Moody's Corporation Reaffirms Full-Year Outlook Amid Rebound in Bond Issuance

Image source: Moody's.

Moody's (MCO -0.25%) reported second-quarter results on July 22. The credit-rating titan saw its sales and profits stabilize after turbulent conditions in the global financial markets abated in recent weeks.

Moody's results: the raw numbers

Data source: Moody's second-quarter 2016 earnings press release.

What happened with Moody's this quarter?

Global revenue rose 1% year over year to $928.9 million, with foreign exchange having only a negligible impact on Moody's results during the second quarter. U.S. revenue remained flat at $545.9 million, while non-U.S. revenue increased 3% to $383 million.

Revenue for Moody's Investors Service (MIS) was $625.6 million, down 2% from the second quarter of 2015.

With the exception of its public, project, and infrastructure finance division, which saw revenue rise 12% to $112.3 million, MIS revenue was down across the board. Corporate finance revenue fell 5% to $304.8 million, due to a reduction in speculative-grade and Asian investment-grade bond offerings. Structured finance revenue declined 8% to $111.5 million, as securitization activity slowed in the commercial mortgage-backed security and collateralized loan obligations markets. And financial institutions revenue inched lower by 1% to $89.7 million.

Helping to offset those declines was a 9% rise in revenue for Moody's Analytics (MA) to $303.3 million.

MA revenue from research, data, and analytics increased 7% to $168.3 million, primarily due to strong sales of credit research and ratings data feeds. Enterprise risk solutions revenue jumped 17% to $97.5 million, as the segment benefited from Moody's recent acquisition of actuarial software provider GGY, as well as growth across all of its product lines.

Moody's second-quarter operating expenses were $518.7 million, an increase of 4% from the year-ago quarter, due mostly to the higher compensation costs incurred as the company has grown its head count.

All told, operating income and net income declined 2% to $410.2 million and $255.5 million, respectively. And earnings per share, which benefited from share buybacks, rose 2% to $1.30.

Cash flow and capital returns

Moody's free cash flow for the first half of 2016 was $474.5 million, down 14% from the prior-year period, primarily due to the year-over-year decline in net income.

Still, Moody's returned $295.3 million to its shareholders during the second quarter, including $71.5 million in dividends and $223.8 million in share repurchases.

Looking forward

Moody's reiterated its guidance for full-year revenue growth in the "low-single-digit percent range." Free cash flow is still projected to be approximately $1 billion, and the company expects to repurchase a total of about $1 billion of its shares during the year. Management also reaffirmed its 2016 forecast for earnings per share, but noted that Moody's earnings will likely come in on the low end of that range:

"Moody's achieved year-on-year revenue growth in the second quarter due to the strong performance of Moody's Analytics and the recovery in bond issuance from the weak start to the year," said CEO Raymond McDaniel in a press release. "Anticipating heightened market uncertainty outside the US, we expect full year 2016 EPS to be toward the lower end of our guidance range of $4.55 to $4.65."