Morningstar (MORN -1.25%) posted good, but not spectacular, earnings in the third quarter. The company beat sales expectations, but missed on earnings. Revenue growth came largely from its investment information segment, driven primarily by institutional clients.

The numbers
Revenue grew 11.3% from the year-ago period, with third-quarter sales coming in at $193.1 million, up from $173.5 million last year. Organic revenue, which excludes the impact of acquisitions, currency fluctuations, and other items was up 9.3% year over year.

Net income fell modestly to $30.2 million, or $0.67 per share, down from $31.5 million, or $0.68 per share last year.



Change year-over-year


$191.3 million


Net income

$30.2 million


Earnings per share



The average of two analysts polled by Reuters expected revenue of $189.9 million, and earnings per share of $0.70.

It's all about the information business
Morningstar's largest segment, Investment information, posted an 11% improvement in year-over-year revenue. Results were driven mostly by its institutional-focused Morningstar Direct and Credit Ratings products. Licenses for Direct were up 17% year over year. Investment information made up the bulk -- just under 79% -- of Morningstar's total revenue this quarter.

Investment management delivered a 12.7% increase in revenue year over year, led by Managed Portfolios. This segment's perennial weakspot, Investment Advisory, recorded another quarter of declining revenue, but it should come as no surprise to longtime investors. Morningstar CEO Joe Mansueto frequently warns that the advisory business is hinged on annuity sales, which have been slowed by a low-rate environment.

As for why Morningstar narrowly missed earnings estimates, headcount may be to blame. The company reported that its operating margin fell to 23.4%, down from 25.7% last year, with employee count rising nearly 10% year over year.

In the last twelve months, the company has added hundreds of new employees and folded in two companies via acquisition in an effort to improve its products. At last year's annual shareholders meeting, executives noted plans to bring out new products in 2014, while investing in its existing products to make them "cloud-based and mobile-friendly."

The bottom line
In an encouraging sign, the company bucked the trend of a third-quarter slump, posting a quarter-over-quarter revenue increase from the second quarter, something which it failed to do in the last three years.

Additionally, both of its major business lines reported faster growth quarter over quarter and year over year. As the company's growth initiatives take hold, and expenses normalize, investors will want to see if Morningstar can translate bigger revenue into bigger profits.