S&P Global (SPGI) Tops Q4 Earnings Estimates, '18 View Solid

S&P Global, Inc. (NYSE:SPGI) reported solid fourth-quarter 2017 results with adjusted net income of $474 million or $1.85 per share compared with $334 million or $1.28 per share in the year-earlier quarter. Earnings comfortably beat the Zacks Consensus Estimate of $1.63 per share. The rise on the bottom line came on the back of robust organic revenue growth across all segments.

GAAP earnings for the quarter were $263 million or $1.02 per share, compared with $537 million or $2.05 per share in the year-ago quarter. The significant year-over-year decrease in earnings was primarily due to gains culminated in the prior-year quarter from business divestitures. Moreover, tax expenses incurred due to the enactment of the Tax Cuts and Jobs Act in fourth-quarter 2017 further reduced earnings. GAAP earnings for full-year 2017 were $1,496 million or $5.78 per share compared with $2,106 million or $7.94 per share in 2016.

Revenues for the quarter were $1,589 million compared with $1,399 million in the year-ago quarter. Quarterly revenues beat the Zacks Consensus Estimate of $1,503 million. Top-line growth was fueled by solid performance across all segments. Revenues for 2017 were $6,063 million compared with $5,661 million a year ago.

Adjusted operating profit margin for the year declined 1650 basis points (bps) to 43%.

Segmental Details

S&P Global Ratings’ revenues increased 20% year over year to $789 million, chiefly driven by increase in transaction revenues. The growth came on the back of substantial increase in high-yield bond, structured products and bank loan ratings. Moreover, non-transaction revenues increased 12% to $388 million driven by growth in fees associated with surveillance, entity ratings and short-term debt. Adjusted operating profit increased 40% year over year to $439 million for adjusted operating margin of 56% (up 810 bps year over year).

S&P Global Market and Commodities Intelligence revenues increased 7% year over year to $637 million primarily driven by growth in organic revenues. However, the segment’s adjusted operating profit increased 13% to $233 million while adjusted operating profit margin increased 200 bps to 37% led by strong revenue growth, divestments of lower margin businesses and SNL integration synergies.

S&P Dow Jones Indices revenues rose 12% to $191 million in the reported quarter due to a surge in exchange-traded products and increased derivatives trading. Adjusted operating profit increased 16% to $122 million.

Financial Aspects

As of Dec 31 2017, S&P Global had cash and cash equivalents of $2,779 million compared with $2,392 million reported at the end of the previous year. Long-term debt was $3,170 million compared with $3,564 million in the previous year. For 2017, the company generated cash from operating activities to the tune of $2,016 million compared with $1,560 million in the previous year. Also, free cash flow of $1.78 billion was reported, showing an increase of $453 million from the year-ago period.

For 2017, the company returned $1.4 billion to shareholders. This was done through a combination of share repurchases and dividend payouts. It paid out $421 million in dividends and bought shares for $1 billion.

Guidance

Concurrent with the earnings release, the company provided bullish full-year 2018 guidance. Adjusted earnings are expected to be $8.45-$8.60 per share. On a GAAP basis, EPS is expected to be in the range of $8.15 to $8.30. Also, free cash flow of $2.3 billion is expected.

S&P Global holds a Zacks Rank #2 (Buy). Other stocks worth considering in the industry include Intertek Group (LON:ITRK) plc (OTC:IKTSY) , Alliance Data Systems Corp. (NYSE:ADS) and Envestnet, Inc. (NYSE:ENV) , each carrying Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Intertek Group has a long-term earnings growth expectation of 12%.

Alliance Data Systems has a long-term earnings growth expectation of 13%. It has beaten earnings estimates in each of the trailing four quarters with an average positive surprise of 9%.

Envestnet has a long-term earnings growth expectation of 15%. It has beaten earnings estimates in each of the trailing four quarters with an average positive surprise of 4.2%.

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