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Moody's (MCO) Beats on Q4 Earnings as Issuance Volume Rises

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Moody's (MCO - Free Report) reported fourth-quarter 2019 adjusted earnings of $2.00 per share, which outpaced the Zacks Consensus Estimate of $1.92. Also, the figure improved 23% from the year-ago quarter.

Results were largely driven by impressive global issuance volume and improving operating scenario, which led to rise in revenues. However, higher operating expenses posed an undermining factor.   

After taking into consideration certain non-recurring items, net income was $361 million or $1.88 per share, up from $254 million or $1.29 per share in the prior-year quarter.

In 2019, adjusted earnings per share of $8.29 beat the consensus estimate of $8.20 and increased 12% year over year. Net income (GAAP basis) was $1.43 billion or $7.42 per share, up from $1.32 billion or $6.74 per share in 2018.

Revenues & Costs Rise

Revenues of $1.23 billion beat the Zacks Consensus Estimate of $1.21 billion. Also, the top line grew 16% year over year. Foreign currency translation impact was negligible.

In 2019, revenues of $4.83 billion beat the consensus estimate of $4.80 billion and improved 9% year over year. Foreign currency translation unfavorably impacted revenues by 1%.

Total expenses were $729 million, up 7% year over year. The rise was mainly due to increase in compensation expenses, partially offset by beneficial impact of the restructuring plan and cost control initiatives. Notably, foreign currency translation impact was negligible.

Adjusted operating income of $559 million increased 17% year over year. Adjusted operating margin was 45.3%, up from 45%.

Quarterly Segment Performance

Moody’s Investors Service revenues grew 21% year over year to $720 million attributable to rise in issuance activity. Foreign currency translation unfavorably impacted the segment’s revenues by 1%.

Corporate finance revenues increased driven by robust bond issuances. Also, financial institutions’ revenues grew, primarily backed by rise in activity from infrequent U.S. insurance and non-U.S. banking issuers.

Further, public, project and infrastructure finance revenues increased, reflecting strong U.S. public finance issuance. However, structured finance revenues witnessed a fall, mainly due to lower global collateralized loan obligation activity.

Moody’s Analytics revenues grew 10% year over year to $513 million, mainly driven by higher U.S. and international revenues. Foreign currency translation impact on the segment’s revenues was negligible.

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

Strong Balance Sheet

As of Dec 31, 2019, Moody’s had total cash, cash equivalents and short-term investments of $1.9 billion, up from $1.8 billion as of Dec 31, 2018. Further, it had $5.6 billion of outstanding debt and $1 billion in additional borrowing capacity under its revolving credit facility.

Share Repurchases Update

During the fourth quarter, the company repurchased 1.2 million shares for $263 million.

Dividend Hike

Concurrently, Moody's announced a quarterly dividend of 56 cents per share, representing a 12% increase from the prior payout. The dividend will be paid out on Mar 18 to stockholders of record as on Feb 25.

2020 Guidance

Moody’s expects adjusted earnings in the range of $9.10-$9.30 per share. The Zacks Consensus Estimate for 2020 is $9.05, which is below the lower end of the adjusted earnings guidance.

On GAAP basis, earnings are expected to be $8.60-$8.80 per share.

Moody’s projects revenues to rise in the mid-single-digit percent range. Operating expenses are expected to increase in the low-single-digit percent range.

Our Take

Though the company remains well positioned for growth on the back of strong market position, strength in its diverse operations and strategic acquisitions, steadily increasing operating expenses will hurt its financials to some extent.

Moody's Corporation Price, Consensus and EPS Surprise

 

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

Earnings Release Dates of Other Finance Stocks

LendingClub Corporation (LC - Free Report) , FS KKR Capital Corp. (FSK - Free Report) and Capitala Finance Corp. (CPTA - Free Report) are scheduled to announce results on Feb 18, Feb 28 and Mar 2, respectively.

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