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Moody's (MCO) Beats on Q1 Earnings & Revenues, Affirms View

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Moody's Corporation (MCO - Free Report) reported first-quarter 2018 adjusted earnings of $2.02 per share, which handily surpassed the Zacks Consensus Estimate of $1.78. Also, the bottom line improved 35% 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 amortization of all acquisition-related intangible assets and acquisition-related expenses, Moody’s net income was $372.9 million or $1.92 per share. This compared favorably with net income of $345.6 million or $1.78 per share in the prior-year quarter.

Revenues & Costs Increase

Quarterly revenues of $1.13 billion beat the Zacks Consensus Estimate of $1.10 billion. Also, revenues increased 16% year over year. The quarter witnessed higher domestic and international revenues. Foreign currency translation favorably impacted the top line by 4%.

Total expenses were $635.9 million, up 20% from the prior-year quarter. Inclusion of Bureau van Dijk operating expenses and acquisition-related costs were the main reasons for the rise.

Adjusted operating income of $540.7 million jumped 13% year over year.

Adjusted operating margin came in at 48%, down from 49.1% in the year-ago quarter.

Segment Performance Improves in Q1

Moody’s Investors Service revenues increased 8% year over year to $719.9 million, driven by growth in U.S. revenues as well as international revenues. Foreign currency translation favorably impacted segment revenues by 3%

Corporate finance revenues improved, driven by strong U.S. investment grade bond, EMEA bank loans and growth in recurring revenues. Also, structured finance revenues witnessed a rise, mainly driven by strength in securitization markets.

Further, financial institutions’ revenues improved, primarily reflecting growth in issuance from EMEA banks and U.S. insurance companies, partly offset by a fall in activity from Asian and U.S. banks. However, the company recorded a decline in global public, project and infrastructure finance revenues due to a decrease in U.S. municipal issuance.

Moody’s Analytics revenues jumped 33% year over year to $406.8 million, mainly driven by higher non-U.S. revenues. Notably, foreign currency translation favorably impacted the segment’s revenues by 4%.

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

Balance Sheet

As of Mar 31, 2018, Moody’s had total cash, cash equivalents and short-term investments of $1.38 billion, up 16% from Dec 31, 2017 level. Further, Moody’s had $5.5 billion of outstanding debt and $910 million of additional borrowing capacity under its revolving credit facility.

Share Repurchases

During the reported quarter, the company repurchased 0.3 million shares for $43.4 million. As of Mar 31, 2018, Moody’s had nearly $500 million of share repurchase authorization left.

2018 Guidance Unchanged

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.

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. However, elevated expense levels, as it continues to invest in franchise and grow inorganically, will likely hurt bottom line.

Moody's Corporation Price, Consensus and EPS Surprise

 

Moody's Corporation Price, Consensus and EPS Surprise | Moody's Corporation Quote

Currently, Moody’s carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Schedule of Other Stocks

Ares Capital Corporation (ARCC - Free Report) is slated to report on May 2, while LendingClub Corporation (LC - Free Report) and Hercules Capital, Inc. (HTGC - Free Report) are slated to announce results on May 3.

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