• 4th Quarter and Full-Year Revenue Grew 2% and 7%, Respectively, Impacted by Divestitures
  • 4th Quarter and Full-Year Organic Revenue Increased 11% and 6%, Respectively
  • Diluted EPS Increased 125% to $2.05 in the 4th Quarter and 89% to $7.94 for the Full Year
  • Adjusted Diluted EPS Increased 14% to $1.28 in the 4th Quarter and 14% to $5.35 for the Full Year
  • $1.5 billion Returned to Shareholders in Share Repurchases and Dividends in 2016

S&P Global (NYSE: SPGI) reported fourth quarter 2016 revenue of $1.40 billion, an increase of 2% compared to the same period last year.  On an organic basis, fourth quarter revenue increased 11% with growth in every business segment.

Fourth quarter net income increased 117% to $537 million and diluted earnings per share grew 125% to $2.05.  Adjusted net income for the quarter increased 10% to $334 million due to strong revenue growth and successful productivity efforts partially offset by higher taxes.  Adjusted diluted earnings per share increased 14% to $1.28 bolstered by a 4% reduction in fully diluted shares outstanding.  The adjustments in the fourth quarter were primarily related to net gains from business divestitures partially offset by increased legal reserves and expenses related to the early retirement of the 2017 notes.

For the full year, revenue increased 7% to $5.66 billion.  On an organic basis, full-year revenue increased 6%.  2016 net income increased 82% to $2.11 billion and diluted earnings per share increased 89% to $7.94.  2016 adjusted net income increased 10% to $1.42 billion and adjusted diluted earnings per share increased 14% to $5.35.

Margin Improvement: For the full year, the Company’s operating profit margin improved by 2,340 basis points to 60% due primarily to gains on business divestitures.  The adjusted operating profit margin improved by more than 275 basis points for the third year in a row, increasing 300 basis points to 43% in 2016 as the Company achieved solid revenue growth and successfully delivered productivity improvements.

Return of Capital:  For the full year, the Company returned $1.5 billion to shareholders with $1.1 billion in share repurchases and $380 million in dividends.  Share repurchases were the primary reason for the greater than 3% reduction in fully diluted shares outstanding during 2016. During the fourth quarter, the Company completed its accelerated share repurchase (ASR) program resulting in the reduction of 6.1 million shares of which 5.3 million were received in the third quarter.  The Company has approximately 25.8 million shares remaining under the existing share repurchase authorization from the Board of Directors.  In 2017, the Company anticipates continuing its share repurchase program, subject to market conditions.

Dividend:  On January 25, 2017 the Board of Directors of S&P Global approved the regular quarterly cash dividend on the Company’s common stock.  The quarterly dividend will increase 14% from $0.36 to $0.41 per share. The dividend will be payable on March 10, 2017, to shareholders of record on February 24, 2017.  The new annualized dividend rate is $1.64 per share and has increased at an average compound annual growth rate of 9.6% since 1974. The Company has paid a dividend each year since 1937 and is one of fewer than 25 companies in the S&P 500 that has increased its dividend annually for at least the last 44 years.

Ratings:

4th Quarter, 2016: Revenue increased 14% to $658 million.  Transaction revenue increased 26% to $311 million during the quarter primarily due to improved contract terms, increased bank loan ratings, and strength in issuance in structured, U.S. public finance, and corporate markets.  Non-transaction revenue increased 5% to $347 million in the fourth quarter primarily due to growth in surveillance fees, an increased intersegment royalty from Market and Commodities Intelligence, and growth at CRISIL.

U.S and international revenue increased 17% and 11%, respectively.  International revenue represented 45% of fourth quarter revenue.

Operating profit increased 11% to $258 million and operating profit margin decreased 100 basis points to 39% in the quarter.  Adjusted operating profit improved 23% to $313 million and adjusted operating profit margin improved 360 basis points to 48% in the quarter primarily driven by revenue growth, and lower legal and professional fees.

2016: Revenue increased 4% to $2.53 billion.  Operating profit increased 17% to $1.26 billion and operating profit margin improved 540 basis points to 50%.  Adjusted operating profit increased 10% to $1.26 billion compared to 2015 and adjusted operating profit margin improved 240 basis points to 50%.  This marks the fifth straight year that the adjusted operating profit margin has improved by more than 100 basis points as the business continued to successfully implement productivity initiatives.

Market and Commodities Intelligence:

4th Quarter, 2016:  Revenue decreased 11% to $595 million in the fourth quarter of 2016 due to the sale of J.D. Power, the SPSE/CMA pricing businesses, and Equity and Fund Research.  Excluding revenue from these divestitures, organic revenue growth was 8%.  Quarterly operating profit increased 275% to $530 million and operating margin improved 6,790 basis points to 89% primarily due to gains from divestitures.  Adjusted operating profit increased 8% to $206 million and adjusted operating margin improved 600 basis points to 35% due to gains at both Market Intelligence and Platts including outstanding progress on the $100 million Market Intelligence synergy target.

Notwithstanding divestitures,  Market Intelligence revenue remained unchanged in the fourth quarter to $407 million.  Organic revenue improved 10% to $406 million in the fourth quarter with gains in SNL, Capital IQ, RatingsDirect® and RatingsXpress® product groups.

Platts revenue increased 12% to $188 million in the fourth quarter including recent acquisitions.  Platts organic revenue increased 5% to $178 million in the fourth quarter due to mid single-digit revenue growth in core subscriptions and double-digit growth in Global Trading Services.

2016:  Full-year revenue increased 9% to $2.59 billion.  Adjusting revenue for several acquisitions and divestitures, organic revenue growth was 8%.  Operating profit increased 212% to $1.82 billion and operating profit margin improved 4,590 basis points to 70% including gains from several 2016 divestitures.  Adjusted operating profit grew 24% to $881 million and adjusted operating profit margin improved 410 basis points to 34% due primarily to outstanding progress on the $100 million Market Intelligence synergy target.

Full-year Market Intelligence revenue increased 18% to $1.66 billion and organic revenue grew 9% to $1.36 billion.

Full-year Platts revenue increased 9% to $712 million and organic revenue grew 6% to $696 million.

S&P Dow Jones Indices:

S&P Dow Jones Indices LLC is a joint venture. S&P Global owns 73% and CME Group owns 27%. 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.

4th Quarter, 2016:  Revenue increased 13% to $171 million in the fourth quarter of 2016.  Revenue increased primarily due to AUM growth in ETFs, data subscriptions, and derivatives trading activity.  Average AUM in exchange-traded funds based on S&P DJI’s indices was $954 billion in the quarter, an increase of 19% versus the fourth quarter of 2015.  By year-end, AUM surpassed $1 trillion, marking a new milestone for the business.

Quarterly operating profit increased 10% to $104 million and operating profit margin decreased 190 basis points to 61%.  Operating profit attributable to the Company increased 9% to $76 million.  Adjusted operating profit increased 10% to $105 million on stronger revenue.  Adjusted operating profit margin decreased 190 basis points to 62% due to Trucost acquisition costs, investments in a third data center, increased marketing costs, and higher cost of sales from growth in OTC derivatives activity.  Adjusted operating profit attributable to the Company increased 9% to $77 million.

2016:  Revenue increased 7% to $639 million.  Operating profit increased 5% to $412 million and operating profit margin decreased 120 basis points to 64%.  Operating profit attributable to the Company increased 4% to $303 million.  Adjusted operating profit increased 5% to $417 million.  Adjusted operating profit margin decreased 120 basis points to 65% due to investments in a third data center, increased marketing costs, and a higher cost of sales from growth in OTC derivatives activity.  Adjusted operating profit attributable to the Company increased 4% to $308 million.

Unallocated Expense:

4th Quarter, 2016:  Unallocated expense includes corporate center functions and certain non-performance related items such as excess real estate.  Unallocated expense decreased 22% to $35 million.  Adjusted unallocated expense decreased 3% to $35 million in the fourth quarter primarily due to higher 2016 pension income.

2016:  Full-year 2016 unallocated expense decreased 8% to $127 million.  Full-year 2016 adjusted unallocated expense decreased 7% to $130 million primarily due to higher 2016 pension income.

Provision for Income Taxes:  The Company’s effective tax rate in both 2015 and 2016 was 30.1%.  The adjusted effective tax rates in 2016 and 2015 were 32.1% and 30.6%.  The increase was primarily related to favorable one-time tax benefits from resolution of tax audits that benefited 2015.

Outlook:  The Company is introducing 2017 guidance with reported revenue expected to be unchanged from the prior year due to the impact of the sale of J.D. Power, two pricing businesses, and Equity and Fund Research.  Excluding the impact of these divestitures and recent acquisitions, organic revenue growth is expected to be mid single-digits.  On a U.S. GAAP basis, diluted EPS is expected to be $5.65 to $5.90 and adjusted diluted EPS is expected to be $5.90 to $6.15.  Adjusted diluted EPS excludes amortization of intangibles related to acquisitions.  The range is wider than prior years due to recent FASB guidance for share-based payment transactions.

Source: S&P Global Earnings Release