NEW YORK (Reuters) - McGraw-Hill Cos Inc <MHP.N> said on Tuesday quarterly earnings fell 44 percent as business dropped at its Standard & Poor's ratings agency, which critics accuse of helping to inflate the credit bubble.
By Dan Wilchins
NEW YORK (Reuters) - McGraw-Hill Cos Inc <MHP.N> said on Tuesday quarterly earnings fell 44 percent as business dropped at its Standard & Poor's ratings agency, which critics accuse of helping to inflate the credit bubble.
The results beat the average Wall Street estimate, but McGraw-Hill forecast a decline in full-year earnings that was worse than analysts had expected. The company also said it plans more job cuts.
"Clearly, the credit crunch had an impact on our results," Chief Executive Harold McGraw said on a conference call with investors.
!ADVERTISEMENT!Revenue in the ratings business declined 22 percent in the first quarter as U.S. and European bond issuance plummeted. The credit crisis has cut into issuance in some of S&P's most lucrative rating areas, including mortgage-backed securities, where first-quarter issuance declined 94 percent.
Amid this environment, S&P is starting another round of cost cuts. McGraw-Hill has already taken steps to manage costs in its ratings business, including layoffs, reducing hiring and cutting discretionary spending.
Ratings agencies have come under fire from politicians, regulators and investors for being excessively optimistic in assessing bonds' credit quality. The agencies generally have said they were fed false information by issuers, and were no more unreasonable in their forecasts than other market players.
McGraw-Hill also sells textbooks, magazines, trade publications and financial data, but concern about the outlook for the ratings business have been one of the main drivers of its share price. The shares have fallen 45 percent since peaking in June.
On the conference call, Harold McGraw said the second half of the year should be stronger for the company as the economy recovers. Early signs regarding textbook sales are encouraging, he said.
McGraw-Hill said first-quarter earnings were $81.1 million, or 25 cents a share, down from $143.8 million, or 40 cents a share, a year earlier. Analysts had expected 23 cents a share on average, according to Reuters Estimates.
The company said it expects earnings per share of $2.65 to $2.75 for 2008, which would be down from 2007's $2.94. Analysts expect $2.85 for 2008.
McGraw-Hill shares were up 31 cents to $40.70 in late-morning trade on the New York Stock Exchange after falling as low as $38.75 earlier in the session.
(Additional reporting by Joseph A. Giannone; editing by John Wallace)
