Moody's Corporation MCO reported third-quarter 2017 adjusted earnings of $1.52 per share, which handily outpaced the Zacks Consensus Estimate of $1.44. Also, the bottom line improved 10% from the year-ago quarter.
Results were attributable to impressive revenue growth, reflecting strong issuance in the quarter. Also, both Moody’s Investors Service and Moody’s Analytics segments witnessed improved performance. However, higher expenses were on the downside.
After considering gain on a foreign currency hedge associated with the Bureau van Dijk acquisition, amortization of all acquisition-related intangible assets and acquisition-related costs, Moody’s net income was $317.3 million or $1.63 per share. This was up from $255.3 million or $1.31 per share in the prior-year quarter.
Revenues Increase, Costs Rise
Revenues of $1.1 billion beat the Zacks Consensus Estimate of $983.4 million. Also, revenues jumped 16% year over year. The quarter witnessed higher domestic and international revenues. Foreign currency translation favorably impacted revenues by 1%.
Total expenses were $617.5 million, up 19% from the prior-year quarter. Higher accruals for incentive compensation, Bureau van Dijk operating expenses and acquisition-related costs were the main reasons for the rise.
Adjusted operating income of $498.5 million jumped 15% year over year. Adjusted operating margin came in at 46.9%, up from 47.8% in the year-ago quarter.
Segment Performance Improves
Moody’s Investors Service revenues jumped 13% year over year to $694.2 million, driven by growth in U.S. revenues as well as international revenues.
Corporate finance revenues improved driven by strong U.S. investment grade and Asian speculative grade bond issuance as well as a strong contribution from U.S. rated bank loans. Also, global structured finance revenues witnessed a rise mainly driven by increased issuance of U.S. CLOs and higher U.S. CMBS rated transactions.
Further, global financial institutions’ revenues improved, primarily reflecting rise in banking issuance from infrequent issuers. The company recorded a rise in global public, project and infrastructure finance revenues mainly driven by increased infrastructure finance activity in EMEA and Asia.
Moody’s Analytics revenues jumped 21% year over year to $368.7 million, mainly due to higher non-U.S. revenues. Notably, foreign currency translation favorably impacted revenues by 1%.
The segment recorded growth in research, data and analytics revenues, global professional services revenues and Enterprise Risk Solutions revenues.
Balance Sheet
As of Sep 30, 2017, Moody’s had total cash, cash equivalents and short-term investments of $1.1 billion, down 52% from Dec 31, 2016 level. Further, the company had $5.7 billion of outstanding debt.
Share Repurchases
During the reported quarter, the company repurchased 0.2 million shares for $29.1 million.
Upbeat 2017 Guidance
For 2017, Moody’s now anticipates revenues to increase in the low teens percent range. This was revised up from the prior growth projection of high-single-digit percent range.
Operating expenses are projected to decline in the range of 20-25% (revised from a fall of 25-30%). Adjusted operating expenses are estimated to rise in the low-double-digit percent range (up from the prior outlook of mid-single-digit percent range).
Earnings per share for 2017 are now projected to be $6.18 to $6.33 (up from the previous outlook of $5.69-$5.84). Adjusted earnings are now expected to be in the range of $5.85 to $6.00 (up from the prior outlook of $5.35-$5.50).
Our Take
Moody’s results reflect a decent performance. The company remains well positioned for growth on the back of strong market position, strength in its diverse operations and strategic acquisitions.
Moody's Corporation Price, Consensus and EPS Surprise
Moody's Corporation Price, Consensus and EPS Surprise | Moody's Corporation Quote
Currently, Moody’s has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some of the finance stocks including Garrison Capital Inc. GARS, BlackRock Capital Investment Corporation BKCC and FS Investment Corporation FSIC are scheduled to announce results on Nov 7, Nov 8 and Nov 9, respectively.
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