S&P Global (SPGI) Beats Q1 Earnings, Revenue Estimates

Maintaining its earnings beat streak for the 22nd straight quarter, S&P Global, Inc. (NYSE:SPGI) reported first-quarter 2017 adjusted earnings per share of $1.62, comfortably beating the Zacks Consensus Estimate of $1.40 per share. It was also up 35% compared with the year-earlier quarter tally of $1.20 per share.

Impressive bottom-line growth came on the back of robust organic revenue growth, diligent expense control measures and strategic share repurchases.

Revenues for the quarter were $1,453 million compared with $1,341 million in the year-ago quarter. Also, the top line beat the Zacks Consensus Estimate of $1,388 million. Top-line growth was fuelled by outstanding performance of the company’s Global Ratings segment. Also, impressive performance of the S&P Dow Jones Indices business supplemented the growth.

Segmental Details

S&P Global Ratings segment’s revenues increased 29% year over year to $714 million, chiefly driven by increase in transaction revenues. The growth of transaction revenues came on the back of substantial increase in high-yield bond, bank loan ratings and contract terms. Moreover, higher surveillance fees, entity fees and intersegment royalties from Market Intelligence and CRISIL drove non-transaction revenue growth.

Adjusted operating profit jumped 50% to $379 million from the prior-year quarter and adjusted operating profit margin increased 750 basis points to 53%. Strong revenue growth proved conducive to both adjusted operating profit and margin growth.

S&P Global Market and Commodities Intelligence revenues declined 10% year over year to $593 million, due to the sale of J.D. Power, the SPSE/CMA pricing businesses, and Equity and Fund Research last year. Also, the divesture of QuantHouse earlier this year proved to be a drag. In addition, the segment’s adjusted operating profit fell 3% to $223 million.

However, the segment’s adjusted operating margin expanded 270 basis points to 38%, primarily driven by gains from divestments of lower margin businesses and strong organic revenue growth.

S&P Dow Jones Indices revenues rose 14% to $115 million in the reported quarter, mainly attributable to growth in asset-linked fees. Also, both adjusted operating profit and adjusted operating margin recorded year-over-year growth. While adjusted profit attributable to the company increased 14% to $85 million, adjusted operating profit margin expanded 20 basis points to 68%.

Overall, S&P Global’s operating profit margin improved by 640 basis points to 45% and the adjusted operating profit margin improved by 630 basis points to 47%. Strategic divesture of lower margin businesses, impressive organic revenue growth and productivity initiatives drove these improvements.

Financial Aspects

S&P Global exited the first quarter with cash and cash equivalents of $2,411 million compared with $2,392 million at the end of Dec 31, 2016. Long-term debt was $3,565 million as of Mar 31, 2017, compared with $3,564 million as of Dec 31, 2016. During the first quarter of 2017, the company generated free cash flow from continuing operations of $306 million, a significant improvement over $136 million as of Dec 31, 2016.

During the first quarter, the company returned $307 million to shareholders. This was done through a combination of share repurchases and dividend payouts. It paid out $106 million in dividends and bought 1.5 million shares for $201 million.

Outlook

Concurrent with the earnings release, S&P Global hiked its full-year 2017 revenue guidance, from flat to low single-digit growth. Also, it has raised its guidance for adjusted EPS to $6.00–$6.20 from the earlier $5.90–$6.15.

To Conclude

S&P Global started 2017 on an impressive note with notable top and bottom-line beats. We believe that the company’s strategic portfolio restructuring and focus on core business will continue to drive growth, going forward. This apart, strategic acquisitions and positive industry trends like surge of new high-yield bonds and leveraged loans, fuelled by tight interest-rate spreads, will continue to drive growth for the Zacks Rank #2 (Buy) company.

Other Stocks to Consider

Some other stocks worth considering in the industry are ABM Industries Incorporated (NYSE:ABM) , ManpowerGroup Inc. (NYSE:MAN) and TrueBlue, Inc. (NYSE:TBI) . All three stocks carry the same Zacks Rank as S&P Global. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ABM Industries has a decent earnings surprise history with an average positive surprise of 16.1% over the trailing four quarters, beating estimates all through.

ManpowerGroup came up with three earnings beat in the trailing four quarters and has an average positive surprise of 4.5%.

TrueBlue has an average positive surprise of 13.6% over the trailing four quarters, with three beats.

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