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Moody’s (MCO) Beats Q4 Earnings & Revenues, Issues ’18 View


Moody's Corporation MCO reported fourth-quarter 2017 adjusted earnings of $1.51 per share, which handily surpassed the Zacks Consensus Estimate of $1.45. Also, the bottom line improved 20% 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 taking into consideration the impacts of tax reform in the United States and Europe, amortization of all acquisition-related intangible assets and acquisition-related expenses, Moody’s net income was $28.5 million or 13 cents per share. This compared favorably with net loss of $428.6 million or $2.25 per share incurred in the prior-year quarter.

For 2017, adjusted earnings of $6.07 per share, outpaced the Zacks Consensus Estimate of $6.00 and rose 23% year over year. Net income was $1.01 billion or $5.15 per share, up from $275.8 million or $1.36 per share in 2016.

Revenues Increase, Costs Rise

Quarterly revenues of $1.17 billion beat the Zacks Consensus Estimate of $1.08 billion. Also, revenues increased 24% year over year. The quarter witnessed higher domestic and international revenues. Foreign currency translation favorably impacted the top line by 3%.

For 2017, revenues of $4.2 billion surpassed the Zacks Consensus Estimate of $4.12 billion. Also, the figure jumped 17% year over year.

Total expenses were $702.7 million, down 50% from the prior-year quarter. The year-ago quarter included settlement charges of $863.8 million. Excluding this, expenses were up 27% year over year. 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 $518.5 million jumped 22% year over year. Adjusted operating margin came in at 44.5%, up from 45% in the year-ago quarter.

Segment Performance Improves in Q4

Moody’s Investors Service revenues increased 19% year over year to $724.7 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 speculative grade bond, EMEA speculative grade bonds and bank loans, and Asian investment grade bond issuances. Also, structured finance revenues witnessed a rise mainly driven by increased issuance of U.S. and Europe CLOs and a rise in rated U.S. REIT transactions.

Further, 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 U.S. public finance issuance as well as strength in infrastructure finance.

Moody’s Analytics revenues jumped 32% year over year to $440.8 million, mainly driven by higher non-U.S. revenues. Notably, foreign currency translation favorably impacted revenues by 3%.

The segment recorded growth in research, data and analytics revenues, professional services revenues and Enterprise Risk Solutions revenues.

Balance Sheet

As of Dec 31, 2017, Moody’s had total cash, cash equivalents and short-term investments of $1.18 billion, down 47% from Dec 31, 2016 level. Further, the company had $5.54 billion of outstanding debt.

Share Repurchases

During the reported quarter, the company repurchased 0.2 million shares for $36.1 million.

2018 Guidance

Moody’s anticipates revenues to increase in the low-double-digit percent range. Operating expenses are projected to rise in the low-double-digit percent range.

Earnings per share are projected to be $7.20 to $7.40. Adjusted earnings are now expected to be in the range of $7.65 to $7.85. Both projects include a roughly 65 cents per share benefit resulting from U.S. tax reform and an estimated 20 cents per share benefit related to the tax accounting for equity compensation (majority to be recognized in the first quarter of 2018).

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

Moody’s sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings Schedule of Other Stocks

Ares Capital Corporation ARCC, LendingClub Corporation LC and Hercules Capital, Inc. HTGC are slated to announce results on Feb 13, Feb 20 and Feb 22, respectively.

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