S&P Global (SPGI) Q2 Earnings, Revenues Beat Estimates

McGraw-Hill Financial, which is rechristened as S&P Global, Inc. (NYSE:SPGI) , reported adjusted earnings per share of $1.44 that increased 17% from the year-ago quarter and beat the Zacks Consensus Estimate of $1.33.

Revenues advanced 10% to $1,482 million, beating the Zacks Consensus Estimate of $1,416 million. Top-line growth was mainly supported by strong performances across S&P Global Ratings and S&P Global Market Intelligence.

Adjusted operating profit margin expanded 210 basis points (bps) to 44.1%.

Segment Details

S&P Global Ratings segment revenues increased 4% year over year to $682 million, primarily driven by improvement in bond issuance both sequentially and year over year. Adjusted operating profit surged 12% to $369 million while adjusted margin contracted 400 bps to 54%.

Transaction revenues, which include ratings of publicly issued debt and bank loan as well as corporate credit estimates, jumped 5% year over year to $343 million, mainly owing to improvement in bond issuance and contract terms.

However, non-transaction revenues, which include annual contracts, surveillance fees and subscriptions, increased 3% to $339 million, fueled by strength in surveillance fees, along with growth at CRISIL commercial paper activity, as well as royalties from Risk Services.

Region-wise, the segment’s domestic and international revenues were up 3% and 5%, respectively.

S&P Global Market Intelligence reported revenues growth of 29% year over year to $416 million. The segment’s adjusted operating profit improved 48% to $118 million primarily due to the SNL acquisition as well as progress on integration-related synergies. On the other hand, adjusted operating margin expanded 370 basis points to 28%.

S&P Dow Jones Indices revenues rose 4% to $153 million in the reported quarter. The segment’s adjusted operating profit increased 4% to $101 million.

S&P Global Platts segment revenues grew 9% year over year to $255 million. Platts recorded revenue growth of 7% primarily due to revenue growth in core subscription. The segment’s adjusted operating profit went up 7% to $98 million.

Financial Aspects

S&P Global ended the quarter with cash and equivalents of $1,567 million, and long-term debt of $3,470 million. The company incurred capital expenditures of $36 million and generated free cash flow from continuing operations of $478 million.

Further, during the first quarter, S&P Global repurchased nearly 1.4 million shares for $147 million and paid dividends worth $95 million. Also, the company authorized additional buybacks of 31.9 million shares.

Other Developments & Outlook

The company expects earnings for 2016 in the band of $5.05–$5.20 per share in comparisons to the previous estimate of $5.00–$5.15. The Zacks Consensus Estimate is currently pegged at $5.12 per share. Due to the pending sale of J.D. Power unit, it anticipates revenue growth in the mid-single-digit growth range.

On Apr 15, 2016, S&P Global entered into an agreement to offload J.D. Power unit to a global alternative investments firm, XIO Group for $1.1 billion. The deal is expected to close by third-quarter 2016.

Zacks Rank

S&P Global currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks worth considering are Avis Budget Group, Inc. (NASDAQ:CAR) , WageWorks, Inc. (NYSE:WAGE) and Core-Mark Holding Company, Inc. (NASDAQ:CORE) . All these stocks carry a Zacks Rank #2 (Buy).