declined by 21.6% to $427.3 million in the first
quarter compared to the same period last year.
“Revenue
for Standard & Poor's Investment Services, which provides comprehensive
value-added financial data, information, investment indices and research,
increased by 18.0% to $217.0 million. Included in Investment Services' revenue
in the first quarter of 2007 was $7.8 million related to its mutual fund
data
business, with no comparable amount in the first quarter of 2008.
“At
S&P Credit Market Services, growth overseas and in non-transaction
businesses that are not tied directly to new bond issuance in public markets
helped cushion a steep decline in structured finance and the fall off in
corporates.
Public
finance improved in the first quarter.
“International
revenue for S&P Credit Market Services, driven by favorable foreign
exchange, grew by 5.8% to $204.5 million in the first quarter. International
accounted for 47.9% of this group's total revenue versus 35.5% for the first
quarter last year. U.S. revenue for Credit Market Services declined by 36.6%
in
the first quarter.
“Revenue
from non-transaction sources-surveillance fees, annual contracts and
subscriptions-grew by 11.2% to $309.1 million and represented 72.3% of Credit
Market Services' first quarter revenue.
“The
55.8% decline in transaction revenue for Credit Market Services reflects
the
first quarter plunge in new issue dollar volume in the U.S. and European
bond
markets. In the U.S., total new issue dollar volume declined by 55.5% in
the
first quarter of 2008 versus the same period last year, according to reports
from Thomson Financial and Harrison Scott Publications, and S&P estimates.
In the U.S., corporate new issue dollar volume declined 37.1%. Public finance
was off 24.7%. Mortgage-backed securities were off 94.2%. Asset-backed
securities were up 42.1% with growth due to a single large placement made
during
the first quarter. Collateralized debt obligations fell by 91.1%. In Europe,
new
issue dollar volume declined 55.3% in the first quarter versus the same period
last year.
“Revenue
from ratings and services not directly linked to new public debt issuance
dropped by 25.7% to $108.6 million in the first quarter reflecting substantially
lower volume in bank loan and derivative products ratings.
“Strong
performances by index services and Capital IQ products were key to Standard
& Poor's Investment Services' double-digit top-line growth in the first
quarter. Capital IQ's customer base grew by 24% to more than 2,300 in the
first
quarter versus the prior year.
“Assets
under management in exchange-traded funds based on S&P indices increased
23.1% in the first quarter to $209.7 billion compared to the same period
last
year. In this period, 13 new exchange-traded funds that track S&P indices
were launched. There are now 157 exchange-traded funds based on S&P indices.
S&P receives payments based on assets under management.
“The
average daily volume of major exchange-traded derivatives based on S&P
indices grew in the first quarter by 61% to 3.5 million contracts. The increase
was primarily driven by E-mini, S&P 500 options and Volatility Index
contracts. S&P is paid a royalty each time a contract is
traded.
Information
& Media:
“Revenue for this segment increased 3.2% to $243.4 million
in the first quarter compared to the same period last year. Operating profit
grew by 18.6% to $11.7 million. Foreign exchange rates did not have a material
effect on revenue and operating profit growth.
“Revenue
in the first quarter increased 3.5% to $219.7 million for the
Business-to-Business Group, which includes the following brands: Aviation
Week,
BusinessWeek, J.D. Power and Associates, McGraw-Hill Construction and Platts.
Strong demand in the energy markets for Platts' news and pricing services
and
growth in the Asia-Pacific region for J.D. Powers' research services were
the
key drivers in the Business-to-Business Group's first quarter
performance.
“Advertising
pages in BusinessWeek's global edition were off 19.4% in the first quarter,
according to the Publishers Information Bureau.
“Revenue
of $23.7 million for the Broadcasting Group was essentially flat in the first
quarter compared to last year as local and political advertising offset softness
in national time sales.
The
Outlook:
“The uncertainty in financial markets and a weakening economy
continue to make 2008 a challenging year for The McGraw-Hill
Companies.
“If
the
steep drop we experienced in the first quarter in structured finance continues
for the rest of the year, revenue at the Financial Services segment would
decline 7% to 9%. We would also expect a 500 to 600 basis point contraction
in
the operating margin.
“We
still
expect revenue growth of 6% to 8% at McGraw-Hill Education and Information
&
Media. We anticipate operating profit improvement in the low single-digit
range
at McGraw-Hill Education, but stepped up investments in technology to accelerate
the digital transformation of this business could lead to a 50 to 100 basis
point decline this year in the segment's operating margin. We expect the
operating margin to improve in 2008 at Information & Media
Services.
“If
current trends in financial markets continue for the balance of the year,
we
would expect earnings per share in the $2.65 to $2.75 range for
2008.
“Year-over-year
comparisons get easier in the second half, so we haven't ruled out the
possibility of finishing 2008 on an upswing.
”
Conference
Call/Webcast Details:
The Corporation's senior management will review
the first quarter 2008 earnings results on a conference call scheduled for
this
morning, April 29, at 8:30 AM Eastern Time (12:30 GMT). This call is open
to all
interested parties. Discussions may include forward-looking information.
Additional information presented on the conference call may be made available
on
the Corporation's Investor Relations Website at
http://www.mcgraw-hill.com/investor_relations
. To participate by
telephone, please dial-in to the call 10 minutes before the start time and
register. Domestic participants may call toll-free (888) 323-5423; international
participants may call +1 (415) 228-5016 (long-distance charges will apply).
The
passcode is McGraw-Hill and the conference leader is Harold McGraw III. The
conference call will also be Webcast. Go to
http://investor.mcgraw-hill.com/phoenix.zhtml?c=96562&p=irol-EventDetails&EventId=1820171
.
(Please copy and paste URL into web browser.) The prepared remarks and slides
will be available for downloading from the Investor Relations website's Investor
Presentations archive several hours after the end of the call.
The
forward-looking statements in this news release involve risks and uncertainties
and are subject to change based on various important factors, including
worldwide economic, financial, political and regulatory conditions; the health
of debt (including U.S. residential mortgage-backed securities and
collateralized debt obligations) and equity markets, including possible future
interest rate changes; the health of the economy and in advertising; the
level
of expenditures and state new adoptions and open territory sales in the
education market; the successful marketing of competitive products; and the
effect of competitive products and pricing.
About
The McGraw-Hill Companies:
Founded in 1888, The McGraw-Hill Companies
is a leading global information services provider meeting worldwide needs
in the
financial services, education and business information markets through leading
brands such as Standard & Poor's, McGraw-Hill Education, BusinessWeek and
J.D. Power and Associates. The Corporation has more than 280 offices in 40
countries. Sales in 2007 were $6.8 billion. Additional information is available
at www.mcgraw-hill.com.
Homepage:
http://www.mcgraw-hill.com
News:
http://www.mcgraw-hill.com/news/overview.shtml
Investor
Relations:
http://www.mcgraw-hill.com/investor_relations
Corporate
Responsibility:
http://www.mcgraw-hill.com/cr/overview.shtml
Get
news
direct from McGraw-Hill via RSS:
http://investor.mcgraw-hill.com/phoenix.zhtml?c=96562&p=newsRSS
Release
issued: April 29, 2008
|
The
McGraw-Hill Companies
|
|
|
Statements
of Income
|
|
|
Periods
ended March 31, 2008 and 2007
|
|
|
|
|
|
(dollars
in thousands, except per share
data)
|
|
|
(unaudited)
|
|
Three
Months
|
||||||||
|
2008
|
|
2007
|
|
%
Change
|
||||||
|
Revenue
|
$
|
1,217,871
|
$
|
1,296,418
|
(6.1
|
)%
|
||||
|
|
||||||||||
|
Expenses,
net
|
1,070,264
|
1,081,542
|
(1.0
|
)%
|
||||||
|
Other
income
|
-
|
17,305
|
N/M
|
|||||||
|
|
||||||||||
|
Income
from operations
|
147,607
|
232,181
|
(36.4
|
)%
|
||||||
|
Interest
expense, net
|
17,830
|
1,204
|
N/M
|
|||||||
|
Income
from operations before taxes on income
|
129,777
|
230,977
|
(43.8
|
)%
|
||||||
|
Provision
for taxes on income
|
48,667
|
87,139
|
(44.2
|
)%
|
||||||
|
Net
income
|
$
|
81,110
|
$
|
143,838
|
(43.6
|
)%
|
||||
|
Earnings
per common share:
|
||||||||||
|
Basic
|
$
|
0.25
|
$
|
0.41
|
(39.0
|
)%
|
||||
|
Diluted
|
$
|
0.25
|
$
|
0.40
|
(37.5
|
)%
|
||||
|
Dividend
per common share
|
$
|
0.22
|
$
|
0.205
|
7.3
|
%
|
||||
|
Average
number of common shares outstanding:
|
||||||||||
|
Basic
|
319,945
|
351,215
|
||||||||
|
Diluted
|
323,400
|
361,497
|
||||||||
|
The
McGraw-Hill Companies
|
|||||||
|
Operating
Results by Segment
|
|||||||
|
Periods
ended March 31, 2008 and 2007
|
|||||||
|
(dollars
in thousands)
|
|
(unaudited)
|
Revenue
|
|
||||||||
|
|
|
|
|
|
|
%
Favorable
|
|
|||
|
|
|
2008
|
|
2007
|
|
(Unfavorable)
|
||||
|
Three
Months
|
||||||||||
|
McGraw-Hill
Education
|
$
|
330,156
|
$
|
331,680
|
(0.5
|
)%
|
||||
|
Financial
Services
|
644,301
|
728,882
|
(11.6
|
)%
|
||||||
|
Information
& Media
|
243,414
|
235,856
|
3.2
|
%
|
||||||
|
Total
revenue
|
$
|
1,217,871
|
$
|
1,296,418
|
(6.1
|
)%
|
||||
|
(unaudited)
|
Segment
Expenses
|
|||||||||
|
%
Favorable
|
||||||||||
|
2008
|
2007
|
(Unfavorable)
|
||||||||
|
Three
Months
|
||||||||||
|
McGraw-Hill
Education
|
$ |
420,422
|
$ |
422,360
|
0.5
|
%
|
||||
|
Financial
Services (a)
|
384,298
|
380,870
|
(0.9
|
)%
|
||||||
|
Information
& Media
|
231,688
|
225,970
|
(2.5
|
)%
|
||||||
|
Total
segment expenses
|
$ |
1,036,408
|
$ |
1,029,200
|
(0.7
|
)%
|
||||
|
(unaudited)
|
Operating
Profit
|
|
||||||||
|
|
|
|
|
|
|
%
Favorable
|
|
|||
|
|
|
2008
|
|
2007
|
|
(Unfavorable)
|
||||
|
Three
Months
|
||||||||||
|
McGraw-Hill
Education
|
$
|
(90,266
|
)
|
$
|
(90,680
|
)
|
0.5
|
%
|
||
|
Financial
Services (a)
|
260,003
|
348,012
|
(25.3
|
)%
|
||||||
|
Information
& Media
|
11,726
|
9,886
|
18.6
|
%
|
||||||
|
Total
operating segments
|
181,463
|
267,218
|
(32.1
|
)%
|
||||||
|
General
corporate expense
|
(33,856
|
)
|
(35,037
|
)
|
3.4
|
%
|
||||
|
Interest
expense, net
|
(17,830
|
)
|
(1,204
|
)
|
N/M
|
|||||
|
Total
operating profit *
|
$
|
129,777
|
$
|
230,977
|
(43.8
|
)%
|
||||
|
N/M
-
|
not
meaningful
|
|
*
|
Income
from operations before taxes on income
|
|
(a)
|
2007
segment expenses and operating profit include a $17.3 million pre-tax
gain
on the sale of the Company's mutual fund data business
on
March 16, 2007.
|
Exhibit
2
|
The
McGraw-Hill Companies
|
|||||||
|
McGraw-Hill
Education Segment
|
|||||||
|
Reclassification
of Advanced Placement Business Revenue
|
|||||||
|
(in
thousands)
|
|
(unaudited)
|
School
Education Group Revenue
|
|
||||||||
|
|
|
|
|
|
|
|
|
|||
|
|
|
2007
|
|
|
|
2007
|
|
|||
|
|
|
As
Reported
|
|
Reclassification
|
|
As
Adjusted
|
||||
|
Quarter
ending March 31
|
$
|
144,802
|
$
|
889
|
$
|
145,691
|
||||
|
Quarter
ending June 30
|
403,277
|
6,443
|
409,720
|
|||||||
|
Quarter
ending September 30
|
670,848
|
15,461
|
686,309
|
|||||||
|
Quarter
ending December 31
|
197,850
|
1,466
|
199,316
|
|||||||
|
Total
Revenue
|
$
|
1,416,777
|
$
|
24,259
|
$
|
1,441,036
|
||||
|
(unaudited)
|
Higher
Education, Professional and International Revenue
|
|
||||||||
|
|
|
|
|
|
|
|
|
|||
|
|
|
2007
|
|
|
|
2007
|
|
|||
|
|
|
As
Reported
|
|
Reclassification
|
|
As
Adjusted
|
||||
|
Quarter
ending March 31
|
$
|
186,878
|
$
|
(889
|
)
|
$
|
185,989
|
|||
|
Quarter
ending June 30
|
244,047
|
(6,443
|
)
|
237,604
|
||||||
|
Quarter
ending September 30
|
505,106
|
(15,461
|
)
|
489,645
|
||||||
|
Quarter
ending December 31
|
353,023
|
(1,466
|
)
|
351,557
|
||||||
|
Total
Revenue
|
$
|
1,289,054
|
$
|
(24,259
|
)
|
$
|
1,264,795
|
|||
Exhibit
3
Contacts
for The McGraw-Hill Companies:
Investor
Relations:
Donald
S.
Rubin
Senior
Vice President, Investor Relations
(212)
512-4321 (office)
donald_rubin@mcgraw-hill.com
News
Media:
Steven
H.
Weiss
Vice
President, Corporate Communications
(212)
512-2247 (office)
(917)
699-9389 (mobile)
weissh@mcgraw-hill.com
Frank
Briamonte
Senior
Director, Corporate Communications
(212)
512-4145 (office)
(201)
725-6133 (mobile)
frank_briamonte@mcgraw-hill.com