UPDATE 3-McGraw-Hill beats as ratings business picks up

* Q1 EPS 33 cents; Wall Street view 25 cents

* Revenue up 3.7 pct at $1.2 bln

* Outlook for 2010 EPS unchanged

* Shares rise 1 percent
(Recasts top six paragraphs, adds detail on subcommittee for
investigations, )

By Elinor Comlay

NEW YORK, April 27 (BestGrowthStock) – McGraw-Hill Companies Inc
(MHP.N: ) reported better-than-expected first-quarter earnings,
helped by a jump in revenue at its Standard & Poor’s ratings
unit.

McGraw-Hill shares were up 1 percent at $34.22 in morning
trading, even though the company maintained its full-year
outlook.

Like its main rival, Moody’s Investors Service, the ratings
agencies have struggled amid criticisms they failed to spot the
problems that led to the global financial crisis.

The Senate Permanent Subcommittee on Investigations is
looking into the role of both companies in the 2007-2009
financial crisis. In testimony last Friday, former credit
rating agency officials said the companies’ fight for market
share sparked a drive for short-term profits and they
sacrificed credit quality in the process. [ID:nN23153960]

They are also facing investor lawsuits and regulation
changes, although Chief Executive Harold McGraw III told
analysts on a call that 11 lawsuits against Standard & Poor’s
were dismissed since the start of the year.

“Many of the key allegations against Standard & Poor’s are
starting to unravel under judicial scrutiny,” he said.

OUTLOOK

McGraw-Hill reported first-quarter earnings to the company
of $103.29 million, or 33 cents a share, compared with $63
million, or 20 cents a share a year earlier. Analysts on
average expected earnings of 25 cents a share, according to
Thomson Reuters I/B/E/S.

McGraw-Hill left its full-year earnings-per-share guidance
between $2.55 and $2.65, in spite of the better-than-expected
profit.

“They were a little more cautious than investors and
analysts including myself thought they would be in light of the
strong first quarter,” said Edward Atorino, analyst at The
Benchmark Company. “The outlook for the financial services
sector is pretty cloudy,” he said, adding that the recovery in
structured finance could be blunted by regulation and, as local
governments cut spending, there is also a worry over whether
schools will buy McGraw-Hill’s textbooks.

McGraw-Hill shares are up 1 percent this year through
Monday.

Moody’s Corp (MCO.N: ), the parent of Moody’s Investors
Service, also reported better-than-expected earnings last week
but its share price fell as it said it was cautious about the
outlook for 2010. [ID:nN21176479]

McGraw-Hill said that a pickup in high-yield debt issuance
boosted its ratings business, even as corporate debt issuance
fell in the first quarter. Standard & Poor’s also rated more
structured securities such as mortgage-backed securities and
asset-backed securities in the first quarter, according to
McGraw-Hill.

Standard & Poor’s Credit Market Services revenue increased
15.4 percent to $451.5 million in the first quarter, the
company said.

Separately, McGraw-Hill said it sold more text books in
some sectors, such as higher education. Revenue at the
company’s higher education, professional and international
group increased 8.3 percent to $205.7 million, helped in part
by a pickup in sales of online courses and e-books, the company
said.

Revenue across the company climbed 3.7 percent to $1.2
billion.

Stock Investing

(Reporting by Elinor Comlay, editing by Maureen Bavdek, Dave
Zimmerman)

UPDATE 3-McGraw-Hill beats as ratings business picks up