When I prepared my Foolish Forecast on fund-rating-meister Morningstar
Pressed for time (it is still earnings season, after all), most of the financial press practiced triage and decided to focus on the firm's deal with McGraw-Hill
The year that was
Before spending $55 million to acquire S&P's fund-data business, Morningstar had already been a "motivated buyer" in 2006, buying first Ibbotson Associates in March, then Aspect Huntley in July, and finally the hedge-fund and separate account database division of InvestorForce in August. Including the $36.4 million in revenue that came with these purchases, Morningstar clocked in with year-over-year sales up 39% from 2005's level. Back out the "inorganic" growth, and that frenetic pace of growth drops down to a still respectable 23% worth of "organic" growth.
Profits-wise, the firm did not break out how much the three 2006 deals added to its bottom line. But inorganic and organic profits combined netted Morningstar $1.11 per share for the year, as compared with just $0.70 in 2005. That's 58% growth, comfortably ahead of the rise in sales, which bespeaks an improvement in profitability (which, as it turns out, amounted to 410 basis points' worth of operating margin improvement).
After a string of numbers like those shown above, you might think it would be hard for the company to say anything more impressive. That would be a mistake. Recognizing that cash profits are just as important (if not more so) than GAAP profits, CEO Joe Mansueto saved us some time and broke out the company's free cash flow performance as well. How'd Morningstar do? Oh, only about 129% better than last year, generating $94 million in cash profits for the year. Incidentally, that's about 81% better than the firm's reported profit under GAAP -- meaning Morningstar is even more profitable than you might think at first glance.
Four more on Morningstar:
- Foolish Forecast: Morningstar Dawns
- The Fool Looks Ahead
- Morningstar Shines in Q4: Fool by Numbers
- A Bright 2005 for Morningstar: Fool by Numbers