S&P Global Reports Third Quarter Results

NEW YORK, Oct. 26, 2017 /PRNewswire/ -- S&P Global (NYSE: SPGI) today reported third quarter 2017 results with revenue of $1,513 million, an increase of 5% compared to the same period last year.  On an organic basis, third quarter revenue increased 12% with strong growth in every business segment.

Net income decreased 54% to $414 million and diluted earnings per share declined 52% to $1.61 as a result of the prior period benefiting from a pre-tax gain of $722 million on the sale of J.D. Power.   Adjusted net income increased 16% to $442 million and adjusted diluted earnings per share increased 19% to $1.71. The adjustments in the third quarter of 2017 were for deal-related amortization and restructuring.  Both net income and adjusted net income benefited from an accounting change associated with the recognition of excess tax benefits from stock-based compensation in 2017.

"The underlying environment for our businesses is healthy with an improving global GDP, higher commodity prices, strong equity markets, and modest growth in U.S. bond issuance.  With this backdrop, our Company is thriving as all of our business segments contributed solid organic revenue and adjusted operating profit growth during the quarter," said Douglas L. Peterson, President and Chief Executive Officer of S&P Global.  "We continue to focus on delivering meaningful revenue growth, launching new products, investing in productivity, and returning capital to shareholders."

Margin: The Company's operating profit margin declined by 5,020 basis points to 43% due to a gain in the prior period from the sale of J.D. Power.  The adjusted operating profit margin improved by 190 basis points to 46% due to strong organic revenue growth, the sale of lower margin businesses, and productivity initiatives.

Return of Capital: During the third quarter, the Company returned $604 million to shareholders through a combination of $104 million in dividends and $500 million in the form of an accelerated share repurchase (ASR) agreement. Under the ASR, 2.8 million shares were repurchased during the third quarter. Later this month, the ASR will be completed and we expect to receive additional shares.

Ratings:  Revenue increased 15% to $739 million in the third quarter.  Transaction revenue increased 24% to $372 million primarily from strength in corporate bonds, structured products, and bank loans.  Non-transaction revenue increased 7% to $367 million due to growth in fees associated with surveillance, entity ratings, and short-term debt including commercial paper.

U.S. revenue increased 15% and international revenue, led by gains in Asia-Pacific and Canada, also increased 15%.  International revenue represented 42% of third quarter revenue.  With the exception of U.S. public finance, every major ratings sector delivered revenue growth with the largest gains in corporates and structured products.

Operating profit increased by 9% to $376 million. The operating profit margin declined 300 basis points to 51% compared to the third quarter of 2016 due to the benefit from insurance recoveries in the prior period.  Adjusted operating profit increased 19% to $392 million. The adjusted operating profit margin improved 170 basis points to 53%.  

Market and Commodities Intelligence:  Revenue decreased 6% to $615 million in the third quarter of 2017 due to the divestitures of J.D. Power, the SPSE/CMA pricing businesses, Equity and Fund Research in the fall of 2016 as well as QuantHouse earlier this year.  Excluding revenue from these divestitures and the acquisition of PIRA, organic revenue grew 7%.  Quarterly operating profit decreased 77% to $208 million and the operating profit margin declined 10,650 basis points to 34% due primarily to a gain on the sale of J.D. Power in the prior period.  Adjusted operating profit increased 1% to $230 million despite the loss of earnings from divested businesses.  Adjusted operating profit margin increased 270 basis points to 37% primarily due to strong organic revenue growth, divestments of lower margin businesses, and SNL integration synergies.

Market Intelligence revenue decreased 2% to $422 million due to divestitures.  Excluding divestitures, organic revenue increased 8% with solid gains across the business including Desktop, Data Management Solutions (formerly Enterprise Solutions), and Risk Services.

Platts revenue increased 10% to $193 million aided by the acquisition of PIRA.  Excluding this acquisition, Platts organic revenue grew 6% due to increased subscriptions and strong growth in Global Trading Services.

S&P Dow Jones Indices: S&P Dow Jones Indices LLC is a majority owned subsidiary.  The consolidated results are included in S&P Global's income statement and the portion related to the 27% noncontrolling interest is removed in net income attributable to noncontrolling interests.

Across the industry, investments in passive funds continue to set new records with year-to-date inflows for exchange-traded products reaching $458 billion.  Quarter ending ETF AUM associated with our indices reached a new record of $1,214 billion, surpassing $914 billion on September 30, 2016 and the prior quarter's ending record of $1,156 billion set on June 30, 2017.

Revenue increased 14% to $187 million in the third quarter of 2017 compared to the same period last year primarily due to a 17% increase in asset-linked fees.  Revenue from ETFs is the largest component of asset-linked fees, and average ETF AUM associated with the Company's indices increased 31%.

Operating profit increased 10% to $119 million and the operating profit margin decreased 180 basis points to 64%.  Adjusted operating profit increased 10% to $120 million and the adjusted operating profit margin decreased 190 basis points to 64%.  The decline in both the operating profit margin and the adjusted operating margin were the result of an increase in performance driven costs and additional investments, particularly the Trucost acquisition.  Operating profit attributable to the Company increased 8% to $86 million.  Adjusted operating profit attributable to the Company increased 8% to $87 million.

Unallocated Expense:  Unallocated expense includes corporate center functions and certain non-allocated items such as excess real estate. Unallocated expense increased 60% to $45 million.  Adjusted unallocated expense increased 44% to $41 million.  Both unallocated expense and adjusted unallocated expense increased principally due to Company-wide IT projects, professional service fees, and performance related costs.

Provision for Income Taxes:  The Company's effective tax rates in the third quarter of 2017 and 2016 were 27.3% and 29.5%, respectively.  The Company's adjusted effective tax rate decreased to 27.9% in the third quarter of 2017 compared to 31.3%. The benefit from an accounting change associated with the recognition of excess tax benefits from stock-based compensation in 2017 was the principal reason for the decline in both the effective tax rate and the adjusted effective tax rate.

Balance Sheet and Cash Flow: Cash and cash equivalents at the end of the third quarter were $2.3 billion, of which approximately $2.1 billion was held outside the United States. In the first nine months of 2017, cash provided by operating activities was $1,203 million, cash used for investing activities was $155 million, and cash used for financing activities was $1,211 million.  Free cash flow was $1,057 million, a decrease of $74 million from the same period in 2016 primarily due to timing of tax payments and other changes in working capital.  Free cash flow, excluding the tax on the gain from divestitures and the payment of legal settlements, was $1,128 million.

Outlook: The Company is increasing its 2017 EPS guidance. On a GAAP basis, diluted EPS was expected to be a range of $5.83 to $5.98 and is increased to a range of $6.19 to $6.34. Adjusted diluted EPS was expected to be a range of $6.15 to $6.30 and has been increased to a range of $6.55 to $6.70.

Comparison of Adjusted Information to U.S. GAAP Information: The Company reports its financial results in accordance with accounting principles generally accepted in the United States ("GAAP"). The Company also refers to and presents certain additional non-GAAP financial measures, within the meaning of Regulation G under the Securities Exchange Act of 1934. These measures are: adjusted diluted earnings per share, adjusted net income, adjusted operating profit and margin, organic revenue, adjusted unallocated expense, adjusted effective tax rates, adjusted diluted EPS guidance, free cash flow and free cash flow excluding certain items. The Company has included reconciliations of these non-GAAP financial measures to the most directly comparable financial measure calculated in accordance with GAAP on Exhibits 5, 8 and 9. The Company's non-GAAP measures include adjustments that reflect how management views our businesses. The Company believes these non-GAAP financial measures provide useful supplemental information that, in the case of non-GAAP financial measures other than free cash flow and free cash flow excluding certain items, enables investors to better compare the Company's performance across periods, and management also uses these measures internally to assess the operating performance of its business, to assess performance for employee compensation purposes and to decide how to allocate resources. The Company believes that the presentation of free cash flow and free cash flow excluding certain items allows investors to evaluate the cash generated from our underlying operations in a manner similar to the method used by management and that such measures are useful in evaluating the cash available to us to prepay debt, make strategic acquisitions and investments, and repurchase stock. However, investors should not consider any of these non-GAAP measures in isolation from, or as a substitute for, the financial information that the Company reports.

Conference Call/Webcast Details:  The Company's senior management will review the third quarter 2017 earnings results on a conference call scheduled for today, October 26, at 8:30 a.m. ET.  Additional information presented on the conference call may be made available on the Company's Investor Relations Website at http://investor.spglobal.com.

The Webcast will be available live and in replay at http://investor.spglobal.com/CustomPage/4023623/Index?KeyGenPage=1073751596&event=19600.  (Please copy and paste URL into Web browser.)

Telephone access is available. U.S. participants may call (888) 391-6568; international participants may call +1 (415) 228-4733 (long distance charges will apply). The passcode is "S&P Global" and the conference leader is Douglas Peterson. A recorded telephone replay will be available approximately two hours after the meeting concludes and will remain available until November 26, 2017. U.S. participants may call (866) 429-0569; international participants may call +1 (203) 369-0911 (long distance charges will apply). No passcode is required.

Forward-Looking Statements:  This press release contains "forward-looking statements," as defined in the Private Securities Litigation Reform Act of 1995. These statements, which express management's current views concerning future events, trends, contingencies or results, appear at various places in this report and use words like "anticipate," "assume," "believe," "continue," "estimate," "expect," "forecast," "future," "intend," "plan," "potential," "predict," "project," "strategy," "target" and similar terms, and future or conditional tense verbs like "could," "may," "might," "should," "will" and "would." For example, management may use forward-looking statements when addressing topics such as: the outcome of contingencies; future actions by regulators; changes in the Company's business strategies and methods of generating revenue; the development and performance of the Company's services and products; the expected impact of acquisitions and dispositions; the Company's effective tax rates; and the Company's cost structure, dividend policy, cash flows or liquidity.

Forward-looking statements are subject to inherent risks and uncertainties. Factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements include, among other things:

• worldwide economic, financial, political and regulatory conditions, including economic conditions and regulatory changes that may result from the United Kingdom's planned exit from the European Union;
• the rapidly evolving regulatory environment, in the United States and abroad, affecting S&P Global Ratings, S&P Global Platts, S&P Dow Jones Indices, and S&P Global Market Intelligence, including new and amended regulations and the Company's compliance therewith;
• our ability to make acquisitions and dispositions and successfully integrate the businesses we acquire;
• the outcome of litigation, government and regulatory proceedings, investigations and inquiries, and the outcome of any review by controlling tax authorities of the Company's tax positions;
• the health of debt and equity markets, including credit quality and spreads, the level of liquidity and future debt issuances;
• the demand and market for credit ratings in and across the sectors and geographies where the Company operates;
• concerns in the marketplace affecting the Company's credibility or otherwise affecting market perceptions of the integrity or utility of independent credit ratings;
• the effect of competitive products and pricing, including the level of success of new product developments and global expansion and the introduction of competing products or technologies by other companies;
• consolidation in the Company's end-customer markets;
• the impact of cost-cutting pressures across the financial services industry;
• a decline in the demand for credit risk management tools by financial institutions;
• the level of merger and acquisition activity in the United States and abroad;
• the volatility of the energy marketplace;
• the health of the commodities markets;
• the impact of cost-cutting pressures and reduced trading in oil and other commodities markets;
• our ability to incentivize and retain key employees;
• the Company's ability to maintain adequate physical, technical and administrative safeguards to protect the security of confidential information and data, and the potential of a system or network disruption that results in regulatory penalties, remedial costs or improper disclosure of confidential information or data;
• the Company's ability to successfully recover should it experience a disaster or other business continuity problem from a hurricane, flood, earthquake, terrorist attack, pandemic, security breach, cyber-attack, power loss, telecommunications failure or other natural or man-made event;
• changes in applicable tax or accounting requirements;
• the level of the Company's future cash flows and capital investments;
• the impact on the Company's revenue and net income caused by fluctuations in foreign currency exchange rates; and
• the Company's exposure to potential criminal sanctions or civil penalties if it fails to comply with foreign and U.S. laws and regulations that are applicable in the domestic and international jurisdictions in which it operates, including sanctions laws relating to countries such as Iran, Russia, Sudan and Syria, anti-corruption laws such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act of 2010, and local laws prohibiting corrupt payments to government officials, as well as import and export restrictions.

The factors noted above are not exhaustive. The Company and its subsidiaries operate in a dynamic business environment in which new risks emerge frequently. Accordingly, the Company cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the dates on which they are made. The Company undertakes no obligation to update or revise any forward-looking statement to reflect events or circumstances arising after the date on which it is made, except as required by applicable law. Further information about the Company's businesses, including information about factors that could materially affect its results of operations and financial condition, is contained in the Company's filings with the SEC, including the "Risk Factors" section in the Company's most recently filed Annual Report on Form 10-K.

About S&P Global

S&P Global is a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide. The Company's divisions include S&P Global Ratings, S&P Global Market Intelligence, S&P Dow Jones Indices and S&P Global Platts. S&P Global has approximately 20,000 employees in 31 countries. For more information visit www.spglobal.com.

Investor Relations:  http://investor.spglobal.com

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Contact:
Investor Relations:
Chip Merritt
Vice President, Investor Relations
(212) 438-4321 (office)
[email protected]

News Media:
Jason Feuchtwanger
Director, Corporate Media Relations
(212) 438-1247 (office)
[email protected]

SOURCE S&P Global