The S&P Global Q4 2022 earnings call was a highly anticipated event in the financial world. As a leading financial market intelligence provider, S&P Global’s insights into market trends and business performance carry significant weight. The earnings call offered a glimpse into the company’s financial performance over the past year and its future outlook.
With the rise of big data and the rapid evolution of financial technology, the call provided valuable insights into how the industry is adapting to changing market conditions. From capital management to market trends and opportunities, the S&P Global Q4 2022 earnings call offered a wealth of information for investors and financial analysts alike.
As a result of this informative discussion, we’ve put together a list of nine key takeaways from the S&P Global Q4 2022 earnings call that provide valuable insights into the company’s performance and outlook for the future.
Financial Performance Overview
• Fourth quarter of 2022 reported revenue of $2.94 billion, an increase of 41% compared to the same period in 2021.
• Fourth quarter GAAP net income decreased 36% to $433 million, and GAAP diluted earnings per share decreased 52% to $1.33
• Full-year reported revenue increased 35% to $11.18 billion. 2022 GAAP net income increased by 7% to $3.25 billion, and GAAP diluted earnings per share decreased by 18% to $10.20.
• Full-year reported operating profit margin decreased by 670 basis points to 44.2%
• In 2022, the Company returned more than $13 billion to shareholders through a combination of $12 billion in the form of accelerated share repurchases (ASR) and $1 billion in cash dividends
In 2022, S&P Global focused on resilience, decisive action, and discipline to position the company for value creation in 2023.
Full-year adjusted revenue decreased by 4% or 3% on a constant currency basis due to significant decreases in debt issuance. However, the company’s diversification and resilience were evident as a 26% decrease in rating revenue was offset by a 6% growth in other businesses.
Despite significant inflation, S&P Global kept adjusted expenses relatively flat year-over-year, thanks to outperformance on cost synergies, management actions around incentive compensation, discretionary spending, and prioritization of strategic investments. The company’s 2023 guidance includes 4% to 6% revenue growth and a 10% to 12% EPS growth.
Merger with IHS Markit and Portfolio Optimization
In 2022, S&P Global completed its merger with IHS Markit and optimized its operations and portfolio of businesses. The company’s capital structure was also optimized, lowering its average cost of debt at fixed rates to protect earnings from interest rate volatility. At the Investor Day, S&P Global introduced a strategic vision called Powering Global Markets and outlined growth priorities for the coming years.
The company outperformed its original 2022 cost synergy targets by over 20%, generating $276 million in cost synergies realized in 2022. S&P Global also successfully integrated its major infrastructure software systems, including what its ERP vendor called the fastest integration ever for a company of its size.
S&P Global also took steps to optimize its portfolio of businesses by making several merger-related divestitures required by regulators, including the Engineering Solutions division. It announced an agreement to sell the business to KKR. These decisions helped position S&P Global in growth markets where it could leverage its strengths across the entire business.
S&P Global’s Plans for Long-Term Growth
The company’s economists forecast a global GDP growth of 2.2% in 2023. They also expect the growth to be a story of two halves, with a mild recession expected in the first half and stabilization in the second half.
Despite the uncertain macroeconomic environment, S&P Global plans to invest in growth to create long-term shareholder value. The company is optimizing its technology spend and leveraging powerful platforms to develop new products and features for its customers. It recently announced a strategic partnership with Amazon AWS to drive long-term savings and enhance its technology vision.
S&P Global’s Kensho platform, which uses machine learning and artificial intelligence, is a key contributor to the company’s culture of innovation. The platform has made significant progress on models that leverage unique data across the enterprise with the potential to accelerate product and technology agendas.
In addition to organic investments in private markets and sustainability and energy transition, S&P Global will selectively pursue opportunistic acquisitions that enhance its growth and innovation. The company plans to continue its long practice of transparency and accountability as it begins reporting its vitality revenue this year.
Question and Answer
Toni Kaplan from Morgan Stanley asked about the market opportunity for multi-asset class indices and whether clients see a need for them or if it will require convincing.
S&P Global’s CEO Douglas Peterson responded that there is a growing demand for multi-asset class indices, especially in the insurance and banking industries. These industries require a product that meets the needs of their clients, and multi-asset class indices provide that solution. Peterson stated that the difference is that a single product can meet the needs of a client by combining multiple asset classes. This creates an ecosystem that supports growth and trading. Peterson also mentioned that moving from active to passive investment strategies contributes to the growth of multi-asset class indices. Finally, Peterson noted that S&P Global has the advantage of having one of the leading fixed-income franchises, iBoxx, CDX, and iTraxx, which enables them to produce multi-asset class products in-house.
Alex Kramm from UBS asked about the margin outlook and the quarterly seasonality of the company, particularly in light of the seasonality seen in 2022.
S&P Global’s CFO Ewout Steenbergen responded by highlighting a few important factors to consider, including the high comparisons for the first quarter due to the impact of the COVID-19 pandemic and the Russia-Ukraine conflict. He also noted that the company is expecting a mild recession in the first half of the year, followed by economic strengthening in the second half. Steenbergen emphasized that the company is being very careful with expenses and is looking to time their growth investments in the market to ensure maximum benefit when the markets start to turn. Overall, the company seems to be taking a cautious approach in the face of economic uncertainty while still positioning itself for future growth opportunities.
Jeffrey Silber from BMO Capital Market asks about the company’s progress in AI and where they have had the most success.
S&P Global’s CEO Douglas Peterson responded by mentioning the company’s investment in their own proprietary AI Kensho and their success with harnessing data and language to develop interesting products for the financial markets. S&P Global’s CFO Ewout Steenbergen then provided data points on Kensho’s achievements, including a product called Kensho Link, which has saved over 2 million hours of ingesting data sets for customers. Steenbergen explained that Kensho’s sweet spot is natural language processing. They are developing a financial language model called Fin LM and an AI solution to answer complex financial questions called Kensho Solver. Overall, the company is pleased with its investment in Kensho and is looking forward to the future possibilities in AI.
Owen Lau from Oppenheimer asked about the company’s recent partnership with Amazon Web Services (AWS) and its potential impact on the company.
S&P Global’s CEO, Douglas Peterson, explained that the partnership with AWS is not new and that the two companies have been working together for many years. He noted that they both have strong relationships with AWS and have been on a cloud switch for many years.
S&P Global’s CFO Steenbergen added that the contractual agreement with AWS is about $1 billion spent in total over the next 5 years. He clarified that this is not an increase in total spending and that they will continue with a multi-cloud philosophy. They forecast that they would spend more than $1 billion on cloud computing over the next few years. The partnership brings two significant benefits. The first is generating significant cost synergies as part of the new contract, and the second is the strategic partnership, which will help to advance their technology innovation. They will be able to combine leading technologies and platforms, and data sets of both companies, add specific capabilities they have on both sides, including the Kensho AI capabilities, and enhance the customer experience.
Stephanie Benjamin Moore from Jefferies asked whether there will be more potential M&A activity going forward
S&P Global’s CEO Douglas Peterson noted that the company evaluates its current portfolio by looking at key secular trends and drivers of value across all of the markets in which it operates and seeks to be opportunistic in bringing new businesses into the portfolio if the opportunity arises. However, the company also considers the long-term fit of potential acquisitions and evaluates whether it is the best owner for the businesses in its portfolio. Overall, the company maintains a disciplined approach to M&A.
Russell Quelch from Redburn asked about buybacks and whether the after-tax capital from the Engineering Solutions sale would be considered part of the $3.3 billion permissible buyback for 2023.
S&P Global’s CFO Ewout Steenbergen responded that it is included in the $3.3 billion. He explained how to calculate the $3.3 billion capacity for buybacks for 2023 based on the company’s free cash flow forecast and guidance for the year, deducting the dividends paid out and adding the $750 million net proceeds for Engineering Solutions.