10-QPeriod: Q2 FY2012

S&P Global Inc. Quarterly Report for Q2 Ended Jun 30, 2012

Filed July 26, 2012For Securities:SPGI

Summary

S&P Global Inc. (SPGI), formerly The McGraw-Hill Companies, Inc., reported stable total revenue for the six months ended June 30, 2012, compared to the same period in 2011, driven by growth in its Service revenue which offset a decline in Product revenue. The company's strategic Growth and Value Plan, aimed at separating into two public companies (McGraw-Hill Financial and McGraw-Hill Education), incurred significant costs. Despite these costs, operating income saw a modest increase, and diluted earnings per share rose by 11% to $1.19 for the six-month period. The company's core financial information segments, S&P Ratings and S&P Capital IQ / S&P Indices, demonstrated revenue growth, bolstered by increased demand for financial data and analytics. Acquisitions in these segments, such as S&P/Dow Jones Indices and QuantHouse, are expected to enhance future offerings. Conversely, the McGraw-Hill Education segment experienced revenue declines, though operating losses improved due to cost-saving measures. The company maintains a strong liquidity position and is executing its strategic plan, with the separation expected by year-end 2012.

Financial Statements
Beta
Revenue$1.07B
Cost of Revenue$351.00M
Gross Profit$721.00M
SG&A Expenses$379.00M
Operating Expenses$764.00M
Operating Income$308.00M
Interest Expense$21.00M
Net Income$216.00M
EPS (Basic)$0.77
EPS (Diluted)$0.76
Shares Outstanding (Basic)279.70M
Shares Outstanding (Diluted)285.30M

Key Highlights

  • 1Total revenue remained largely flat for the six months ended June 30, 2012, at $2.878 billion compared to $2.818 billion in 2011, with service revenue growth offsetting product revenue decline.
  • 2Operating income increased by 2% to $586 million for the six months ended June 30, 2012, from $573 million in the prior year.
  • 3Diluted Earnings Per Share (EPS) saw an 11% increase, rising to $1.19 for the six months ended June 30, 2012, from $1.07 in the prior year.
  • 4Significant costs were incurred ($75 million for the six months) related to the 'Growth and Value Plan,' which includes the separation of the education business.
  • 5The S&P Capital IQ / S&P Indices segment showed strong revenue growth of 9% for the six months, driven by subscription services and the formation of the S&P/Dow Jones Indices joint venture.
  • 6The McGraw-Hill Education segment experienced a revenue decrease of 8% for the six months, although operating losses improved significantly by 76%.
  • 7The company completed several strategic acquisitions, including Coalition Development Ltd. and the formation of S&P/Dow Jones Indices LLC, to enhance its data and analytics offerings.

Frequently Asked Questions

For the six months ended June 30, 2012, S&P Global Inc. reported stable total revenue of $2.878 billion, a slight 2% increase from $2.818 billion in the prior year. Operating income increased by 2% to $586 million, and diluted EPS grew by 11% to $1.19. The company is actively managing costs and investing in strategic initiatives, including significant expenses related to its Growth and Value Plan.

Revenue growth is primarily driven by the 'Service' revenue stream, particularly within the S&P Ratings and S&P Capital IQ / S&P Indices segments, fueled by demand for financial data and analytics, new product launches, and strategic acquisitions. 'Product' revenue, largely from the McGraw-Hill Education segment, has declined due to lower sales in educational markets.

The Growth and Value Plan, aimed at separating the company into two public entities, incurred $75 million in costs during the first six months of 2012. These costs are primarily related to professional fees, transaction expenses for the S&P/Dow Jones Indices joint venture, and severance charges. While these costs affect short-term profitability, the plan is expected to unlock shareholder value long-term.

The financial information segments (S&P Ratings and S&P Capital IQ / S&P Indices) are expected to continue growing due to global demand for data and analytics and ongoing strategic acquisitions. The McGraw-Hill Education segment faces challenges with declining revenues but is focusing on cost management and digital learning opportunities. The Commodities & Commercial segment is showing robust growth driven by strong demand for content and services.