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Moody's (MCO) Beats on Q1 Earnings, Lowers 2020 Guidance
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Moody's (MCO - Free Report) reported first-quarter 2020 adjusted earnings of $2.73 per share, which outpaced the Zacks Consensus Estimate of $2.30. Also, the figure improved 32% from the year-ago quarter.
Shares of the company lost more than 2.5% in early market trading. It is to be noted that investors’ sentiments are bearish as the company lowered 2020 earnings outlook. Yet, a full day’s trading will likely depict a better picture.
Revenue growth on the back of impressive global bond issuance volume largely drove the results. However, higher operating expenses were an undermining factor.
After taking into consideration certain non-recurring items, net income was $487 million or $2.57 per share, up from $374 million or $1.93 per share in the prior-year quarter.
Revenues & Costs Rise
Revenues of $1.29 billion beat the Zacks Consensus Estimate of $1.22 billion. Also, the top line grew 13% year over year. Foreign currency translation impacted the top line unfavorably by 1%.
Total expenses were $698 million, up 3% year over year. The rise was supported by disciplined cost management and lower incentive compensation accruals, partly offset by higher bad debt reserves owing to the coronavirus outbreak. Nonetheless, foreign currency translation favorably impacted operating expenses by 1%.
Adjusted operating income of $649 million increased 25% year over year. Adjusted operating margin was 50.3%, up from 45.4% a year ago.
Segment Performance
Moody’s Investors Service revenues grew 19% year over year to $794 million, attributable to rise in issuance activity. Foreign currency translation unfavorably impacted the segment’s revenues by 1%.
Corporate finance revenues increased from the prior-year period, driven by robust bond issuances. Also, financial institutions’ revenues grew year over year, primarily backed by rise in activities from U.S. banks and insurance companies.
Further, public, project and infrastructure finance revenues increased from the year-ago level, reflecting strong U.S. public finance issuance, as well as solid project and infrastructure issuance in EMEA. However, structured finance revenues fell from the prior-year figure, mainly due to lower global collateralized loan obligation activity.
Moody’s Analytics revenues grew 5% year over year to $496 million. Foreign currency translation unfavorably impacted the segment’s revenues by 1%.
The segment recorded growth in research, data and analytics revenues, as well as Enterprise Risk Solutions revenues.
Strong Balance Sheet
As of Mar 31, 2020, Moody’s had total cash, cash equivalents and short-term investments of $2.2 billion, up from $1.9 billion on Dec 31, 2019. Further, it had $6.8 billion of outstanding debt and $1 billion in additional borrowing capacity under the revolving credit facility.
Share Repurchases Update
During the first quarter, the company repurchased 1.1 million shares for $253 million. Notably, the company has suspended share repurchases in response to the coronavirus pandemic.
2020 Guidance Lowered
Moody’s expects the economic implications of the coronavirus outbreak to be more pronounced through the second half of the year. Hence, the company has lowered its 2020 earnings guidance to reflect high level of ambiguity.
Moody’s expects adjusted earnings in the range of $7.80-$8.40 per share (down from the prior expectation of $9.10-$9.30 per share). The Zacks Consensus Estimate for the bottom line for 2020 is $8.74, which is above the higher end of the adjusted earnings guidance.
On GAAP basis, earnings are expected within $7.25-$7.85 per share, down from the earlier guided range of $8.60-$8.80 per share.
Moody’s now projects revenues to decline in the mid-single-digit percent range versus the prior guidance of revenue growth in the mid-single-digit percent range.
Operating expenses are expected to decrease in the mid-single-digit percent range versus the prior guidance of increase of the same 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 diverse operations and strategic acquisitions, steadily increasing operating expenses will hurt its financials to some extent. Also, uncertainty surrounding the impact of pandemic on the economy is a major concern.
Moody's Corporation Price, Consensus and EPS Surprise
Hercules Capital, Inc. (HTGC - Free Report) , LendingClub Corporation (LC - Free Report) and KKR & Co. Inc. (KKR - Free Report) are scheduled to announce quarterly results on May 4, May 5 and May 6, respectively.
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Moody's (MCO) Beats on Q1 Earnings, Lowers 2020 Guidance
Moody's (MCO - Free Report) reported first-quarter 2020 adjusted earnings of $2.73 per share, which outpaced the Zacks Consensus Estimate of $2.30. Also, the figure improved 32% from the year-ago quarter.
Shares of the company lost more than 2.5% in early market trading. It is to be noted that investors’ sentiments are bearish as the company lowered 2020 earnings outlook. Yet, a full day’s trading will likely depict a better picture.
Revenue growth on the back of impressive global bond issuance volume largely drove the results. However, higher operating expenses were an undermining factor.
After taking into consideration certain non-recurring items, net income was $487 million or $2.57 per share, up from $374 million or $1.93 per share in the prior-year quarter.
Revenues & Costs Rise
Revenues of $1.29 billion beat the Zacks Consensus Estimate of $1.22 billion. Also, the top line grew 13% year over year. Foreign currency translation impacted the top line unfavorably by 1%.
Total expenses were $698 million, up 3% year over year. The rise was supported by disciplined cost management and lower incentive compensation accruals, partly offset by higher bad debt reserves owing to the coronavirus outbreak. Nonetheless, foreign currency translation favorably impacted operating expenses by 1%.
Adjusted operating income of $649 million increased 25% year over year. Adjusted operating margin was 50.3%, up from 45.4% a year ago.
Segment Performance
Moody’s Investors Service revenues grew 19% year over year to $794 million, attributable to rise in issuance activity. Foreign currency translation unfavorably impacted the segment’s revenues by 1%.
Corporate finance revenues increased from the prior-year period, driven by robust bond issuances. Also, financial institutions’ revenues grew year over year, primarily backed by rise in activities from U.S. banks and insurance companies.
Further, public, project and infrastructure finance revenues increased from the year-ago level, reflecting strong U.S. public finance issuance, as well as solid project and infrastructure issuance in EMEA. However, structured finance revenues fell from the prior-year figure, mainly due to lower global collateralized loan obligation activity.
Moody’s Analytics revenues grew 5% year over year to $496 million. Foreign currency translation unfavorably impacted the segment’s revenues by 1%.
The segment recorded growth in research, data and analytics revenues, as well as Enterprise Risk Solutions revenues.
Strong Balance Sheet
As of Mar 31, 2020, Moody’s had total cash, cash equivalents and short-term investments of $2.2 billion, up from $1.9 billion on Dec 31, 2019. Further, it had $6.8 billion of outstanding debt and $1 billion in additional borrowing capacity under the revolving credit facility.
Share Repurchases Update
During the first quarter, the company repurchased 1.1 million shares for $253 million. Notably, the company has suspended share repurchases in response to the coronavirus pandemic.
2020 Guidance Lowered
Moody’s expects the economic implications of the coronavirus outbreak to be more pronounced through the second half of the year. Hence, the company has lowered its 2020 earnings guidance to reflect high level of ambiguity.
Moody’s expects adjusted earnings in the range of $7.80-$8.40 per share (down from the prior expectation of $9.10-$9.30 per share). The Zacks Consensus Estimate for the bottom line for 2020 is $8.74, which is above the higher end of the adjusted earnings guidance.
On GAAP basis, earnings are expected within $7.25-$7.85 per share, down from the earlier guided range of $8.60-$8.80 per share.
Moody’s now projects revenues to decline in the mid-single-digit percent range versus the prior guidance of revenue growth in the mid-single-digit percent range.
Operating expenses are expected to decrease in the mid-single-digit percent range versus the prior guidance of increase of the same 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 diverse operations and strategic acquisitions, steadily increasing operating expenses will hurt its financials to some extent. Also, uncertainty surrounding the impact of pandemic on the economy is a major concern.
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 #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings Release Dates of Other Finance Stocks
Hercules Capital, Inc. (HTGC - Free Report) , LendingClub Corporation (LC - Free Report) and KKR & Co. Inc. (KKR - Free Report) are scheduled to announce quarterly results on May 4, May 5 and May 6, respectively.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
See their latest picks free >>