S&P Global (SPGI) Surpasses Q2 Earnings & Revenue Estimates
S&P Global Inc. SPGI reported strong second-quarter 2018 results wherein both earnings and revenues surpassed the Zacks Consensus Estimate.
Adjusted earnings per share of $2.17 beat the Zacks Consensus Estimate by 4 cents and increased 26% on year-over-year basis. The improvement can be attributed to revenue growth, operating leverage and U.S. tax reform that decreased the company’s adjusted effective tax rate to 23.9% from 28.9% in the year-ago quarter.
Revenues of $1.6 billion outpaced the consensus mark by a mere $0.6 million and increased 6.6% year over year. The top-line improvement was driven by growth in all business segments.
So far this year, shares of S&P Global have gained 26.8%, outperforming the industry’s 19% rally.
Let’s delve deeper into the numbers
Segmental Revenues
Ratings revenues increased 4% year over year to $775 million driven by strength across bank loan ratings, structured finance, non-transaction revenues and transaction revenues.
Bank loan ratings and structured finance grew 22% and 18%, respectively on a year-over-year basis. Non-transaction revenues increased 7% to $378 million owing to growth in fees associated with surveillance, new entity ratings and Rating Evaluation Service fees. Transaction revenues expanded 1% to $397 million as increased bank loan ratings revenues offset a decline in bond ratings revenues.
While revenues from the United States increased 3%, international revenues increased 5%. Notably, the segment derived 43% of total revenues internationally.
Market Intelligence revenues were up 8% year over year to $447 million, primarily driven by growth across Desktop, Risk Services, and Data Management Solutions.
Platts revenues increased 7% to $205 million owing to growth in the core subscription business, which was partially offset by a decline in Global Trading Services.
S&P Dow Jones Indices revenues surged 13% to $209 million driven by an increase in asset-linked fees and revenue associated with exchange-traded derivatives. Revenues associated with exchange-traded derivatives activity increased 17%.
S&P Global Inc. Revenue (TTM)
S&P Global Inc. Revenue (TTM) | S&P Global Inc. Quote
Operating Results
The company’s adjusted operating profit margin expanded 230 bps to 49% due to revenue growth and operating leverage.
Going by segments, Ratings adjusted operating profit margin improved 400 bps to 57% due to revenue growth, lower incentives and productivity improvements. S&P Dow Jones adjusted operating profit margin increased 70 bps to 66%. The same for Market Intelligence increased 40 bps to 33% and for Platts, it grew 190 bps to 50%.
Balance Sheet and Cash Flow
At the end of the quarter, S&P Global had cash, cash equivalents, and restricted cash of $1.9 billion. Long-term debt was $3.66 billion, compared with $3.17 billion in the preceding quarter.
The company generated $543 million cash from operating activities. Free cash flow was $488 million.
During the quarter, the company returned $126 million to shareholders through dividend payment. The $1 billion accelerated share repurchase (ASR) agreement (which was started in the first quarter) continues. The company is hopeful of completing the ASR in the third quarter.
2018 Guidance
S&P Global reaffirmed its adjusted earnings per share (EPS) guidance for full-year 2018. The company expects adjusted earnings in the range of $8.45-$8.60 per share. The Zacks Consensus Estimate of $8.53 is in line with the midpoint of the guided range.
The company, however, lowered its GAAP EPS guidance. The company now expects GAAP EPS in the range of $7.75-$7.90 per share, compared with the previously guided range of $7.95-$8.10.
Zacks Rank & Upcoming Releases
S&P Global currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Investors interested in the broader Business Services sector are keenly awaiting second-quarter earnings reports from key players like Verisk Analytics VRSK, Aptiv APTV and Fiserv FISV. All the companies are slated to report their quarterly numbers on Jul 31.
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