Moody's (NYSE:MCO) reported fourth-quarter results on Feb. 17. The credit ratings titan saw its earnings dented by a legal settlement, but its underlying business continues to crank out cash.

Moody's results: The raw numbers


Q4 2016

Q4 2015

Year-Over-Year Change


$942.1 million

$865.9 million


Net income

($428.6 million)

$217.9 million


Earnings per share




Data source: Moody's Q4 2016 earnings press release.

Finance professionals looking at computer screens

Image source: Getty Images.

What happened with Moody's this quarter?

Global revenue rose 9% year over year to $942.1 million, as U.S. revenue increased 11% to $533.9 million and non-U.S. revenue grew 6% to $408.2 million.

Revenue for Moody's Investors Service (MIS) was $607.8 million, up 12% from the fourth quarter of 2015.

With the exception of financial-institutions revenue -- which fell 4%, mostly because of reduced European bank issuance -- MIS's gains were broad-based. Corporate-finance revenue rose 13% to $277.6 million, mainly because of higher levels of bank loan and speculative-grade bond issuance. Structured finance revenue grew 14% to 130.5 million, driven by increased deal activity in commercial mortgage-backed securities and collateralized loan obligations. And global public, project, and infrastructure finance revenue jumped 21% to $103.2 million, boosted by strong U.S public-finance issuance and non-U.S. infrastructure issuance.

Revenue for Moody's Analytics (MA) also improved, increasing 4% to $334.3 million.

MA research, data, and analytics revenue grew 3% to $166.7 million on new sales of credit research and ratings data feeds. Enterprise risk solutions revenue rose 7% to $130.3 million, as the segment benefited from the acquisition Moody's made in March 2016 of actuarial software provider GGY, as well as growth in software license revenue. Global professional services revenue, however, fell 3% to $37.3 million, mainly because of flat year-over-year sales and a 3% negative impact from foreign currency movements.

Legal settlement

Moody's incurred a $863.8 million settlement charge in the fourth quarter related to its recently announced agreement with the U.S. Department of Justice and the attorneys general of 21 U.S. states and the District of Columbia. The settlement resolves pending and potential civil claims related to credit ratings that Moody's assigned to certain financial products around the time of the financial crisis. Notably, the agreement removes significant legal risk to the company's business, and it contains no finding of any violation of law.

Excluding the impact of the settlement charge, as well as depreciation and amortization, adjusted operating income was $423.6 million, up 17% from the year-ago quarter.

All told, adjusted net income rose 9% to $237.3 million, and adjusted EPS -- which benefited from the $738.8 million in share buybacks Moody's conducted in the past year -- increased 13% to $1.23.

Moreover, cash generation remained strong, with the company delivering $1.2 billion in operating cash flow and $1.1 billion in free cash flow in 2016.

Looking forward

Moody's issued its outlook for 2017, including:

  • A revenue increase in the "mid-single-digit percent range."
  • Operating margin of approximately 43% and an adjusted operating margin of approximately 46%.
  • EPS of $5.15 to $5.30. 

Moody's also expects to generate operating and free cash flow of approximately $600 million and $500 million, respectively, including the payment of the settlement charge recorded this quarter. Moody's plans to use $500 million of this cash on share repurchases in 2017.

"2016 was notable for the variety of events affecting global financial markets," said CEO Raymond McDaniel in a press release. "Against volatile market conditions, Moody's demonstrated solid financial performance."