Moody's (MCO) Down on Q3 Earnings Miss, Lower 2022 Outlook

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Moody's MCO reported third-quarter 2022 adjusted earnings of $1.85 per share, which lagged the Zacks Consensus Estimate of $2.06. The bottom line also plunged 31% from the year-ago quarter figure.

Shares of the company have lost more than 4% in pre-market trading. This is largely owing to disappointing quarterly performance. The company lowered 2022 guidance, which also weighed on investor sentiments.

Subdued issuance volume was a major headwind, which hurt Moody’s results. A rise in operating expenses posed an undermining factor. However, strategic buyouts strengthened Moody’s Analytics segment’s performance. The company’s liquidity position was robust during the quarter.

After taking into consideration certain non-recurring items, net income attributable to Moody's Corporation was $303 million or $1.65 per share, down from $474 million or $2.53 per share in the prior-year quarter.

Revenues Down, Costs Up

Revenues were $1.28 billion, which missed the Zacks Consensus Estimate of $1.35 billion. The top line also declined 16% year over year. Foreign currency translation unfavorably impacted revenues by 4%.

Total expenses were $873 million, up 1%. The rise was mainly due to operational and transaction-related costs related to the recent acquisitions. Foreign currency translation positively impacted operating expenses by 5%.

Adjusted operating income of $497 million was down 33%. Adjusted operating margin was 39%, down from 48.3% a year ago.

Mixed Segment Performance

Moody’s Investors Service revenues plunged 36% year over year to $590 million. The fall was mainly due to muted capital market activities. Foreign currency translation affected the segment’s revenues by 3%.

Moody’s Analytics revenues grew 14% to $685 million. This was mainly driven by the RMS acquisition and steady demand for Know Your Customer solutions and credit research. Foreign currency translation unfavorably impacted the segment’s revenues by 7%.

Strong Balance Sheet

As of Sep 30, 2022, Moody’s had total cash, cash equivalents and short-term investments of $1.75 billion, down from $1.9 billion as of Dec 31, 2021.

The company had $7.5 billion in outstanding debt and $1.25 billion in additional borrowing capacity under the revolving credit facility.

Share Repurchase Update

During the quarter, Moody's repurchased shares worth $113 million. As of Sep 30, 2022, it had nearly $848 million worth of share buyback authorization left.

2022 Guidance Lowered

Moody’s lowered its earnings guidance on subdued year-to-date performance and “the ongoing macro uncertainties.” The company expects adjusted earnings in the range of $8.20-$8.50 per share, down from the prior outlook of $9.20-$9.70.

On a GAAP basis, earnings are now projected within $6.90-$7.20 per share, lower than the earlier range of $8.10-$8.60.

Moody’s projects revenues to decrease in the low-double-digit percent range, a change from the earlier estimation of a fall in the high-single-digit percent range.

Our Take

Moody’s remains well-positioned for growth on the back of a solid market position, strength in diverse operations and strategic acquisitions. However, steadily increasing operating expenses and geopolitical and macroeconomic concerns are likely to hurt its financials.

Moody's Corporation Price, Consensus and EPS Surprise

Moody's Corporation Price, Consensus and EPS Surprise
Moody's Corporation Price, Consensus and EPS Surprise

Moody's Corporation price-consensus-eps-surprise-chart | Moody's Corporation Quote

Currently, Moody’s carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Dates & Expectations of Other Finance Stocks

LPL Financial LPLA is scheduled to announce quarterly numbers on Oct 27.

Over the past 30 days, the Zacks Consensus Estimate for LPLA’s quarterly earnings has moved 2.5% north to $2.84, suggesting a 60.5% surge from the prior-year reported number.

Hercules Capital, Inc. HTGC is slated to announce quarterly numbers on Nov 2.

Over the past 30 days, the Zacks Consensus Estimate for Hercules Capital has been unchanged at 35 cents. This indicates a rise of 6.1% from the prior-year quarter reported number.


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