Moody's Corp. ( MCO )
reported third quarter 2012 earnings of 75 cents per share, beating
the Zacks Consensus Estimate by 11 cents. Earnings jumped 31.6%
year over year, primarily due to strong top-line growth.
Revenue surged 29.6% year over year to $688.5 million and
exceeded the Zacks Consensus Estimate of $622.0 million. The
better-than-expected result was driven by strong performance from
both Moody's Investors Service ("MIS") and Moody's Analytics ("MA")
division. Domestic revenue soared 36.9% year over year to $375.4
million, while international revenues jumped 21.8% to $313.1
million in the quarter.
Segment wise, Moody's Investors Service (MIS) revenues jumped
34.7% year over year to $473.5 million. MIS revenues in the U.S.
leaped 45.0%, while revenues outside the U.S. increased 21.0% from
the year-ago quarter.
Within the MIS segment, Global Corporate Finance revenues surged
71.1% year over year to $220.7 million, while Global Structured
Finance revenues jumped 13.5% year over year to $93.1 million.
Global Financial Institutions revenue increased 14.7% year over
year to $82.7 million. Global public, project and infrastructure
finance revenue was up 12.7% year over year to $77.0 million.
MA revenue grew 19.5% year over year to $215.0 million, buoyed
by an increase in Research, Data and Analytics revenues (up 7.4%),
Professional services revenues (up 97.1%) and enterprise risk
solutions revenues (up 26.0%). MA revenues increased 14.0% in the
US, while outside the U.S, it rose 23.0% on a year-over-year basis
in the reported quarter.
Operating expenses increased 25.0% year over year to $418.8
million due to higher compensation and increased headcount.
Nevertheless, operating income jumped 37.4% year over year to
$269.7 million in the third quarter. Operating margin expanded 230
basis points ("bps") to 39.2%, primarily due to higher revenue
Net income soared 40.7% year over year to $183.9 million in the
Moody's exited the quarter with $1.54 billion in cash and cash
equivalents and short-term investments compared with $839.5 million
in the previous quarter. At quarter end, Moody's had $1.71 billion
in outstanding debt and had additional debt capacity of $1.0
billion under its revolving credit facility.
Moody's raised its earnings outlook to a range of $2.89 to $2.99
from the prior outlook of $2.70 to $2.80 for fiscal 2012. For
fiscal 2012, Moody's expects revenues to increase in mid-teens
percent range. However, expenses are also projected to increase in
mid-teens percent range. Operating margin is projected to be
Segment wise, global MIS revenue is expected to increase in the
mid teens percent range for fiscal 2012. MA revenue will likely
increase in the high-teens percent range for fiscal 2012.
We believe that Moody's remains a solid franchise in rating debt
instruments based on its diversified credit research business model
and international growth. However, increasing regulatory
complications and cut-throat competition from Dun &
Bradstreet Corp ( DNB )
and privately-held Fitch Ratings Inc. and Standard & Poor's
Financial Services LLC may hurt its profitability going
We remain Neutral on a long-term basis (6-12 months). Currently,
Moody's has a Zacks #2 Rank, which implies a Buy rating in the
short term (1-3 months).DUN &BRADST-NEW (DNB): Free Stock Analysis
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