S&P Global (NYSE: SPGI) reported first quarter 2020 results with revenue of $1,786 million, an increase of 14% compared to the same period last year.
Ratings: Revenue increased 19% to $825 million in the first quarter primarily due to strong issuance in the U.S., in particular, record investment-grade issuance in March. Transaction revenue increased 33% to $432 million due primarily to an increase in global bond issuance as well as increased bank loan rating activity. Non-transaction revenue increased 6% to $393 million.
Operating profit increased 41% to $520 million and the operating profit margin improved 1,020 basis points to 63.1% compared to the first quarter of 2019. Adjusted operating profit increased 41% to $521 million and the adjusted operating profit margin improved 1,010 basis points to 63.1%.
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.
Revenue increased 20% to $259 million in the first quarter of 2020 due primarily to a 59% increase in exchange-traded derivative fees and an 11% gain in asset-linked fees.
Asset-linked fees include fees associated with ETFs, mutual funds, and certain over-the-counter derivatives. Revenue from ETFs is the largest component of asset-linked fees, and average ETF AUM associated with the Company’s indices increased 17% year-over-year. However, quarter-ending ETF AUM associated with our indices was $1,345 billion, an 8% decrease from 1Q 2019.
Operating profit increased 21% to $182 million and the operating profit margin increased 90 basis points to 70.0%. Adjusted operating profit increased 21% to $183 million and the adjusted operating profit margin improved 90 basis points to 70.6%. Operating profit attributable to the Company increased 21% to $133 million. Adjusted operating profit attributable to the Company increased 21% to $134 million.
Market Intelligence: Revenue increased 8% to $519 million in the first quarter of 2020 with growth in Data Management Solutions, Credit Risk Solutions, and Desktop as well as the addition of 451 Research. Quarterly operating profit increased 10% to $147 million and the operating profit margin improved 40 basis points to 28.3% primarily due to the gain on a divestiture. Adjusted operating profit increased 5% to $160 million. Adjusted operating profit margin declined 80 basis points to 30.9% due primarily to increased compensation expense and investment spending.
Platts: Revenue increased 4% to $215 million with growth in both the core subscription business and Global Trading Services. Quarterly operating profit increased 13% to $112 million and the operating profit margin increased 380 basis points to 51.9% primarily due to revenue growth and modestly lower expenses. Adjusted operating profit increased 11% to $114 million and adjusted operating profit margin increased 320 basis points to 52.9%.
Corporate Unallocated Expense: Corporate Unallocated expense includes non-allocated corporate expenses. This expense increased from $46 million in the prior period to $49 million in the first quarter of 2020 primarily due to a restructuring expense in the current period. Adjusted Corporate Unallocated expense declined from $32 million in the prior period to $30 million due primarily to lower rental expense from a reduction in the Company’s real estate footprint.
Provision for Income Taxes: The Company’s effective tax rate increased to 21.5% in the first quarter of 2020 compared to 19.9% in the same period last year. The Company’s adjusted effective tax rate increased to 21.7% in the first quarter of 2020 compared to 20.9% in the same period last year. The increase in the effective tax rates was due primarily to a decrease in the tax benefit associated with stock-based compensation.
Balance Sheet and Cash Flow: Cash, cash equivalents, and restricted cash at the end of the first quarter were $2.0 billion. In the first three months of 2020, cash provided by operating activities was $680 million, cash used for investing activities was $183 million, and cash used for financing activities was $1,401 million. Free cash flow was $618 million, an increase of $363 million from the same period in 2019, primarily due to an increase in net income and lower tax audit settlement payments in the first quarter of 2020.
Outlook: Due to the uncertainties associated with COVID-19, S&P Global has analyzed several scenarios that are contingent on the depth and duration of the COVID-19 pandemic and its resulting impact on economic and market-specific drivers that may impact the Company’s businesses. S&P Global has disclosed three specific scenarios as part of its first quarter 2020 earnings materials, with the “late 3Q recovery” being the baseline scenario at this point in time and the basis for the following revised guidance. GAAP diluted EPS guidance is decreased from a range of $10.00 to $10.20 to a new range of $9.50 to $9.70. Adjusted diluted EPS guidance is decreased from a range of $10.40 to $10.60 to a new range of $9.95 to $10.15. Additional details for these three scenarios are presented on slides 44-47 of the first quarter 2020 earnings
Source: S&P Global Earnings Release