McGraw-Hill Cos. Inc.: Quarter Gets Low Rating

Struggling financial services business cuts into second-quarter profit

The credit ratings and publishing businesses are two industries that have certainly seen better days. That's not good news for McGraw-Hill Cos. Inc., the owner of Standard & Poor's and publisher of BusinessWeek.

The New York-based IW 50 Best Manufacturer for 2008 said July 29 that second-quarter profit fell 23.4% to $212.3 million and revenue dropped 2.6% to $1.7 billion from the year-earlier period. The results include a pre-tax restructuring charge of $23.7 million, or 5 cents per share, for severance costs after the company cut 395 jobs.

The company's financial services segment took the biggest hit with revenue declining 10.4% to $735.5 million. This includes a 20% drop in revenue for S&P's credit-market services, which provides credit risk evaluations and ratings-related information and products.

McGraw-Hill Cos. Inc.
At A Glance

McGraw-Hill Cos. Inc.
New York, N.Y.
Primary Industry: Publishing & Printing
Number of Employees: 21,171
2007 In Review
Revenue: $6.8 billion
Profit Margin: 14.97%
Sales Turnover: 1.07
Inventory Turnover: 7.51
Revenue Growth: 8.27%
Return On Assets: 16.77%
Return On Equity: 37.83%
McGraw-Hill has been impacted by a drop in new bond sales and regulatory investigations into its ratings practices, according to Bloomberg news service.

The revenue decline was partially offset by gains in the company's investment services and educational offerings. Investment services revenue rose 22.8% to $227.6 million. In the education segment, revenue increased 3.6%, driven by growth in the K-5 market. Recent adoption of instructional materials standards in Florida and Texas have boosted sales, says Harold McGraw III, chairman and CEO.

"Despite concerns about the economy in many states, a robust state new adoption market is shaping up this year, and we are now on course to capture about one-third of the total available dollars," McGraw said. "We estimate that the total state new adoptions this year will be worth $900 million to $950 million compared with about $820 million in 2007."

Information and media revenue grew 6.8%, as the company's energy news and pricing resource Platts gained new subscribers. However, advertising pages for BusinessWeek declined 11% in the second quarter, said McGraw-Hill, citing the Publishers Information Bureau.

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