A month has gone by since the last earnings report for S&P Global (SPGI - Free Report) . Shares have added about 0.7% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is S&P Global due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Earnings Beat at S&P Global in Q4
S&P Global reported mixed fourth-quarter 2018 results wherein the company’s earnings surpassed the Zacks Consensus Estimate but revenues missed the same.
Adjusted earnings per share of $2.22 beat the Zacks Consensus Estimate by 2 cents and increased 20% year over year. The bottom line benefited from productivity improvements, lower effective tax rate (as a result of U.S. tax reform) and reduction in shares outstanding.
Revenues of $1.54 billion lagged the consensus mark by $69.9 million and decreased 3.3% year over year on a reported basis and 4% organically. The top line was hurt by a decline in Ratings revenues, which partially offset the increase in revenues from the company’s other three segments - Market Intelligence, Platts and S&P Dow Jones Indices.
Ratings revenues decreased 16% year over year to $661 million due to decline in global debt issuance. Non-transaction revenues declined 3% to $378 million owing to forex, lower excess issuance fees associated with medium-term notes and lower Rating Evaluation Services activity, which were partially offset by growth across new entity credit ratings. Transaction revenues declined 29% to $283 million owing to debt issuance reduction, partially offset by higher bank loan rating revenues.
Market Intelligence revenues were up 8% year over year to $478 million, primarily driven by growth in Risk Services, Data Management Solutions and Desktop. Platts revenues increased 7% to $210 million owing to increased subscriptions and solid growth in Global Trading Services. S&P Dow Jones Indices revenues increased 13% to $215 million driven by an increase in derivatives trading activity.
Adjusted operating profit increased 2% year over year to $761 million.
Segment wise, Ratings adjusted operating profit decreased 16% to $367 million. Adjusted operating profit margin improved 10 bps to 55.5%. For Market Intelligence, adjusted operating profit increased 27% to $184 million. Adjusted operating profit margin increased 570 bps to 38.5%. Platts’ adjusted operating profit increased 18% to $101 million and adjusted operating profit margin improved 470 basis points to 48.2%. S&P Dow Jones adjusted operating profit increased 17% to $144 million. Adjusted operating profit margin increased 220 bps to 67.1%.
Balance Sheet and Cash Flow
S&P Global exited fourth-quarter 2018 with cash, cash equivalents, and restricted cash of $1.95 billion compared with $2.20 billion at the end of the prior quarter. Long-term debt of $3.66 billion was flat with the prior quarter. The company generated $663 million of cash from operating activities in the reported quarter. Free cash flow was $600 million. Capital expenditures came in at $25 million.
Share Repurchases & Dividend Payment
In 2018, S&P Global returned $2.2 billion to shareholders, which includes $1.7 billion through share repurchases and $503 million in dividend payments.
On Jan 2, 2019, S&P Global completed its $500 million accelerated share repurchase (ASR) program (which was announced in October 2018). The company is hopeful of initiating a new $500 million ASR program later this month, which is expected to continue till July 2019. On Jan 30, 2019, the company’s board of directors announced a 14% dividend hike, raising the quarterly cash dividend from 50 cents per share to 57 cents. The next dividend will be paid on Mar 12 to shareholders of record on Feb 26. The new annualized dividend rate is $2.28 per share, up at an average compound annual growth rate of 9.9% since 1974.
S&P Global unveiled its guidance for full-year 2019. The company expects reported revenues to grow in mid-single digits. Adjusted EPS (which excludes amortization of intangibles related to acquisitions and Kensho retention plans) is expected to be in the range of $8.95-$9.15. Free cash flow is anticipated between $2.2-$2.3 billion.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months.
Currently, S&P Global has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
S&P Global has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.