First time without Mobility. How to read S&P Global results when the comparison base has been rewritten
When S&P Global $SPGI released its second-quarter results on Tuesday morning, July 28, headlines popped up within minutes saying things like "revenue beat estimates, earnings disappointed." One large aggregator even reported that the company posted adjusted earnings of $4.08 per share against a $5.00 consensus. The stock closed 3.52% lower that day at $424.36.
Key points
Some headlines reported an earnings miss, others a beat. Both about the same number.
The ratings division grew 17%, the index division 20%. Energy grew just 3%.
Management increased this year's share buybacks by three billion dollars to more than seven billion.
A fifth of the earnings per share growth came from taxes, not from the business.
The stock is 23% below its annual high and cheaper than Moody's.
But adjusted earnings per share were not $4.08. They were $4.83, up 23% year-over-year. The $4.08 figure is pro forma earnings without adjustments, a completely different metric. And the consensus? It fragmented into several incomparable numbers depending on who had time to recalculate their models: the FactSet estimate was $4.81, the Zacks estimate $4.49. The company beat both. Similar confusion arose around guidance: aggregators reported a "lowered earnings outlook from $19.40-$19.65 to $17.50-$17.75," looking like a 10% axe. Yet the company explicitly states in its press release that the new outlook is not directly comparable to the previous one, because the old outlook included a full-year contribution from the Mobility division. And on July 1, Mobility was spun off into a separate company.
There’s no point in making a conspiracy out of this. This year S&P Global has published three different sets of numbers: reported GAAP, pro forma excluding Mobility, and pro forma non-GAAP adjusted. Anyone who didn’t read the footnotes got the wrong answer.
More interesting than the media confusion, though, is what’s hiding beneath it. The ratings and index divisions – the two businesses the entire S&P Global thesis rests on – delivered a record quarter. The data division and energy are lagging. The stock sits at $424 versus an annual high of $579, and even after including the Mobility share that shareholders received on top, it’s down roughly 23%. On top of that, it trades at a noticeable discount to Moody's $MCO. So is S&P Global a leaner, better company after the split that the market has overlooked, or a slower company just temporarily benefiting from a bond boom?