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Moody's (MCO) Down on Q1 Earnings Miss & Lower 2022 Outlook
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Moody's (MCO - Free Report) reported first-quarter 2022 adjusted earnings of $2.89 per share, which lagged the Zacks Consensus Estimate of $2.91. The bottom line also plunged 29% from the year-ago quarter figure.
Shares of the company have tanked more than 7% in pre-market trading. This is largely owing to disappointing quarterly performance. The company lowered 2022 guidance, which is another reason for bearish investor sentiments.
Subdued issuance volume was a major headwind, which hurt Moody’s results. A rise in operating expenses posed an undermining factor. However, strategic buyouts that strengthened Moody’s Analytics segment’s performance acted as a tailwind. The company’s liquidity position was robust during the quarter.
After taking into consideration certain non-recurring items, net income attributable to Moody's Corporation was $498 million or $2.68 per share, down from $736 million or $3.90 per share in the prior-year quarter.
Revenues Down, Costs Up
Revenues were $1.52 billion, which beat the Zacks Consensus Estimate of $1.51 billion. The top line declined 5% year over year. Foreign currency translation unfavorably impacted revenues by 2%.
Total expenses were $866 million, up 16% from the prior-year quarter. The rise was mainly due to operational and transaction-related costs related to the recent acquisitions. Foreign currency translation positively impacted operating expenses by 2%.
Adjusted operating income of $734 million was down 20%. Adjusted operating margin was 48.2%, down from 57.1% a year ago.
Mixed Segment Performance
Moody’s Investors Service revenues decreased 20% year over year to $827 million. The fall was mainly due to geopolitical concerns, rising yields and elevated market uncertainty, which adversely impacted issuances in all asset classes. Foreign currency translation unfavorably impacted the segment’s revenues by 1%.
Corporate finance revenues tanked, given the decrease in leveraged finance issuance and slowdown in global investment-grade activity. Financial institutions’ revenues fell, mainly due to a decline in opportunistic issuance from infrequent U.S. banks and insurers on widening spreads and increased benchmark rates.
Public, project and infrastructure finance revenues also fell from the year-ago level, given lower infrastructure finance supply. Structured finance revenues were up, mainly driven by a significant increase in commercial and residential mortgage-backed securities issuance, partly offset by lower collateralized loan obligation activity.
Moody’s Analytics revenues grew 23% to $695 million. Foreign currency translation unfavorably impacted the segment’s revenues by 2%.
The segment recorded growth in Decision Solutions revenues, Research & Insights revenues and Data & Information revenues.
Strong Balance Sheet
As of Mar 31, 2022, Moody’s had total cash, cash equivalents and short-term investments of $1.9 billion, relatively in line with the Dec 31, 2021 level. The company had $7.8 billion of outstanding debt and $1.25 billion in additional borrowing capacity under the revolving credit facility.
Share Repurchase Update
During the quarter, Moody's repurchased 0.5 million shares for $158 million.
2022 Guidance Lowered
The company expects adjusted earnings in the range of $10.75-$11.25 per share, down from the prior outlook of 12.40-$12.90 per share. On a GAAP basis, earnings are now projected within $9.85-$10.35 per share, lower than the earlier range of $11.50-$12.00 per share.
Moody’s projects revenues to be relatively flat, a change from the earlier estimation of an increase in the high-single-digit percent range.
Expenses are projected to rise in the high-single-digit percent range, an increase from the prior estimation of a jump in the low-double-digit percent range.
Our Take
Moody’s remains well-positioned for growth on the back of a solid market position, strength in diverse operations and strategic acquisitions. However, steadily increasing operating expenses and geopolitical and macroeconomic concerns are likely to hurt its financials.
Moody's Corporation Price, Consensus and EPS Surprise
KKR & Co. Inc. (KKR - Free Report) is scheduled to announce quarterly numbers on May 3.
Over the past 30 days, the Zacks Consensus Estimate for KKR’s quarterly earnings has moved 4.9% lower to 98 cents, suggesting a 30.7% increase from the prior-year reported number.
Hercules Capital, Inc. (HTGC - Free Report) is scheduled to announce quarterly numbers on May 5.
Over the past 30 days, the Zacks Consensus Estimate for Hercules Capital has been unchanged at 31 cents. This indicates a rise of 6.9% from the prior-year quarter reported number.
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Moody's (MCO) Down on Q1 Earnings Miss & Lower 2022 Outlook
Moody's (MCO - Free Report) reported first-quarter 2022 adjusted earnings of $2.89 per share, which lagged the Zacks Consensus Estimate of $2.91. The bottom line also plunged 29% from the year-ago quarter figure.
Shares of the company have tanked more than 7% in pre-market trading. This is largely owing to disappointing quarterly performance. The company lowered 2022 guidance, which is another reason for bearish investor sentiments.
Subdued issuance volume was a major headwind, which hurt Moody’s results. A rise in operating expenses posed an undermining factor. However, strategic buyouts that strengthened Moody’s Analytics segment’s performance acted as a tailwind. The company’s liquidity position was robust during the quarter.
After taking into consideration certain non-recurring items, net income attributable to Moody's Corporation was $498 million or $2.68 per share, down from $736 million or $3.90 per share in the prior-year quarter.
Revenues Down, Costs Up
Revenues were $1.52 billion, which beat the Zacks Consensus Estimate of $1.51 billion. The top line declined 5% year over year. Foreign currency translation unfavorably impacted revenues by 2%.
Total expenses were $866 million, up 16% from the prior-year quarter. The rise was mainly due to operational and transaction-related costs related to the recent acquisitions. Foreign currency translation positively impacted operating expenses by 2%.
Adjusted operating income of $734 million was down 20%. Adjusted operating margin was 48.2%, down from 57.1% a year ago.
Mixed Segment Performance
Moody’s Investors Service revenues decreased 20% year over year to $827 million. The fall was mainly due to geopolitical concerns, rising yields and elevated market uncertainty, which adversely impacted issuances in all asset classes. Foreign currency translation unfavorably impacted the segment’s revenues by 1%.
Corporate finance revenues tanked, given the decrease in leveraged finance issuance and slowdown in global investment-grade activity. Financial institutions’ revenues fell, mainly due to a decline in opportunistic issuance from infrequent U.S. banks and insurers on widening spreads and increased benchmark rates.
Public, project and infrastructure finance revenues also fell from the year-ago level, given lower infrastructure finance supply. Structured finance revenues were up, mainly driven by a significant increase in commercial and residential mortgage-backed securities issuance, partly offset by lower collateralized loan obligation activity.
Moody’s Analytics revenues grew 23% to $695 million. Foreign currency translation unfavorably impacted the segment’s revenues by 2%.
The segment recorded growth in Decision Solutions revenues, Research & Insights revenues and Data & Information revenues.
Strong Balance Sheet
As of Mar 31, 2022, Moody’s had total cash, cash equivalents and short-term investments of $1.9 billion, relatively in line with the Dec 31, 2021 level. The company had $7.8 billion of outstanding debt and $1.25 billion in additional borrowing capacity under the revolving credit facility.
Share Repurchase Update
During the quarter, Moody's repurchased 0.5 million shares for $158 million.
2022 Guidance Lowered
The company expects adjusted earnings in the range of $10.75-$11.25 per share, down from the prior outlook of 12.40-$12.90 per share. On a GAAP basis, earnings are now projected within $9.85-$10.35 per share, lower than the earlier range of $11.50-$12.00 per share.
Moody’s projects revenues to be relatively flat, a change from the earlier estimation of an increase in the high-single-digit percent range.
Expenses are projected to rise in the high-single-digit percent range, an increase from the prior estimation of a jump in the low-double-digit percent range.
Our Take
Moody’s remains well-positioned for growth on the back of a solid market position, strength in diverse operations and strategic acquisitions. However, steadily increasing operating expenses and geopolitical and macroeconomic concerns are likely to hurt its financials.
Moody's Corporation Price, Consensus and EPS Surprise
Moody's Corporation price-consensus-eps-surprise-chart | Moody's Corporation Quote
Currently, Moody’s carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings Dates Other Finance Stocks
KKR & Co. Inc. (KKR - Free Report) is scheduled to announce quarterly numbers on May 3.
Over the past 30 days, the Zacks Consensus Estimate for KKR’s quarterly earnings has moved 4.9% lower to 98 cents, suggesting a 30.7% increase from the prior-year reported number.
Hercules Capital, Inc. (HTGC - Free Report) is scheduled to announce quarterly numbers on May 5.
Over the past 30 days, the Zacks Consensus Estimate for Hercules Capital has been unchanged at 31 cents. This indicates a rise of 6.9% from the prior-year quarter reported number.