Moody's (MCO) Beats On Q2 Earnings, 2016 Outlook Reiterated

Moody’s Corp. (NYSE:MCO) reported strong second-quarter 2016 results, wherein both earnings of $1.30 per share and revenues of $928.9 million beat the respective Zacks Consensus Estimate of $1.25 per share and $891.1 million. On a year-over-year basis, the metrics grew 1.6% and 1.2%, respectively. Though management maintained its full year outlook, it expects earnings to come in at the lower side of the guided range of $4.55- $4.65 due to an uncertain macroeconomic environment.

Quarterly Segment Details

Domestic revenues were flat year over year at $545.9 million in the reported quarter. International revenues decreased 3% year over year to $383 million.

Segment wise, Moody’s Investors Service (MIS) revenues declined 2% year over year to $625.6 million. MIS revenues in the U.S. fell 3% to $399 million on a year-over-year basis while International revenues remained unchanged at $226.6 million.

Within the MIS segment, Global Corporate Finance revenues fell 5% year over year to $304.8 million due to reduced investment grade and speculative-grade bond issuance.

Global Structured Finance revenues fell 8% year over year to $111.5 million due to a slowdown in securitization in CMBS and CLO markets. Global Financial Institutions' revenues decreased 1% year over year to $89.7 million.

Global Public, Project and Infrastructure Finance division revenues grew 12% year over year to $112.3 million due to higher infrastructure-related issuance worldwide.

Moody’s Analytics (MA) revenues grew 9% year over year to $303.3 million bolstered by growth in research, data and analytics (RD&A) revenues (up 7% year over year to $168.3 million) and Enterprise Risk Solutions (ERS) revenues (up 17% year over year to $97.5 million).However, Global Professional Services revenues fell 2% year over year to$37.5 million.

MA revenues in the U.S. were $146.9 million, up 10%. Revenues from outside the U.S. were $156.4 million, up 8%.

Margins

Moody’s reported adjusted operating income of $441.4 million, down 1.3% year over year. Adjusted operating margin was 47.5% compared with 48.7% reported in the year-ago period.

Balance Sheet

Moody’s total cash, cash equivalents and short-term investments as of Jun 30, 2016 were $2 billion. Free cash flow for the first half of the year amounted to $474.5 million, down 14%. The company exited the quarter with $3.4 billion of outstanding debt and $1 billion debt in its revolving credit facility.

During the quarter, the company repurchased 2.3 million shares for $223.8 million and issued 0.2 million shares as part of its employee stock-based compensation plans.

MOODYS CORP Price, Consensus and EPS Surprise

Guidance

For the full year, revenues are expected to be up in low single digits asprojected earlier. Further, the company expects capital expenditure of $125 million. Free cash flow is expected to be $1 billion.

However, the company continues to project adjusted operating margin of 45% and expects operating expenses to increase in mid-single digits.

Zacks Rank

Currently, Moody’s has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are Moneygram International Inc (NASDAQ:MGI) , Euronet Worldwide, Inc. (NASDAQ:EEFT) and Fortress Transportation and Infrastructure Investors LLC (NYSE:FTAI) . Moneygram sports a Zacks Rank#1 (Strong Buy) while Euronet and Fortress Transportation carry a Zacks Rank #2 (Buy).