McGraw Hill Financial Reports 4th Quarter And Full-Year 2015 Results

NEW YORK, Feb. 4, 2016 /PRNewswire/ -- McGraw Hill Financial, Inc. (NYSE: MHFI) today reported fourth quarter and full-year 2015 results.  The Company reported fourth quarter 2015 revenue of $1.37 billion, an increase of 7% compared to the same period last year.  Excluding the impact of foreign exchange, fourth quarter revenue increased 8%.  Fourth quarter net income and diluted earnings per share from continuing operations were $248 million and $0.91, respectively.  For the full year, revenue increased 5% to $5.31 billion and net income and diluted earnings per share from continuing operations were $1,156 million and $4.21, respectively. 

Adjusted net income from continuing operations for the quarter increased 8% to $284 million, and adjusted diluted earnings per share from continuing operations increased 9% to $1.04.  Adjustments include the impact of charges related primarily to restructuring, legal and regulatory settlements and SNL acquisition costs.  For the full year, adjusted net income from continuing operations increased 16% to $1,244 million and adjusted diluted earnings per share from continuing operations increased 17% to $4.53.

"An important goal for the Company has been creating growth and driving performance.  In 2015, we made great strides on both fronts.  Two prominent examples are the addition of SNL, a high-growth data and analytics business to help create growth, and the progress on the Company's productivity initiatives which drove performance with a significant improvement in the 2015 adjusted operating margin," said Douglas L. Peterson, President and Chief Executive Officer of McGraw Hill Financial.  He added, "Creating growth and driving performance continue to be at the forefront of our efforts in 2016.  Our focus will be on execution in a difficult macro-economic environment as we drive financial performance, integrate SNL, enhance the customer experience and expand collaboration enterprise-wide, all while maintaining a culture of integrity and accountability."

Margin Improvement: Adjusted operating profit margin for the Company increased 280 basis points for the second year in a row to 38.7%, which includes 126 basis points of deal-related amortization.  This marks the fourth consecutive year of greater than 100 basis-point improvements.  Excluding deal-related amortization, the 2015 adjusted operating margin reached 39.9%.

Adjustments to Operating Profit:  As the Company continues to pursue productivity gains to improve its operating margin, restructuring actions in the fourth quarter resulted in pre-tax charges of $33 million.  In addition, charges related to legal and regulatory settlements were $15 million and costs related to the SNL transaction were $6 million.

Return of Capital:  For the full year, the Company returned approximately $1.0 billion in share repurchases and $363 million in dividends. During the fourth quarter, the Company repurchased 5 million shares bringing 2015 repurchases to 10 million shares. The Company has approximately 35 million shares remaining under the existing share repurchase authorization from the Board of Directors.  In 2016, the Company anticipates continuing its share repurchase program, subject to domestic cash availability and market conditions.

Dividend: The Board of Directors of McGraw Hill Financial approved the regular quarterly cash dividend on the Company's common stock.  The quarterly dividend will increase from $0.33 to $0.36 per share. The dividend will be payable on March 10, 2016, to shareholders of record on February 25, 2016.  The new annualized dividend rate is $1.44 per share.

The Company has paid a dividend each year since 1937 and is one of fewer than 25 companies in the S&P 500 that has increased its dividend annually for at least the last 43 years.

S&P Capital IQ and SNL

2015:  Full-year 2015 revenue increased 14% to $1.40 billion.  Excluding four months of SNL results, organic revenue growth was 7%.  Operating profit was unchanged from prior year at $228 million.  Adjusted operating profit grew 25% to $297 million.

4th Quarter, 2015:  Revenue increased 27% to $405 million in the fourth quarter of 2015.  Excluding SNL results, organic revenue growth was 7%.  Quarterly operating profit decreased 12% to $50 million.  Adjusted operating profit increased 22% to $75 million.  A number of restructuring actions have been implemented as part of the integration of SNL and S&P Capital IQ.

In the fourth quarter, S&P Capital IQ Desktop and RatingsXpress^® were the drivers of organic revenue growth.  In addition, SNL revenue increased 10% to $64 million compared to 4Q 2014, prior to the Company's acquisition of SNL.  4Q 2015 revenue included a deferred revenue purchase accounting adjustment of approximately $3 million.  Excluding this item, the underlying revenue for SNL increased 14%.

Standard & Poor's Ratings Services

2015:  Revenue decreased 1% to $2.43 billion.  Operating profit increased to $1,078 million.  Adjusted operating profit increased 7% to $1,146 million compared to 2014.  Adjusted operating profit margin increased 340 basis points to 47.2%.  This marks the fourth straight year that the adjusted operating profit margin has increased by more than 100 basis points.  This accomplishment is particularly notable with the decline in 2015 revenue.

4th Quarter, 2015:  Due to weak global bond issuance, fourth quarter 2015 revenue decreased 7% to $578 million.  Excluding the impact of foreign exchange, fourth quarter revenue decreased 4%.  Operating profit increased to $232 million.  Adjusted operating profit decreased 3% to $252 million.  Adjusted operating profit margin increased to 43.7% in the quarter.

Transaction revenue decreased 14% to $247 million during the quarter primarily due to an aggregate 26% decline across global corporate, structured, and public bond issuance.

Non-transaction revenue increased less than 1% to $331 million in the fourth quarter and represented 57% of Standard & Poor's Ratings' total revenue compared to 53% for the same period last year.  Excluding foreign exchange, non-transaction revenue increased 4% driven primarily by strength in Rating Evaluation Service from increased merger and acquisition activity and CRISIL, partially offset by weakness in revenue associated with new customer relationships.

S&P Dow Jones Indices

2015: Revenue increased 8% to $597 million. Operating profit increased 13% to $392 million.  Adjusted operating profit attributable to the Company increased 12% to $291 million.

4th Quarter, 2015:  Revenue increased 7% to $151 million in the fourth quarter of 2015.  Quarterly operating profit increased 9% to $94 million.  Adjusted operating profit attributable to the Company increased 9% to $69 million due to increased license fees from exchange-traded derivatives, mutual funds, OTC derivatives, and data feeds, partially offset by a small decline in ETF revenue.

Commodities & Commercial Markets

2015:  Revenue increased 9% to $971 million.  Organic revenue, excluding the acquisition of Eclipse, NADA Used Car Guide, and Petromedia, increased 6%. Operating profit improved 23% to $357 million.  Adjusted operating profit improved 17% to $358 million.

4th Quarter, 2015:  Revenue increased 12% to $264 million in the fourth quarter of 2015.  Organic revenue, excluding the acquisition of NADA Used Car Guide and Petromedia, increased 8%.  Operating profit improved 26% to $92 million in the fourth quarter of 2015.  Adjusted operating profit improved 20% to $92 million in the fourth quarter, compared to the same period last year.

Platts delivered high single-digit organic revenue growth in the fourth quarter primarily due to Petroleum and Metals, Agriculture and Petrochemicals (MAPS) as well as strong growth in Global Trading Services.

J.D. Power had a strong finish to the year with a double-digit increase in reported revenue, and high single-digit organic revenue growth driven primarily by its auto business.  The business is also benefiting from the addition of NADA Used Car Guide and the newly formed data and analytics group.

Adjusted Unallocated Expense

2015:  Adjusted unallocated expense includes corporate center functions and certain non-performance related items such as excess real estate.  Full-year 2015 adjusted unallocated expense decreased 9% to $139 million. 

4th Quarter, 2015:  Adjusted unallocated expense decreased 14% to $35 million in the fourth quarter in part due to the exit of the Company's former headquarters in mid-town Manhattan as part of a consolidation of office space in New York City.

Provision for Income Taxes: The Company's effective tax rate from continuing operations in 2015 was 30.1%.  The adjusted effective tax rate from continuing operations in 2015 was 30.5% representing a reduction of 260 basis points versus 2014.  This was mostly due to improved profitability in several lower tax jurisdictions outside the United States and a favorable tax benefit from ongoing resolution of prior-year tax audits.

Balance Sheet and Cash Flow:  Cash and short-term investments at the end of the fourth quarter were $1.5 billion, down from $2.5 billion at the end of 2014.  For full-year 2015, free cash flow from continuing operations was $(48.0) million, a decrease of $1,081 million from 2014.  Free cash flow, excluding the after-tax payments associated with legal and regulatory settlements and insurance recoveries, was $1,225 million, an increase of $157 million over 2014.

Outlook and Changes to Performance Metric:  The integration of SNL is progressing well with additional cost synergies identified.  With plans in place and work teams underway, the Company now anticipates approximately $100 million of synergies.  Approximately 70% of the synergies are cost related and the Company expects meaningful realization beginning in 2016.

Beginning in 2016, the Company will change its non-GAAP reporting by adjusting for deal-related amortization.  This change is intended to better reflect the underlying economic performance of the business and is consistent with how management views financial results.  2016 amortization expense is expected to be $98 million.  Reflecting this change, the Company is introducing 2016 guidance of mid-to-high single-digit revenue growth and adjusted diluted EPS of $5.00 to $5.15.

The Company initiated an active program to sell J.D. Power and has received considerable interest from third parties.  The Company believes that a sale is probable in the next year and the assets and liabilities of J.D. Power have been reclassified as held for sale in our consolidated balance sheet as of December 31, 2015.

Pending shareholder approval, the Company will be re-branded "S&P Global".  This name leverages the Company's rich heritage and its powerful financial data and analytics brands, while signaling a strong global footprint and broad portfolio.  The change will be effective pending a shareholder vote on April 27, 2016.

Comparison of Adjusted Information to U.S. GAAP Information:  Adjusted diluted earnings per share, adjusted diluted earnings per share from continuing operations, adjusted diluted earnings per share excluding amortization expense, adjusted net income, adjusted operating profit and margin, adjusted expense, adjusted unallocated expense, free cash flow, and free cash flow excluding certain items are non-GAAP financial measures contained in this earnings release that are derived from the Company's continuing operations. This information is provided in order to allow investors to make meaningful comparisons of the Company's operating performance between periods and to view the Company's business from the same perspective as Company management. These non-GAAP measures may be different than similar measures used by other companies. Reconciliations for the differences between non-GAAP measures used in this earnings release and comparable financial measures calculated in accordance with U.S. GAAP are attached as Exhibits 5, 8, 9 and 10.

Conference Call/Webcast Details:  The Company's senior management will review the fourth quarter and full-year 2015 earnings results on a conference call scheduled for today, February 4, 2016, at 8:30 a.m. EST. Additional information presented on the conference call may be made available on the Company's Investor Relations Website at http://investor.mhfi.com.

The Webcast will be available live and in replay at http://investor.mhfi.com/phoenix.zhtml?c=96562&p=irol-EventDetails&EventId=5214593 (Please copy and paste URL into Web browser.)

Telephone access is available. Domestic participants may call (888) 391-6568; international participants may call +1 (415) 228-4733 (long distance charges will apply). The passcode is "MHFI" and the conference leader is Douglas Peterson. A recorded telephone replay will be available approximately two hours after the meeting concludes and will remain available until March 4, 2016. Domestic participants may call (866) 513-4389; international participants may call +1 (203) 369-1987 (long distance charges will apply). No passcode is required.

Forward-Looking Statements:  This press release contains "forward-looking statements," as defined in the Private Securities Litigation Reform Act of 1995.  These statements, which express management's current views concerning future events, trends, contingencies or results, appear at various places in this report and use words like "anticipate," "assume," "believe," "continue," "estimate," "expect," "forecast," "future," "intend," "plan," "potential," "predict," "project," "strategy," "target" and similar terms, and future or conditional tense verbs like "could," "may," "might," "should," "will" and "would." For example, management may use forward-looking statements when addressing topics such as: the outcome of contingencies; future actions by regulators; changes in the Company's business strategies and methods of generating revenue; the development and performance of the Company's services and products; the expected impact of acquisitions and dispositions; the Company's effective tax rates; and the Company's cost structure, dividend policy, cash flows or liquidity.

Forward-looking statements are subject to inherent risks and uncertainties. Factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements include, among other things:

• the Company's ability to make acquisitions and dispositions and to integrate, and realize expected synergies, savings or benefits from the businesses it acquires, including the impact of the acquisition of SNL on the Company's results of operations, any failure to successfully integrate SNL into the Company's operations and generate anticipated synergies and other cost savings, any failure to attract and retain key employees to execute the combined company's growth strategy, any failure to realize the intended tax benefits of the acquisition, and the risk of litigation, competitive responses, or unexpected costs, charges or expenses resulting from or relating to the SNL acquisition;
• the rapidly evolving regulatory environment, in the United States, Europe and elsewhere, affecting Standard & Poor's Ratings Services, Platts, S&P Dow Jones Indices, S&P Capital IQ and SNL and the Company's other businesses, including new and amended regulations and the Company's compliance therewith;
• the outcome of litigation, government and regulatory proceedings, investigations and inquiries;
• worldwide economic, financial, political and regulatory conditions;
• the health of debt and equity markets, including credit quality and spreads, the level of liquidity and future debt issuances;
• the level of interest rates and the strength of the domestic and global credit and capital markets in the United States and abroad;
• the demand and market for credit ratings in and across the sectors and geographies where the Company operates;
• concerns in the marketplace affecting the Company's credibility or otherwise affecting market perceptions of the integrity or utility of independent credit ratings;
• the Company's ability to maintain adequate physical, technical and administrative safeguards to protect the security of confidential information and data, and the potential of a system or network disruption that results in regulatory penalties, remedial costs or improper disclosure of confidential information or data;
• the effect of competitive products and pricing;
• consolidation in the Company's end-customer markets;
• the impact of cost-cutting pressures across the financial services industry;
• a decline in the demand for credit risk management tools by financial institutions;
• the level of success of new product developments and global expansion;
• the level of merger and acquisition activity in the United States and abroad;
• the volatility of the energy marketplace;
• the health of the commodities markets;
• the impact of cost-cutting pressures and reduced trading in oil and other commodities markets;
• the level of the Company's future cash flows;
• the level of the Company's capital investments;
• the level of restructuring charges the Company incurs;
• the strength and performance of the domestic and international automotive markets;
• the Company's ability to successfully recover should it experience a disaster or other business continuity problem from a hurricane, flood, earthquake, terrorist attack, pandemic, security breach, cyber-attack, power loss, telecommunications failure or other natural or man-made event;
• changes in applicable tax or accounting requirements;
• the impact on the Company's net income caused by fluctuations in foreign currency exchange rates; and
• the Company's exposure to potential criminal sanctions or civil penalties if it fails to comply with foreign and U.S. laws and regulations that are applicable in the domestic and international jurisdictions in which it operates, including trade sanction laws, anti-corruption laws such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act of 2010, anti-bribery laws, anti-money laundering laws, and other financial crimes laws.

The factors noted above are not exhaustive. The Company and its subsidiaries operate in a dynamic business environment in which new risks emerge frequently. Accordingly, the Company cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the dates on which they are made. The Company undertakes no obligation to update or revise any forward-looking statement to reflect events or circumstances arising after the date on which it is made, except as required by applicable law. Further information about the Company's businesses, including information about factors that could materially affect its results of operations and financial condition, is contained in the Company's filings with the SEC, including Item 1a, Risk Factors, in the most recently filed Annual Report on Form 10-K.

About McGraw Hill Financial:

McGraw Hill Financial is a leading financial intelligence Company providing the global capital and commodity markets with independent benchmarks, credit ratings, portfolio and enterprise risk solutions, and analytics. The Company's iconic brands include Standard & Poor's Ratings Services, S&P Capital IQ and SNL, S&P Dow Jones Indices, Platts, CRISIL, and J.D. Power. The Company has approximately 20,000 employees in 31 countries. Additional information is available at www.mhfi.com.

Investor Relations:  http://investor.mhfi.com

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Contact:

Investor Relations:
Chip Merritt
Vice President, Investor Relations
(212) 438-4321 (office)
[email protected]

News Media:
Jason Feuchtwanger
Director, Corporate Media Relations
(212) 438-1247 (office)
[email protected]