Moody's (MCO) Beats Q2 Earnings Expectations, Guides Up

Moody's Corporation (NYSE:MCO) reported second-quarter 2017 adjusted earnings of $1.51 per share, which handily outpaced the Zacks Consensus Estimate of $1.33. Also, the bottom line improved 16% from the year-ago quarter.

Shares of Moody’s rose nearly 2.4% in the pre-market trading. Notably, the price reaction during the full trading session will provide a better idea about how the investors accepted the results.

Better-than-expected 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 considering unrealized gain on a foreign currency collar to economically hedge the Bureau van Dijk euro-denominated purchase price and acquisition-related costs, Moody’s net income was $313.6 million or $1.61 per share. This was up from $258.1 million or $1.30 per share in the prior-year quarter.

Revenues Increase, Costs Rise

Revenues of $1 billion beat Zacks Consensus Estimate of $943.7 million. Also, revenues grew 8% year over year. The quarter witnessed higher domestic and international revenues. The impact of foreign currency translation was insignificant.

Total expenses were $543 million, up 5% from the prior-year quarter. A rise in operating expenses, and depreciation and amortization costs were partially offset by a decline in selling, general and administrative expenses. The reported quarter also included $6.6 million of acquisition-related expenses.

Adjusted operating income of $497 million jumped 13% year over year. Adjusted operating margin came in at 45.7%, up from 44.2% in the year-ago quarter.

Segment Performance Improves

Moody’s Investors Service revenues jumped 10% year over year to $686.7 million, driven by growth in U.S. revenues as well as international revenues.

Strong global leveraged finance issuance led to growth in global corporate finance revenues. Also, global structured finance revenues witnessed a rise mainly driven by increased issuance of U.S. CLOs.

Further, global financial institutions’ revenues improved, primarily reflecting rise in issuance from infrequent issuers. However, owing to a fall in U.S. issuance and a change in mix of European infrastructure issuance, the company recorded decline in global public, project and infrastructure finance revenues.

Moody’s Analytics revenues grew 4% year over year to $313.8 million, mainly due to higher U.S. revenues. Foreign currency translation impact was immaterial.

The segment recorded growth in research, data and analytics revenues (up 7% year over year to $180.9 million) and stable Enterprise Risk Solutions revenues of $97.3 million. However, global professional services revenues declined 5% from the prior-year quarter to $35.6 million.

Strong Balance Sheet

As of Jun 30, 2017, Moody’s had total cash, cash equivalents and short-term investments of $3.4 billion, up 51% from $2.22 billion as of Dec 31, 2016.

During the reported quarter, the company repurchased 0.7 million shares for $79.5 million.

Upbeat 2017 Guidance

For 2017, Moody’s now anticipates revenues to increase in the high-single-digit percent range. This was revised up from the prior growth projection of mid-single-digit percent range.

Operating expenses are projected to decline in the range of 25–30%. Adjusted operating expenses are estimated to grow in the mid-single-digit percent range.

Adjusted operating margin is expected to be approximately 47%.

Earnings per share for 2017 are now projected to be $5.69 to $5.84 (up from the previous outlook of $5.46–$5.61). Adjusted earnings are now expected to be in the range of $5.35 to $5.50 (up from the prior outlook of $5.15–$5.30).

Our Take

Moody’s results reflect a decent performance. The company remains well positioned for growth on 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

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

Some of the stocks in the same industry including CIT Group Inc. (NYSE:CIT) , Euronet Worldwide, Inc. (NASDAQ:EEFT) and PJT Partners Inc. (NYSE:PJT) are scheduled to announce results on Jul 25, Jul 26 and Aug 2, respectively.

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