McGraw-Hill beats expectations


With the turmoil in financial markets, Wall Street expected revenues for the owner of Standard & Poor’s to drop 4% in Q2, but the company surprised analysts with only a 2.6% drop. Revenues for the TV group, a tiny part of the overall company, declined 1% to $26.5 million, while total revenues for the Information & Media division grew 6.8% to $266.9 million. Operating profit for the division grew 68.2% to $24.8 million. A big contributor to that was Platts, which publishes news and pricing for the oil, natural gas and petrochemical industries. The group’s best-known title, BusinessWeek, saw ad pages decline by 11%.

As for TV, “Declines in the base business, primarily national, offset out gains that we were able to record in political advertising. But we expect, overall, political advertising to be a strong component in the second half,” said McGraw-Hill CEO Terry McGraw. For the entire Information and Media division, he is telling Wall Street to expect revenue growth of 6-8% this year, along with operating margin improvement.

McGraw noted at the beginning of his call that the company is dealing with the “biggest national housing recession since the great depression and a credit crunch.” He said S&P Chief Economist David Wyss sees housing prices bottoming out in the first half of 2009. He also sees negative GDP growth in Q4 and Q1 before the economy recovers. The classic definition of a recession is two consecutive quarters of negative GDP growth, so it appears Wyss is predicting a recession.

At this point, McGraw-Hill is expecting its Financial Services segment to see revenues fall 7-9% for all of 2008, while Education is expected to grow 4-6% and, as mentioned, Information and Media by 6-8%. The company’s net income for Q2 was $212.3 million, down 23.4% from a year ago. That was EPS of 71 cents (before a five cents restructuring charge), beating the Thomson/First Call consensus by six cents.