Moody's (MCO) Q4 Earnings & Revenues Beat, Decline Y/Y

Moody's Corp. MCO reported fourth-quarter 2015 earnings of $1.09 per share on revenues of $865.9 million, surpassing the Zacks Consensus Estimate of $1.05 and $850.3 million, respectively. However, on a year-over-year basis, the metrics declined 2.7% and 1.3%, respectively. Forex volatility continues to play spoilsport.

Domestic revenues increased 1% year over year to $481.2 million in the reported quarter whereas International revenues decreased 4% year over year to $398.8 million.

For the full year, Moody's reported non GAAP earnings of $4.60 per share, up 9.3%. Revenues grew 4.5% to $3.484 billion.

Quarterly Segment Details

Segment wise, Moody's Investors Service (MIS) revenues declined 4% year over year to $544.6 million. MIS revenues in the U.S. fell 2% on a year-over-year basis. Revenues outside the U.S. declined 7% from the year-ago quarter.

Within the MIS segment, Global Corporate Finance revenues tanked 7% year over year to $246.1 million, due to reduced levels of non-U.S. investment grade and global speculative-grade bond issuance

Global Structured Finance revenues fell 4% year over year to $114.1 million. However, Global Financial Institutions' revenues increased 8% year over year to $91.9 million in the quarter due to higher activity across domestic insurance and European banking sectors.

Global Public, Project and Infrastructure Finance division revenues fell 5% year over year to $85.2 million pared by lower domestic public finance activity.

Moody's Analytics MA revenues grew 3% year over year to $321.3 million bolstered by growth in research, data and analytics (RD&A) revenues (up 8% year over year to $161.4 million) and Enterprise Risk Solutions ERS revenues (up 1% year over year to $121.5 million).

However, Global Professional Services declined 10% year over year to $38.4 million due to lower net new business at Copal Amba.

MA revenues in the U.S. were $142.9 million, up 6%. Revenues from outside the U.S. were $178.4 million, up 1%.

Margins

Quarterly operating expenses were unchanged at $532.8 million.  The company reported adjusted operating income of $361.8 million, down 3% year over year. Adjusted operating margin contracted 60 basis points (bps) to 41.8%.

Balance Sheet

Moody's total cash, cash equivalents and short-term investments as of Dec 31, 2015 was $2.2 billion. Free cash flow for the year amounted to $1.1 billion, up 12.8% from 2014 levels. The company exited the quarter with $3.4 billion of outstanding debt and $1 billion debt in its revolving credit facility.

Dividend and Share Repurchase

During the quarter, the company repurchased 2 million shares for $192.6 million and issued 0.3 million shares as part of its employee stock-based compensation plans. In the year, Moody's repurchased 10.9 million shares worth $1.1 billion.

In the fourth quarter, the company announced $1 billion worth of share buyback program and hiked its quarterly dividend by 9% to 37 cents.

Guidance

The company expects full-year 2016 revenues and operating expense to increase in the mid single-digit range. The company projects adjusted operating margin of 45%. The company projects 2016 earnings per share in the range of $4.75 to $4.85.

Further, the company expects capital expenditures in the range of $125 million to $135 million. Free cash flow is expected at $1.1 billion in 2016.

Zacks Rank

Currently, Moody's has a Zacks Rank #4 (Sell). Some better-ranked stocks in the same space are Emergent Capital, Inc. EMG, General Finance Corp. GFN and On Deck Capital, Inc. ONDK. All carry a Zacks Rank #2 (Buy).

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