NEW YORK, July 28, 2016 /PRNewswire/ — S&P Global (NYSE: SPGI) today reported second quarter 2016 results with revenue of $1.48 billion, an increase of 10% compared to the same period last year. Net income and diluted earnings per share were $383 million and $1.44, respectively. Foreign exchange rates had a negligible impact on revenue and a favorable impact of approximately 3 percentage points on operating profit.
Adjusted net income increased 13% to $385 million and adjusted diluted earnings per share increased 17% to $1.44. The adjustments in the second quarter of 2016 were primarily associated with benefits from insurance recoveries related to legal settlements, partially offset by deal-related amortization, divestiture transaction costs and restructuring charges.
“We are pleased that every business segment delivered revenue growth despite macroeconomic pressures including low commodity prices and ongoing volatility in the markets we serve. Increasingly, market participants look to S&P Global for the benchmarks and essential intelligence needed to conduct business,” said Douglas L. Peterson, President and Chief Executive Officer of S&P Global. “In addition to our progress on creating revenue growth, we continue to make progress on our productivity initiatives and SNL integration synergies. Overall, our performance enables the Company to continue investing in our portfolio of great assets to improve our customer experience while simultaneously delivering excellent financial results.”
Outlook: The Company provides guidance on a non-GAAP basis as the Company cannot predict certain elements which are included in reported GAAP results.
2016 adjusted guidance has been updated to reflect the pending close of the sale of J.D. Power in the third quarter. The Company expects to use stepped up share repurchases to minimize dilution from the sale. Due to strong first-half results, and our outlook for the remainder of the year, we are increasing the adjusted diluted EPS guidance by $0.05 to a range of $5.05 to $5.20. In addition, due to the sale of J.D. Power, we are reducing our revenue guidance to mid single-digit growth as we will no longer record several months of J.D. Power revenue.
Return of Capital: During the second quarter, the Company returned $242 million to shareholders by repurchasing 1.4 million shares for $147 million and issuing dividends totaling $95 million. Year-to-date the Company has returned $538 million to shareholders. As a result of the Company’s ongoing share repurchases, weighted average shares outstanding decreased by over 3% versus the second quarter of 2015. The Company has authorization from the Board of Directors to repurchase up to an additional 31.9 million shares.
S&P Global Ratings: Bond issuance improved in the quarter sequentially and year-over-year, helping drive a revenue increase of 4% to $682 million. Transaction revenue increased 5% to $343 million compared to the same period last year. This was largely a result of improved contract terms, increased debt issuance, and mid-teens growth in bank loan ratings. Non-transaction revenue increased 3% to $339 million in the quarter due to growth in surveillance, CRISIL, commercial paper activity, and royalties from Risk Services.
U.S. and international revenue increased 3% and 5%, respectively. International revenue represented 42% of second quarter revenue.
The business continued to make progress reducing costs in the quarter as reported expenses decreased 4% and adjusted expenses decreased 5% in part due to reduced outside services.
Operating profit increased 10% to $396 million with an operating profit margin that improved 320 basis points to 58%. Adjusted operating profit increased 12% to $369 million with an adjusted operating profit margin that improved 400 basis points to 54%, driven by increased revenue and decreased expenses.
The S&P Global Ratings segment includes S&P Global Ratings, which is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (“NRSRO”), as well as CRISIL, a global analytical company incorporated in India, and certain other ratings-related businesses.
S&P Global Market Intelligence: Revenue increased 29% to $416 million in the second quarter of 2016 compared to the same period last year, while organic revenue grew 8%. Due to the SNL acquisition, organic growth, and progress on integration-related synergies, quarterly operating profit increased 48% to $93 million and adjusted operating profit increased 48% to $118 million. The operating margin improved 290 basis points to 22% and the adjusted operating margin improved 370 basis points to 28%.
In the second quarter, S&P Capital IQ Desktop, Enterprise Feeds, and RatingsXpress® were the drivers of organic revenue growth. In addition, SNL revenue increased 9% to $68 million compared to second quarter 2015, prior to the Company’s acquisition of SNL. Excluding a purchase accounting adjustment, SNL revenue increase 10%.
Both S&P Capital IQ Desktop and SNL experienced year-over-year user growth in the teens.
S&P Dow Jones Indices: In May, the Company celebrated the 120 year anniversary of one of its most iconic benchmarks, the Dow Jones Industrial Average (DJIA). Created in 1896, the DJIA is the daily symbol of the U.S. stock market and among the most widely followed indices in the world.
Revenue increased 4% to $153 million in the second quarter of 2016 compared to the same period last year. Operating profit increased 5% to $100 million. Adjusted operating profit increased 4% to $101 million. Operating profit attributable to the Company was $73 million. Adjusted operating profit attributable to the Company increased 3% to $74 million.
Revenue growth was due to steady data license growth and strength in exchange-traded derivative activity due to market volatility.
Average AUM based on S&P DJI’s indices increased 3% in the quarter and reached a new quarter-ending record of $855 billion.
S&P Global Platts (includes J.D. Power): Revenue increased 9% to $255 million. Organic revenue for the segment, excluding revenue from recently acquired NADA Used Car Guide, Petromedia, and RigData, grew 4%. Operating profit grew 7% to $93 million and adjusted operating profit grew 7% to $98 million in the second quarter of 2016 compared to the same period last year.
Platts delivered 7% revenue growth driven by mid-single digit revenue growth in core subscriptions primarily due to petroleum price assessments and market data augmented by growth in Global Trading Services.
Unallocated Expense: Unallocated expense includes corporate center functions and certain non-allocated items such as excess real estate. Unallocated expense increased 23% to $31 million, primarily due to a gain on the sale of a non-core asset in the second quarter of 2015. Adjusted unallocated expense decreased 4% to $34 million.
Provision for Income Taxes: The Company’s effective tax rate in the second quarter of 2016 and 2015 was 32.3% and 32.6%, respectively. The Company’s adjusted effective tax rate decreased to 32.1% in the second quarter of 2016 compared to 32.4% in the prior period.
Balance Sheet and Cash Flow: Cash and cash equivalents at the end of the second quarter were $1.6 billion, of which approximately $1.5 billion was held outside the United States. In the first six months of 2016, cash provided by operating activities was $571 million. Free cash flow was $478 million, an increase of $1,466 million from the same period in 2015 due to litigation payments in the first half of 2015. Free cash flow, excluding the after-tax payments associated with legal and regulatory settlements and insurance recoveries, was $513 million.
Comparison of Adjusted Information to U.S. GAAP Information: Adjusted diluted earnings per share, adjusted net income, adjusted operating profit and margin, adjusted 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 4, 5 and 8. As described on Exhibit 9, we are unable to present a quantitative reconciliation of forward-looking non-GAAP financial information presented without unreasonable effort.
Conference Call/Webcast Details: The Company’s senior management will review the second quarter earnings results on a conference call scheduled for today, July 28, at 8:30 a.m. EDT. Additional information presented on the conference call may be made available on the Company’s Investor Relations Website at http://investor.spglobal.com.
The Webcast will be available live and in replay at http://investor.spglobal.com/CustomPage/Index?KeyGenPage=1073751596&event=1073748178. (Please copy and paste URL into Web browser.)
Telephone access is available. U.S. participants may call (888) 391-6568; international participants may call +1 (415) 228-4733 (long distance charges will apply). The passcode is “S&P Global” 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 August 28, 2016. U.S. participants may call (888) 568-0920; international participants may call +1 (203) 369-3791 (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.” 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 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 the “Risk Factors” section in the Company’s most recently filed Annual Report on Form 10-K and any subsequently filed Quarterly Report on Form 10-Q.
About S&P Global
S&P Global is a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide. The Company’s divisions include S&P Global Ratings, S&P Global Market Intelligence, S&P Dow Jones Indices and S&P Global Platts. S&P Global has approximately 20,000 employees in 31 countries. For more information visit www.spglobal.com.
Investor Relations: http://investor.spglobal.com
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Our 2016 adjusted diluted EPS guidance excludes a range of adjustments to allow investors to view the Company’s business from the same perspective as Company management, including full-year 2016 deal-related amortization expense, as well as legal settlement charges, insurance recoveries, restructuring charges, and a technology related impairment charge that were recorded during the first half of 2016 as presented on Exhibit 5. We are unable to reconcile our full year adjusted diluted EPS guidance to comparable GAAP guidance without unreasonable effort because management cannot reliably predict the necessary components of our full year 2016 net income, including the impact and timing of potential acquisitions, pending dispositions, and other structural changes or their probable significance. The impact of such adjustments could be significant. Accordingly, we are unable to provide an accurate non-GAAP to GAAP guidance reconciliation upon which our investors can rely.
SOURCE S&P Global