McGraw-Hill Cos Inc said on Tuesday quarterly earnings fell 44 percent on a slump in its Standard & Poor's ratings agency, which critics accuse of helping to inflate the credit bubble. The company has also lowered its full-year forecast.
Net income fell to $81.1 million or 25 cents a share, from $143.8 million, or 40 cents a year earlier, which included a $10.3 million gain on the sale of a mutual fund data business, McGraw-Hill said today.
Revenue fell 6 percent to $1.22 billion from $1.3 billion, on a steep drop in structured finance revenue in Standard & Poor's Credit Market Services and lower sales of its school textbooks.
Analysts surveyed by Thomson Financial expected earnings per share of 23 cents on revenue of $1.22 billion.
Clearly, the credit crunch had an impact on our results, Chief Executive Harold McGraw said on a conference call with investors.
McGraw-Hill, also owner of BusinessWeek magazine and market researcher J.D. Power & Associates, rose 84 cents to $41.23 at 3:13 p.m. in New York Stock Exchange composite trading.
The New York-based company said its financial services revenue fell 12 percent to $644.3 million, with revenue for Standard & Poor's Credit Market Services dropping 22 percent to $427.3 million as public bond issues declined amid global market turmoil.
The credit ratings industry, dominated by S&P, Moody's Investors Service and Fitch Ratings, has been sharply criticized for allegedly being overly optimistic on housing-related securities and failing to accurately warn investors of the risk that mortgage investment posed to financial markets, which have slumped in value.
CEO McGraw said a steep decline in collateralized debt obligations and mortgage-backed securities contributed to a 22 percent drop in credit market services revenue. McGraw also said the company may cut more jobs if business continues to deteriorate.
Revenue for McGraw-Hill School Education Group declined 5 percent to $138.8 million.
Revenue in the seasonally slow first quarter for the elementary-high school market depends more on purchases of fill-in copies and supplemental materials than on new business, said McGraw.
Last year, the McGraw-Hill School Education Group benefited from early ordering by North Carolina. Despite a good start in this year's 6-12 social studies and business education adoptions, our first-quarter results in North Carolina did not match last year's success.
Looking ahead, McGraw-Hill said the instability of the financial market and the weakening economy present challenges for the company this year.
If the steep drop we experienced in the first quarter in structured finance continues for the rest of the year, revenue at the Financial Services segment would decline 7 percent to 9 percent, McGraw added.