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Moody’s Corporation Reports Results for Fourth Quarter and Full-Year 2011

• FY 2011 revenue up 12% to $2,280.7 million

• Reported FY 2011 EPS of $2.49 up 16% from FY 2010

• 4Q11 revenue flat at $567.1 million; reported 4Q11 EPS of $0.43 down 26% from 4Q10

• Projected FY 2012 EPS between $2.62 and $2.72

Moody’s Corporation (NYSE: MCO) today announced results for the fourth quarter and full-year 2011.

Summary of Results for Fourth Quarter 2011

Moody’s reported revenue of $567.1 million for the three months ended December 31, 2011 as compared to $564.3 million for the fourth quarter of 2010. Operating income for the quarter was $172.1 million, a 12% decrease from $196.6 million for the same period last year. Diluted earnings per share were $0.43 for the fourth quarter of 2011.

"Moody’s achieved strong performance for full-year 2011, with growth in all lines of business at both Moody’s Investors Service and Moody’s Analytics despite volatile business conditions," said Raymond McDaniel, Chairman and Chief Executive Officer of Moody’s. "For 2012, we anticipate revenue growth across most areas of our business and earnings per share in the range of $2.62 to $2.72.”

Summary of Results for Full-Year 2011

Moody’s Corporation revenue for full-year 2011 totaled $2,280.7 million, an increase of 12% from $2,032.0 million for 2010. U.S. revenue of $1,177.0 million grew 8%, while non-U.S. revenue of $1,103.7 million rose 17% from the prior year. Foreign currency translation favorably impacted MIS revenue by $28.2 million, and was negligible for MA.

Operating income of $888.4 million increased 15% from $772.8 million in 2010. The operating margin was 39.0% for full-year 2011, up 100 basis points from 2010’s margin of 38.0 percent. Foreign currency translation favorably impacted operating income by $4.1 million.

Diluted earnings per share of $2.49 for full-year 2011 grew 16% from $2.15 in 2010 and included a legacy tax benefit of $0.03 in the second quarter of 2011, as well as other tax benefits totaling $0.09 in the second and third quarters of 2011.

Revenue at Moody’s Investors Service (“MIS”) totaled $1,568.9 million for full-year 2011, an increase of 12% from the prior-year period. U.S. revenue of $879.1 million grew 8%. Non-U.S. revenue of $689.8 million was up 17% from the prior year and represented 44% of MIS revenue, up from 42% in 2010.

Moody’s Analytics (“MA”) revenue rose to $711.8 million for full-year 2011, up 14% from full-year 2010. U.S. revenue of $297.9 million increased 9 percent. Non-U.S. revenue of $413.9 million increased 17% and represented 58% of MA revenue, up from 56% in 2010.

Fourth Quarter Revenue

For Moody’s Corporation overall, global revenue of $567.1 million for the fourth quarter of 2011 was flat as compared to the fourth quarter of 2010. U.S. revenue of $286.3 million for the fourth quarter of 2011 decreased 3% from the fourth quarter of 2010, while revenue generated outside the U.S. of $280.8 million increased 4% from the prior-year period. Revenue generated outside the U.S. represented 50% of Moody’s total revenue for the quarter, up slightly from 48% in the year-ago period.

Global revenue for MIS for the fourth quarter of 2011 was $366.9 million, a decrease of 4% from the prior-year period. U.S. revenue of $205.3 million for the fourth quarter of 2011 decreased 9% from the fourth quarter of 2010. Outside the U.S., revenue of $161.6 million increased 2% from the year-ago period.

Within MIS, global corporate finance revenue of $141.2 million in the fourth quarter of 2011 was down 14% from the same quarter of 2010, reflecting weaker issuance primarily in speculative grade bonds and loans. Corporate finance revenue was down 13% in the U.S. and 16% outside the U.S.

Global structured finance revenue totaled $86.9 million for the fourth quarter of 2011, an increase of 14% from a year earlier. U.S. structured finance revenue grew 13% from the year-ago period, primarily due to strength in asset-backed securities. Non-U.S. structured finance revenue increased 15%, driven primarily by European asset-backed and residential mortgage-backed securities.

Global financial institutions revenue of $66.8 million in the fourth quarter of 2011 increased 2% compared to the prior-year period. U.S. financial institutions revenue was down 7%, while non-U.S. revenue grew 7 percent.

Global public, project and infrastructure finance revenue was $72.0 million for the fourth quarter of 2011, a decrease of 6% from the fourth quarter of 2010. U.S. revenue declined 14% from the prior-year period reflecting lower project and infrastructure finance. Non-U.S. revenue grew 14%, primarily due to gains in infrastructure finance.

Global revenue for MA for the fourth quarter of 2011 was $200.2 million, up 10% from the fourth quarter of 2010. Revenue from research, data and analytics of $115.4 million increased by 6% from the prior-year period, primarily due to higher customer retention rates. Risk management software revenue of $55.9 million fell 3% as a result of project timing. The December 2011 acquisition of Barrie & Hibbert, a Scotland-based provider of insurance risk management tools, had a negligible impact on software revenue in the fourth quarter of 2011. Professional services revenue of $28.9 million doubled from the prior-year period, reflecting both organic growth and the acquisition of a majority stake in Copal Partners, an India-based outsourced research and consulting business, in November 2011.

In the U.S., MA revenue of $81.0 million for the fourth quarter of 2011 increased 15% from the prior-year period. Outside the U.S., revenue of $119.2 million grew 7% as compared with the same quarter of 2010. The impact of foreign currency translation on both MIS and MA revenue was negligible.

Fourth Quarter and Full-Year Expenses

Fourth quarter 2011 expenses for Moody’s Corporation were $395.0 million, 7% higher than in the prior-year period. The impact of foreign currency translation on fourth quarter expenses was negligible. Moody’s reported operating margin for the fourth quarter of 2011 was 30.3%, down from 34.8% in the fourth quarter of 2010 primarily due to increased headcount and technology investments to support growth initiatives, as well as acquisition-related costs.

Full-year 2011 expenses for Moody’s Corporation of $1,392.3 million were 11% higher than the prior year. Excluding the impact of foreign currency translation, expenses grew 9 percent.

Moody’s effective tax rate was 37.0% for the fourth quarter of 2011, compared with 19.5% for the prior-year period. The increase in the effective tax rate was primarily due to the utilization of foreign tax credits and lower state taxes in 2010. The annual effective tax rate for 2011 was 31.2% compared with 28.1% for 2010.

Capital Allocation and Liquidity

On December 14, 2011, Moody’s increased its quarterly dividend by 14% from $0.14 to $0.16 per share of Moody’s common stock. During the fourth quarter of 2011, Moody’s did not repurchase any shares, but issued 0.4 million shares under employee stock-based compensation plans. For full-year 2011, Moody’s repurchased 11.0 million shares at a total cost of $333.8 million, or $30.30 per share, and issued 2.9 million shares under employee stock-based compensation plans. Outstanding shares as of December 31, 2011 totaled 222.4 million, representing a 4% decline from a year earlier. As of December 31, 2011, Moody’s had $0.9 billion of share repurchase authority remaining under its current program. At year-end, Moody’s had $1.2 billion of outstanding debt and $1.0 billion of additional debt capacity available under its revolving credit facility. Total cash and cash equivalents at year-end were $760.0 million, an increase of $100.4 million from a year earlier.

Assumptions and Outlook for Full-Year 2012

Moody’s outlook for 2012 is based on assumptions about many macroeconomic and capital market factors, including interest rates, corporate profitability and business investment spending, merger and acquisition activity, and consumer borrowing and securitization. There is an important degree of uncertainty surrounding these assumptions and, if actual conditions differ from these assumptions, Moody’s results for the year may differ materially from the current outlook. Our guidance assumes foreign currency translation at end-of-quarter exchange rates.

For Moody’s overall, the Company expects full-year 2012 revenue to grow in the high-single to low-double-digit percent range. Full-year 2012 expenses are also projected to increase in the high-single to low-double-digit percent range. Full-year 2012 operating margin is projected to be approximately 39 percent. The effective tax rate is expected to be approximately 33 percent. The Company expects diluted earnings per share for full-year 2012 in the range of $2.62 to $2.72.

For the global MIS business, revenue for full-year 2012 is expected to increase in the mid-single-digit percent range. Within the U.S., MIS revenue is expected to increase in the low-double-digit percent range, while non-U.S. revenue is expected to be about flat. Corporate finance revenue is forecasted to grow in the high-single-digit percent range. Revenue from each of structured finance and financial institutions is projected to be flat to slightly down, while public, project and infrastructure finance revenue is expected to increase in the low-teens percent range.

For MA, full-year 2012 revenue is expected to increase in the high-teens percent range both in the U.S. and outside the U.S. Revenue growth is projected in the mid-single-digit percent range for research, data and analytics and in the low 20’s percent range for risk management software, reflecting growth in the core business as well as the December 2011 acquisition of Barrie & Hibbert. Professional services revenue is projected to grow by approximately 70%, inclusive of revenue from the late 2011 acquisition of a majority stake in Copal Partners and continued growth in our legacy businesses.