McGraw-Hill's Results Reflect Effects of Sale

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The McGraw-Hill Companies Inc. (NYSE: MHP) reported fourth-quarter and full-year 2012 earnings before markets opened this morning.

Quarterly adjusted diluted earnings per share (EPS) totaled $0.72 on $1.23 billion in revenues. In the same period a year ago, the financial services firm reported EPS of $0.37 on revenue of $1 billion. Fourth-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $0.72 and $1.61 billion in revenue.

For the full year, EPS totaled $2.75 on revenues of $4.45 billion. The consensus estimated called for EPS of $3.45 on revenues of $6.46 billion.

McGraw-Hill sold its education division to Apollo Global Management LLC (NYSE: APO) and has excluded the division from its quarterly and full-year results as a discontinued operation. On a consolidated basis, fourth quarter adjusted EPS came in at $0.75 and full-year EPS totaled $3.44.

On a GAAP basis, the company posted a net loss of $406 million in the fourth quarter and $239 million for the full year. GAAP results include a $497 million impairment charge related to the sale of the company's education division.

The company's CEO said:

The sale of McGraw-Hill Education is anticipated in the first quarter. Now we reflect on the tremendous opportunity both McGraw Hill Financial and McGraw-Hill Education have before them. In 2012, McGraw Hill Financial delivered 13% revenue growth and 32% diluted adjusted EPS from continuing operations growth. This performance demonstrates the growth potential of McGraw Hill Financial, with its market-leading positions providing essential intelligence to its customers.

The company guided full-year revenue to rise in the high, single-digit range above this year's $4.45 billion total. EPS is forecast at $3.10 to $3.20. The consensus estimate calls for EPS of $3.80 on revenues of $6.88 billion. The estimates from Thomson Reuters apparently have not taken into account the effect on earnings and revenues from the sale of McGraw-Hill's education division.

The company addresses the recent suit filed by the U.S. Department of Justice related to ratings granted by Standard & Poor's to mortgage-backed securities prior to the financial meltdown in 2008. McGraw-Hill also tips its defense strategy:

The DOJ lawsuit disregards the central fact that S&P's CDO ratings were made in good faith through its committee-based system and were fully consistent with the views of many other institutions at the time, including U.S. Government officials who in 2007 publicly stated that problems in the subprime market appeared to be contained.

In other words, everybody was doing it, so we just had to follow along. That seems awfully weak and does not appear to take into account possible DOJ actions against other ratings agencies.

Shares are up fractionally in premarket trading this morning to $44.25. The current 52-week range is $42.02 to $58.62. Thomson Reuters had a consensus analyst price target of $63.00 before today's results were announced.

Filed under: 24/7 Wall St. Wire, Earnings, Financial Stocks Tagged: APO, MHP