Moody's (MCO) Q4 Earnings, Revenues Top Estimates

Moody's CorporationMCO reported fourth-quarter 2016 adjusted earnings per share (EPS) of $1.23, beating the Zacks Consensus Estimate of $1.12. Also, the bottom line improved 13% from the year-ago quarter.

Results of the New York-based credit rating giant were primarily driven by a strong top-line performance.

Adjusted net income for the quarter was $237.3 million, increasing 9% from the prior-year period.

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Including a settlement charge and certain other non-recurring items, Moody's recorded a net loss of $428.6 million or $2.22 per share in the fourth-quarter 2016, compared to net income of $217.9 million or $1.09 in the prior-year quarter.

For full-year 2016, adjusted EPS of $4.81 outpaced the Zacks Consensus Estimate of $4.70. Also, it improved from the prior-year figure of $4.60. Adjusted net income for 2016 was 940.6 million, up from $934.9 million in 2015.

Performance in Detail

Revenues for 2016 came in at $3.6 billion, up 3% year over year. Also, the figure came almost in line with the Zacks Consensus Estimate.

For fourth-quarter 2016, Moody's posted revenues of $942.1 million, beating Zacks Consensus Estimate of $911.0 million. Also, revenues grew 9% year over year. The quarter witnessed higher domestic revenues as well as international revenues.

The company's operating expense totaled $1.4 billion, significantly up from $532.8 million in the prior year quarter. Notably, the reported quarter included $863.8 million settlement charge as Moody's reached an agreement last month with the U.S. authorities to resolve claims tied with its credit ratings for residential mortgage-backed securities and collateralized debt obligations assigned during the financial crisis period.

Moody's reported adjusted operating income of $423.6 million, increasing 17% year over year. Adjusted operating margin came in at 45.0%.

Segment Details

Segment wise, Moody's Investors Service (MIS) revenues increased 12% year over year to $607.8 million driven by growth in U.S. revenues as well as international revenues.

Higher levels of U.S. and European rated bank loan issuance along with higher speculative grade bond rating revenue led to growth in global corporate finance revenues. Also, global structured finance revenues witnessed growth mainly driven by increased deal activity in U.S. CLOs and CMBS and in European RMBS and CLOs.

Further driven by non-U.S. infrastructure issuance and U.S. public finance issuance, the company recorded increase in global public, project and infrastructure finance revenue. However, global financial institutions' revenues declined due to lower European bank issuance.

Moody's Analytics (MA) revenues grew 4% year over year to $334.3 million, mainly due to higher U.S. revenues, partially offset by lower international revenues. The segment recorded growth in research, data and analytics (RD&A) revenues and Enterprise Risk Solutions (ERS) revenues (up 10% year over year to $101.5 million). However, global professional services revenues declined year over year.

Balance Sheet

As of Dec 31, 2016, Moody's had total cash, cash equivalents and short-term investments of $2.2 billion, almost stable with prior year end. Free cash flow for 2016 increased 4% year over year to $1.1 billion.

During the reported quarter, the company repurchased 0.6 million shares for $59.9 million.


For full year 2017, Moody's anticipates revenue to increase in the mid-single-digit percent range. Operating expense is projected to decline in the range of 25-30%. The company noted that excluding the 2016 settlement and restructuring charges, adjusted operating expense is estimated to grow in the low-single-digit percent range.

On a constant dollar basis, the revenue growth rate is expected to be about 120 basis points (bps) higher and the adjusted operating expense growth rate projected to be around 170 bps higher.

Adjusted operating margin is expected to be approximately 46%.

The company expects 2017 EPS in the range of $5.15-$5.30. The guidance includes an estimated benefit of 15 cents from an accounting change tied with equity compensation.

Our Take

Moody's results reflect a decent performance. The company remains well positioned for growth 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 #3 (Hold).

Some better-ranked stocks in the finance space include PJT Partners Inc. PJT , FB Financial Corp. FBK and LPL Financial Holdings Inc. LPLA , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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