McGraw-Hill Q2 net down 23 pct, cuts 2009 outlook

A woman walks past the entrance to offices of the McGraw-Hill Companies, in New York August 15, 2008.

NEW YORK (Reuters) - McGraw-Hill Cos Inc reported a 23 percent decline in second-quarter profit and lowered its full-year outlook, hurt by lower demand for school textbooks, credit ratings at its Standard & Poor's unit, and magazine advertising.

Net income applicable to shareholders fell to $164.1 million, or 52 cents per share, from $212.3 million, or 66 cents, a year earlier.

Excluding items such as a charge to cut 550 jobs, profit was 58 cents per share, compared with analysts' average forecast of 55 cents, according to Reuters Estimates.

Revenue fell 12 percent to $1.47 billion, below the average estimate of $1.54 billion. This included declines of 17 percent from education publishing, 8 percent from financial services, and 12 percent from magazines and trade publications. Expenses dropped 11 percent.

Chief Executive Harold "Terry" McGraw said the recession had led to reduced demand for elementary and high school textbooks. "We still see challenges in the school marketplace as state budget pressures persist," he said on a conference call. "Federal stimulus funds are still the wild card."

S&P was hurt as tight credit markets caused a 25 percent drop in U.S. ratings volume, including an 84 percent drop from collateralized debt. Advertising volume also fell, including a 34 percent drop at the global edition of BusinessWeek, a magazine that McGraw-Hill is trying to sell.

McGraw-Hill, based in New York, said full-year profit will likely be at the low end of a range of $2.20 to $2.25 per share, compared with its April forecast for $2.20 to $2.30.

It projected a drop of 5.5 percent to 6.5 percent in full-year revenue, after previously forecasting a 4 percent to 5 percent decline. The new forecast indicates a range of $5.94 billion to $6.01 billion. Analysts, on average, expected profit of $2.25 per share on revenue of $6.03 billion.

In morning trading, McGraw-Hill shares were down 12 cents at $33.04 on the New York Stock Exchange. Through Monday, the shares had risen 43 percent this year.

CEO CALLS CALPERS LAWSUIT GROUNDLESS

Investors and lawmakers have attacked S&P and its main rivals, Moody's Corp's Moody's Investors Service and Fimalac SA's Fitch Ratings, for fueling the credit crisis by assigning high ratings to risky mortgage debt.

Terry McGraw rejected as "totally without merit" a lawsuit over credit ratings filed this month by the California Public Employees' Retirement System.

The nation's largest public pension fund accused S&P, Moody's and Fitch of assigning inflated ratings to risky structured investments, causing CalPERS to suffer more than $1 billion of losses.

Earlier this month, S&P said it was looking for a new bond rating chief after shifting Vickie Tillman to a new post.

Analysts expect Moody's to report lower quarterly earnings on Wednesday.

(Reporting by Jonathan Stempel; editing by John Wallace)