Summary
Moody's Corporation (MCO) reported strong revenue growth in the third quarter and first nine months of 2006, driven primarily by its Moody's Investors Service segment, with significant contributions from structured finance and corporate finance. Net income and earnings per share also saw healthy increases compared to the prior year, reflecting continued business expansion. The company maintained a strong operating margin, although it noted increased operating expenses related to compensation, benefits, and investments in technology and international expansion. Moody's also continued its active share repurchase program, demonstrating a commitment to returning capital to shareholders.
Key Highlights
- 1Revenue increased by 17.7% to $495.5 million in Q3 2006 and by 15.0% to $1,447.1 million for the first nine months of 2006, compared to the same periods in 2005.
- 2Net income rose by 7.1% to $157.0 million in Q3 2006 and by 15.7% to $475.3 million for the first nine months of 2006.
- 3Diluted EPS grew to $0.55 in Q3 2006 and $1.61 for the nine months, up from $0.48 and $1.34, respectively, in the prior year periods.
- 4Operating expenses increased by 20.2% in Q3 2006, driven by higher compensation, benefits, and investments in staffing and technology.
- 5The company repurchased approximately 2.9 million shares for $168.3 million in Q3 2006 as part of its ongoing share repurchase program.
- 6Moody's KMV segment showed modest revenue growth, with an 8.0% increase for the first nine months.
- 7The company maintained a solid operating margin of 54.2% in Q3 2006 and 55.0% for the nine months, slightly down from the prior year.
Frequently Asked Questions
Revenue growth was primarily driven by the Moody's Investors Service segment, with strong performance in global structured finance and corporate finance. Modest growth was also seen in financial institutions and the Moody's KMV segment, offsetting a decline in public finance revenue.
Operating expenses increased by 20.2% in Q3 2006 compared to Q3 2005. The primary drivers were higher compensation and benefits due to increased staffing and salary increases, stock-based compensation expense, and increased investments in information technology, insurance, and rent/occupancy costs.
Moody's continued its share repurchase program, buying back approximately 2.9 million shares for $168.3 million in Q3 2006. The company authorized an additional $2 billion share repurchase program in June 2006, indicating a continued focus on returning capital to shareholders.
Moody's disclosed ongoing "Legacy Contingencies," primarily related to legacy tax matters stemming from the 2000 distribution. While management believes the ultimate liability will not have a material adverse effect, potential exposures related to amortization expense deductions are estimated up to $119 million to $161 million. The company has recorded $92 million in net legacy tax liabilities as of September 30, 2006.