Another quarter is now on the books, and once again, Motley Fool Stock Advisor recommendation Moody's (NYSE:MCO) has blown past analyst expectations. If that opening sounds vaguely familiar, it may be because last quarter's recap began the exact same way. It remains fitting, though, as the global ratings giant has kicked off 2005 the same way it closed out 2004, by churning out stronger-than-expected results. Including one-time charges of $0.09, first-quarter earnings climbed 15% to $0.78, on revenues that jumped 18% to $390.5 million.
Moody's Investor Service reported revenues of $359.2 million, with ratings revenues and research revenues rising 17% and 24%, respectively. Revenues in Moody's core ratings segment, which represents about three-fourths of the firm's total, were driven by double-digit increases across all four divisions, with the largest -- Global Structured Finance -- posting a 19% increase to $138.5 million. As in the last quarter, domestic residential mortgage-backed securities led the way, but this key business line is expected to slow over the year as interest rates climb higher.
Within the Corporate Finance sector, revenues were up 10%, driven entirely by growth overseas. Strength in the European and Asian high-yield markets helped international revenues jump 30%. That gain more than offset flat results in the United States, where investment-grade bonds were little changed and high-yield issuance fell substantially. Elsewhere, demand for quality research remains robust, as revenues generated from the company's research services rose 24%, and those from Moody's KMV -- a subsidiary that provides credit-processing software and other tools to help lenders and institutional investors evaluate credit risk -- ticked up 13%.
Though Moody's remains cautiously optimistic about the year ahead, there is still much to like about the company. The Securities and Exchange Commission itself has helped dig the firm's wide moat, as stringent entrance requirements have deterred many would-be competitors. Together, Moody's and McGraw-Hill's (NYSE:MHP) Standard & Poor's control about 80% of the global rating market. Furthermore, Moody's remains immensely profitable -- operating margins checked in at 54.4% for the quarter. Finally, with relatively little need for heavy capital expenditures, the company generates tons of cash -- more than enough to support an ambitious stock repurchase program, as well as a recent 50% boost of the company's dividend payments.
Nevertheless, with widespread slowdowns in debt issuance (particularly stateside) expected to contain Moody's earnings growth to the single digits this year, it's hard to give the company's stock an "AAA" rating at these levels.
Moody's has the distinct honor of being the first Motley Fool Stock Advisor recommendation from Tom Gardner. Get on board today with a risk-free six-month subscription.
Fool contributor Nathan Slaughter owns none of the companies mentioned.
