S&P Global revenue increased 8% in the second quarter, compared to exceptional 2Q 2020

S&P Global [SPGI] today reported second quarter 2021 results with revenue of $2,106 million, an increase of 8% compared to the same period last year with every segment delivering revenue growth. Net income increased 1% to $798 million. Diluted earnings per share increased 1% to $3.30 primarily due to revenue growth partially offset by increased compensation-related expenses.

Adjusted net income increased 6% to $875 million and adjusted diluted earnings per share increased 6% to $3.62. The largest adjustments in the second quarter of 2021 were for costs related to the pending merger with IHS Markit and deal-related amortization related to previous acquisitions.

"A year ago we reported exceptional second-quarter results as investment-grade companies capitalized on the opportunity to secure liquidity in the bond market and we cut back on spending to deal with incredible uncertainty. It is remarkable that the financial results that we report today surpassed those of a year ago," said Douglas L. Peterson, President and Chief Executive Officer of S&P Global. "While the pandemic is far from over, markets are normalizing, economies are generally reopening, employment is rising, and GDP is recovering. All these factors bode well for S&P Global as we continue to provide our clients with an ever increasing array of ratings, benchmarks, data and analytics."

Merger Update: S&P Global and IHS Markit continue to progress with merger integration planning. In addition, work with global regulators remains underway and we anticipate closing the transaction in the fourth quarter of 2021.

Profit Margin: The Company’s operating profit margin decreased 210 basis points to 54.8% primarily due to a challenging expense comparison to the second quarter of 2020 and increased compensation-related expenses, and costs related to the pending merger with IHS Markit in 2021. Adjusted operating profit margin decreased 40 basis points to 58.3% primarily due to a challenging expense comparison to the second quarter of 2020 and increased compensation-related expenses in 2021.

Return of Capital: During the second quarter, the Company returned $185 million to shareholders in dividends. There were no share repurchases during the quarter due to the pending merger with IHS Markit.

Ratings: Revenue increased 7% to $1,073 million in the second quarter of 2021. Transaction revenue decreased 1% to $615 million with a substantial decline in investment-grade bond issuance mostly offset by an increase in bank loan rating activity, structured finance and high-yield bond issuance. Non-transaction revenue increased 19% to $458 million due to new-entity ratings, fees associated with surveillance, and Rating Evaluation Service activity.

Operating profit increased 5% to $729 million. Operating profit margin decreased 100 basis points to 67.9% compared to the second quarter of 2020 as expense growth outpaced revenue growth. Adjusted operating profit increased 5% to $731 million and adjusted operating profit margin decreased 100 basis points to 68.1%.

S&P Dow Jones Indices: S&P Dow Jones Indices LLC is a majority-owned subsidiary. 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.

Revenue increased 16% to $278 million in the second quarter of 2021 with strong growth in asset-linked fees and data & custom subscriptions.

Asset-linked fees include fees associated with ETFs, mutual funds, and certain over-the-counter derivatives. Revenue from ETFs is the largest component of asset-linked fees, and average ETF AUM associated with the Company’s indices increased 56% year-over-year. Quarter-ending ETF AUM associated with our indices was $2.4 trillion, a 51% increase from the end of the second quarter of 2020.

Operating profit increased 15% to $196 million. Operating profit margin decreased 70 basis points to 70.7% as expense growth outpaced revenue growth. Adjusted operating profit increased 15% to $198 million. Adjusted operating profit margin decreased 80 basis points to 71.1%. Operating profit attributable to the Company increased 15% to $144 million. Adjusted operating profit attributable to the Company increased 15% to $146 million.

Market Intelligence: Revenue increased 8% to $555 million in the second quarter of 2021 with growth in Credit Risk Solutions, Data Management Solutions, and Desktop. Operating profit increased 13% to $180 million and operating profit margin improved 160 basis points to 32.4% as new product launches began to contribute to revenue. Adjusted operating profit increased 11% to $196 million and adjusted operating profit margin improved 100 basis points to 35.4%.

Platts: Revenue increased 9% to $236 million in the second quarter of 2021 primarily due to growth in the core subscription business. Operating profit increased 8% to $135 million and operating profit margin decreased 30 basis points to 57.0%. Adjusted operating profit increased 8% to $136 million and adjusted operating profit margin decreased 40 basis points to 57.9%.

Corporate Unallocated Expense: This expense increased from $42 million in the prior period to $86 million in the second quarter of 2021 primarily due to $50 million of expenses related to the pending IHS Markit merger. Adjusted Corporate Unallocated expense increased from $30 million in the prior period to $33 million primarily due to increased incentives.

Provision for Income Taxes: The Company’s effective tax rate increased to 25.1% in the second quarter of 2021 compared to 21.7% in the same period last year due to an increase in taxes on foreign operations, certain non-deductible IHS Markit merger costs, and the successful resolution of tax examinations in the prior year. The Company’s adjusted effective tax rate increased to 23.3% in the second quarter of 2021 compared to 21.7% in the same period last year due to an increase in taxes on foreign operations and the successful resolution of tax examinations in the prior year. The Company’s effective tax rate may fluctuate from quarter to quarter due to the timing of discrete tax adjustments.

Balance Sheet and Cash Flow: Cash, cash equivalents, and restricted cash at the end of the second quarter were $5.2 billion. In the first six months of 2021, cash provided by operating activities was $1,691 million, cash used for investing activities was $33 million, and cash used for financing activities was $526 million. Free cash flow in the first six months of 2021 was $1,548 million, an increase of $41 million from the same period in 2020, primarily due to increased net income. Free cash flow excluding costs associated with the pending merger with IHS Markit was $1,625 million, an increase of $118 million over the same period in 2020.

Outlook: The Company is not providing 2021 GAAP guidance because given the inherent uncertainty around the merger, management cannot reliably predict all of the necessary components of GAAP measures. The Company is providing adjusted guidance on a stand-alone basis that excludes anticipated merger expenses, the potential revenue and expense impact from consolidating IHS Markit following the merger, and amortization of intangibles related to acquisitions. 2021 reported revenue is expected to increase high single-digits. Adjusted diluted EPS guidance has been increased by $0.40 to a new range of $12.95 to $13.15. Guidance for free cash flow excluding certain items has also been increased to a new range of $3.5 billion to $3.6 billion.