McGraw-Hill’s Earnings Decline

McGraw-Hill Companies (MHP - Analyst Report) recently reported third quarter 2009 results. Quarterly earnings of $1.12 per share surpassed the Zacks Consensus Estimate of $1.06, but fell 8.9% from the $1.23 delivered in the prior-year quarter.

On a reported basis, including one-time items, earnings fell 13% to $1.07 per share. The decline in the top line, partially offset by stringent cost controls, resulted in the fall to the bottom line. Due to effective cost management, the company now expects to achieve the high end of earnings guidance range of $2.20 to $2.25 per share for fiscal 2009.

Revenue for the quarter slipped 8.4% to $1,875.9 million due to a fall in revenue in its three segments -- Education, Financial Services and Information & Media. Given the turbulent economy and softness in the elementary-high school market and advertising, management now expects revenue to decline by 7% in 2009 -- worse than the 5.5% to 6.5% previously anticipated.

The Education segment revenue fell 11.6% to $1,000 million, reflecting revenue declines at McGraw-Hill School Education Group (down 19.6%) and McGraw-Hill Higher Education, Professional and International Group (down 1.8%).

Due to budgetary constraints faced by schools, the elementary-high school market is now expected to decline by 20%-25%, as against the 15%-20% previously anticipated. However, with the surge in enrollment in U.S. colleges and universities, management now expects the U.S. higher education market to rise by 8% to 10%, as unemployed and employed workers seek higher qualifications in a sluggish job market.

Financial Services revenue was off 2.2% at $637 million driven by revenue decline of 7.6% at S&P’s Investment Services, partially offset by a 0.7% increase in S&P’s Credit Market Services. The softness in the structured finance market was to some extent offset by strength in the corporate bond market. S&P’s Credit Market Services posted its first quarterly increase since third-quarter 2007.

The Information & Media segment revenue fell 10.1% to $238.9 million driven by revenue decline at Business-to-Business Group (down 8.7%) and Broadcasting Group (down 23.6%). The slump in the advertising market was the primary reason for the segment’s dismal performance. Advertising pages in BusinessWeek's (recently sold to Bloomberg) global edition fell 29.3% in the quarter.