S&P Global Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Results: Total revenue increased 16% year-over-year in Q3, marking the third consecutive quarter of accelerating revenue growth. Adjusted diluted EPS increased 21% year-over-year. Year-to-date, $2 billion in shares repurchased, with plans to repurchase $1.3 billion more by year-end.
• Innovations: Leveraging generative AI across products and internal processes. Examples include new advanced analytics solutions in Market Intelligence, cloud delivery of AI-ready data in Commodity Insights, and an AI-powered chatbot in Platts Connect. Also, launched Spark AI Academy for employee training on AI.
• Portfolio Actions: Closed divestiture of Fincentric and announced planned divestiture of PrimeOne. Continues to optimize portfolio to focus on high-growth opportunities.
• Leadership Changes: Announced leadership changes, including Eric Aboaf as new CFO, Saugata Saha as President of Market Intelligence, Yann Le Pallec as President of S&P Global Ratings, and creation of Chief Client Officer role for Sally Moore.

Segment Performance

• Market Intelligence: Revenue increased 6% in the third quarter. Adjusted expenses rose 8% year-over-year. Operating margin was 32%, a 130 basis-point contraction. Year-to-date, market intelligence revenue growth was 6%, with desktop growing 8% (excluding Visible Alpha acquisition impact) and data and advisory solutions up 5%.
• Ratings: Revenue growth accelerated to 36%, with transaction revenue surging 83% in Q3. Non-transaction revenue increased 4%. Operating profit jumped 48%, and operating margin reached 61.7% (a 510 basis-point increase). Trailing 12-month margins expanded 650 basis points to 61.9%.
• Commodity Insights: Revenue grew 9%, driven by strong performance across the division, including double-digit growth from two business lines. Adjusted expenses rose 10%, and operating margin contracted by 60 basis points to 47.8%. Trailing 12-month margin increased by 50 basis points to 46.7%.
• Mobility: Revenue increased 9% year-over-year, with dealer revenue up 10% and manufacturing revenue growth accelerating to 2%. Adjusted expenses rose 9%, and operating margin was 42.2%, unchanged from the prior year period. Trailing 12-month margin contracted by 20 basis points to 38.8%.
• S&P Dow Jones Indices: Revenue increased 18%, primarily driven by strong growth in asset-linked fees. Adjusted expenses rose 15% year-over-year, and indices operating profit increased 19%, with operating margin expanding by 80 basis points to 70.2%. On a trailing 12-month basis, indices operating margin expanded by 200 basis points to 70%.

Guidance

• Revenue Growth: Substantially increased outlook for 2024, expecting revenue growth in the range of 11.5% to 12.5%.
• Margins: Anticipate adjusted margin expansion of 200 to 250 basis points.
• EPS: Adjusted diluted EPS expected in the range of $15.10 to $15.30, a $0.70 to $0.75 increase from prior guidance.
• Billed Issuance: Increased Billed Issuance forecast for 2024 by 25 percentage points, now expecting total Billed Issuance to increase approximately 50% in 2024.
• Segment Guidance: Tightened and adjusted guidance for each segment, e.g., Market Intelligence revenue growth range 6% to 6.5%, Ratings revenue growth range 26% to 28%, Commodity Insights 9% to 9.5%, Mobility 8% to 8.5%, and Indices 13% to 15%.

Risks

• Macroeconomic Uncertainties: Actual results may differ from forward-looking statements due to risks and uncertainties in current economic conditions.
• Pricing Pressure: Headwinds in financial services customers with elongated sales cycles, increased price sensitivity, and vendor consolidation.
• Market Volatility: Fluctuations in debt, equity, and commodities markets could impact business performance.

Question and Answer

Q: Hi, Ashish Sabadra with RBC Capital Markets. Drilling down on MI segment, execution choppy. Any further portfolio rationalization or how to steady execution?

A: Martina Cheung - In Market Intelligence, cyclical headwinds with end-market challenges. Continuing to drive innovation, focus on customer touch points. Portfolio optimization ongoing with divestitures, continuing to examine businesses for strategy fit.

Q: Toni Kaplan with Morgan Stanley. Where are biggest investment opportunities?

A: Martina Cheung - Reaffirming strategy with five secular trends identified at Investor Day 2022, with new incremental growth opportunities within those trends.

Q: Faiza Alwy with Deutsche Bank. Thoughts on ratings 2025 outlook?

A: Martina Cheung - Ratings business impacted by refinancing pull-forward, correlation with GDP growth. Healthy maturity wall, but precise timing of refinancing hard to predict. On track for multiyear growth target.

Q: David Motemaden with Evercore. Competition in MI, pricing pressure. Any incremental investment needed for MI growth?

A: Doug Peterson - Headwinds in MI due to sales cycle slowdown, price sensitivity, vendor consolidation. But strong business with synergies and integration. Martina Cheung - Innovation and customer touch points key, with end-market recovery expected to drive growth.

Q: Craig Huber with Huber Research Partners. Martina, plans to enhance shareholder value?

A: Martina Cheung - Focus on connecting dots across divisions with Chief Client Officer role, enterprise data office to leverage data estate for growth.