Education Unit Weighs on McGraw-Hill

4798McGraw-Hill Cos. MHP -0.63% swung to a fourth-quarter loss as the company recorded a big loss from its education segment, although it continued to see strong revenue growth from its Standard & Poor's ratings business, which is currently in the midst of battling accusations it inflated ratings in the run-up to the financial crisis.
Looking ahead, the company said it expects earnings for the year of between $3.10 and $3.20 a share, well below the $3.80 a share expected by analysts polled by Thomson Reuters. It also expects revenue growth in the high single digits, while analysts expected 7% growth.

McGraw-Hill's stock has been pressured of late as the S&P business has been hit by lawsuits brought by state attorneys general who have alleged the firm presented the ratings it issued as based on objective and independent analysis when these were actually inflated to cater to banking clients.

S&P also has been subpoenaed by the New York Attorney General and is being investigated by the U.S. Securities and Exchange Commission. Meanwhile, the U.S. Department of Justice has filed a suit against the firm, in the first federal enforcement action against a credit-rating firm over the crisis.

On Tuesday, McGraw-Hill reiterated prior statements that the Justice Department cited "cherry-picked emails," and noting that the lawsuit "is entirely without factual or legal merit and that the company has very strong defenses against this and all pending litigation."

Indeed, the company's ratings business has turned in strong revenue of late, helped by an abundance of corporate-debt issuance to evaluate. Meanwhile, the education segment had recorded lower revenue amid a weak economy and slow housing recovery, both of which have kept state and local school budgets tight for years.

McGraw-Hill said in 2011 it would split itself into two standalone companies, one focused on its struggling education business and another focused on its markets businesses. However in November, the company agreed to sell its education unit to private-equity firm Apollo Global Management LLC APO -0.02% for $2.5 billion, ending the plan to take its education unit public. On Tuesday, McGraw-Hill said it had reclassified its education segment as discontinued operations in anticipation of the sale closing in the first quarter.

The company reported that revenue at the McGraw-Hill Financial unit--which includes S&P--jumped 22% to $1.23 billion.

Overall, McGraw-Hill reported a loss of $216 million, or 76 cents a share, compared with a profit of $214 million, or 73 cents a share, a year earlier. The most-recent quarter included $77 million of one-time charges related to the company's Growth and Value Plan, which includes restructuring charges. It also included a gain of $52 million related to a vacation policy change.

Stripping out restructuring charges and other items, per-share earnings were 72 cents from 46 cents a year earlier.

Revenue rose 22% to $1.23 billion.

Source: Wall Street Journal | SAABIRA CHAUDHURI
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