Shares of McGraw Hill Financial Inc., the Standard & Poor's parent facing a fraud lawsuit from the U.S. government, gained the most in almost a year after the company reporting fourth-quarter profit that exceeded analysts' estimates.
McGraw Hill shares, which climbed 43 percent in 2013, rose 3.54 percent to $77.02 Tuesday, the biggest percentage increase since Feb. 11, 2013, according to data compiled by Bloomberg. This year the stock has declined 1.5 percent compared with a 5 percent drop in the S&P 500 Index.
Net income rose to $171 million from a loss of $216 million a year earlier, which included a charge on the sale of its education unit, New York-based McGraw Hill said in a statement distributed by PR Newswire. Earnings from continuing operations, excluding certain items, were 81 cents a share, beating the average estimate of 79 cents in a Bloomberg survey of 11 analysts.
Profit increased even as slowing corporate bond sales led to a decline in revenue at S&P. Sales at the unit, headed by Neeraj Sahai, decreased 2 percent from the year-earlier period to $574 million, according to the statement. Sahai took over from Douglas Peterson, who became chief executive officer Nov. 1 after Harold “Terry” McGraw III stepped down from the role.
The decline in ratings revenue was offset by gains in businesses including the company’s financial data provider S&P Capital IQ. Sales at that unit gained 4 percent to $301 million, Peterson said today on a conference call with analysts. Revenue at S&P Dow Jones Indices jumped 18 percent to $130 million on increased licensing fees from exchange-traded funds, he said.
Corporate bond sales in the U.S. slowed to $319.6 billion in the three months ended Dec. 31 from $388.1 billion in the year-earlier period, according to data compiled by Bloomberg. Yields on debt from the most creditworthy to the riskiest U.S. borrowers averaged 3.84 percent last year, below the five-year average of 5.11 percent since December 2008, according to the Bank of America Merrill Lynch U.S. Corporate & High Yield Index.
McGraw Hill, which has transformed itself into a financial services firm after selling its publishing division last year, raised its dividend last week to 30 cents a share.
The U.S. Department of Justice sued the company a year ago, alleging that its S&P ratings unit inflated grades to win business from Wall Street banks. The government is alleging the company deliberately understated the risk of bonds backed by loans made to the riskiest borrowers.
S&P said it will defend itself “vigorously” against the “meritless” claims.
Moody’s Corp., the company’s biggest competitor, is scheduled to report fourth-quarter earnings Feb. 7.
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