The McGraw-Hill Companies: Earnings Preview

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The McGraw-Hill Companies Inc. (MHP), a publisher and provider of financial information and media services, is slated to report its first-quarter 2012 financial results on April 24. The current Zacks Consensus Estimate for the quarter stands at 49 cents per share, indicating an estimated increase of 25.6% from the prior-year quarter's earnings. Revenue, as per the Zacks Consensus Estimate, is $1,315 million.

Fourth-Quarter 2011, a Synopsis

McGraw-Hill's fourth quarter earnings of 63 cents per share came way ahead of the Zacks Consensus Estimate of 57 cents, and jumped 17% from the prior-year quarter's earnings of 54 cents.

However, on a reported basis, including one-time items, earnings decreased 4% to 47 cents per share compared with 49 cents in the year-ago quarter.

Total revenues inched up 2% to $1,520 million compared with $1,496 million in the prior- year quarter. However, it fell short of the Zacks Consensus Estimate of $1,536 million.

Estimate Revisions Trend


A positive sentiment is clearly evident among the analysts for the upcoming quarter. Among the 6 analysts providing estimates for the quarter, three revised their estimates upward while none moved in the opposite direction in the last 30 days. The picture remains same for fiscal 2012, with three analysts revising the estimates in the upward direction while none lowering the same.


The Zacks Consensus Estimate for the first quarter moved up by 4 cents over the last 30 days. Most of the analysts remained constructive on the stock based on the company's growth prospects. Moreover, McGraw-Hill's latest acquisition of QuantHouse, the provider of market statistics and trading solutions, also boosted the estimates.

The acquisition strengthens S&P Capital IQ's (a unit of The McGraw-Hill) position in the market, where it competes with Thomson Reuters Corporation (TRI), FactSet Research Systems Inc. (FDS) and Bloomberg.

Mixed Surprise History

With respect to earnings surprises, McGraw-Hill has topped as well as missed the Zacks Consensus Estimate over the last four quarters in the range of negative 1.6% to positive 10.5%. The average remained at positive 4%, indicating that the company has outperformed the Zacks Consensus Estimate by that measure in the trailing four quarters.

Our Take

With the intent of boosting shareholders' value, McGraw-Hill announced extensive growth and value measures, including the separation of the company into two distinct entities, McGraw-Hill Financial and McGraw-Hill Education.

Further, the company is focusing on abridging costs by $100 million in the coming quarters to ensure that higher costs would not be an impediment in margin expansion at both Financial and Education.

Management now expects fiscal 2012 earnings between $3.25 and $3.35 per share and projects a high single-digit increase in revenues at McGraw-Hill Financial for fiscal 2012, on the back of growth in S&P Capital IQ and Indices, and Commodities & Commercial.

Standard & Poor's Ratings is expected to rise in the mid single-digit during the year, benefiting from growth in non-transaction revenues. However, revenues at McGraw-Hill Education are expected to remain flat, reflecting tough elementary high school markets.

Currently, we have a 'Neutral' recommendation on the stock. McGraw-Hill holds a Zacks #2 Rank, which translates into a short-term 'Buy' rating.

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