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Moody's (MCO) Lags Q1 Earnings & Revenues, Tweaks View

Moody’s Corp. MCO reported dismal first-quarter 2016 results, wherein both earnings of 93 cents per share and revenues of $816.1 million missed the respective Zacks Consensus Estimate of $1.07 per share and $853 million. On a year-over-year basis, the metrics declined 16.2% and 6%, respectively due to a slowdown in debt issuance activity worldwide. Management also slashed its 2016 forecast owing to not-so-conducive market conditions


Quarterly Segment Details

Domestic revenues decreased 4% year over year to $480 million in the reported quarter. International revenues decreased 8.1% year over year to $336.1 million.

Segment wise, Moody’s Investors Service (MIS) revenues declined 13% year over year to $525.1 million. MIS revenues in the U.S. fell 10% on a year-over-year basis while International revenues declined 18%.

Within the MIS segment, Global Corporate Finance revenues tanked 20% year over year to $240.3 million due to reduced non-U.S. investment grade and global speculative-grade bond issuance.

Global Structured Finance revenues fell 11% year over year to $90.6 million due to a domestic slowdown in securitization in CMBS and CLO markets. However, Global Financial Institutions' revenues increased 1% year over year to $94.9 million.

Global Public, Project and Infrastructure Finance division revenues fell 9% year over year to $91.5 million pared by lower domestic public finance activity.

Moody’s Analytics (MA) revenues grew 11% year over year to $291 million bolstered by growth in research, data and analytics (RD&A) revenues (up 10% year over year to $164.9 million) and Enterprise Risk Solutions (ERS) revenues (up 16% year over year to $89.5 million).However, Global Professional Services was unchanged year over year at $36.6 million.

MA revenues in the U.S. were $144 million, up 12%. Revenues from outside the U.S. were $147 million, up 9%.


Moody’s reported adjusted operating income of $334 million, down 16.5% year over year. Adjusted operating margin was 40.9%, compared with 46.2% reported in the year-ago period.

Balance Sheet

Moody’s total cash, cash equivalents and short-term investments as of Mar 31, 2016 were $2.1 billion. Free cash flow amounted to $211 million, down 13%. The company exited the quarter with $3.4 billion of outstanding debt and $1 billion debt in its revolving credit facility.

During the quarter, the company repurchased 2.9 million shares for $262.1 million and issued 1.6 million shares as part of its employee stock-based compensation plans. As of Mar 31, 2016, Moody’s has shares worth $1.2 billion left to be repurchased.


For the full year, revenues are now expected to be up in low single digits as against mid single digits projected earlier. The company now expects earnings in a range of $4.55 to $4.65 compared with $4.75 to $4.85 per share projected earlier. Further, now the company expects capital expenditures at the low end of earlier guided range of $125 million to $135 million. Free cash flow is expected to be $1 billion as against $1.1 billion projected earlier.

However, the company continues to project adjusted operating margin of 45% and expects operating expenses to increase in mid single digits.

Zacks Rank

Currently, Moody’s has a Zacks Rank #4 (Sell). Some better-ranked stocks in the same space are Apollo Residential Mortgage, Inc. AMTG, Financial Engines, Inc. FNGN and FleetCor Technologies, Inc. FLT. All carry a Zacks Rank #2 (Buy).

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