Moody's Corp. announced results for the fourth quarter and full-year 2009.
In a release on Feb. 4, Moody's reported revenue of $485.8 million for the three months ended December 31, an increase of 20 percent from $403.7 million for the fourth quarter of 2008. Operating income for the quarter was $178.9 million, a 43 percent increase from $125.4 million for the same period last year. Diluted earnings per share of $0.43 for the fourth quarter of 2009 included a benefit of $0.01 related to previously announced restructuring activities. Excluding restructuring adjustments in both periods, diluted earnings per share of $0.42 for the quarter increased 14 percent from $0.37 in the prior-year period.
Summary of Results for Full-Year 2009
Moody's Corp. said its revenue for the full-year 2009 totaled $1,797.2 million, an increase of 2 percent from $1,755.4 million for 2008. U.S. revenue of $920.8 million increased 1 percent, while non-U.S. revenue of $876.4 million increased 4 percent from the prior year. Operating income of $687.5 million declined 8 percent from $748.2 million for the full-year 2008, and the operating margin was 38.3 percent for the full-year 2009. Excluding the unfavorable impact from foreign currency translation, revenue increased 4 percent from the prior-year period. The impact of foreign currency translation on operating income was negligible. Diluted earnings per share of $1.69 for the full-year 2009 included a net charge of $0.01, reflecting costs related to previously announced restructuring plans partially offset by a benefit from certain legacy tax matters. Excluding these items in both years, diluted earnings per share of $1.70 for the full-year 2009 decreased 7 percent from $1.82 for the full-year 2008.
"Moody's full-year results reflected gradual improvement of credit markets throughout 2009. Strength in corporate debt issuance and growth from Moody's Analytics provided a slight increase in revenue from the prior year, but activity was limited in other areas of the markets," said Raymond McDaniel, Chairman and Chief Executive Officer of Moody's. "We anticipate continuing recovery for 2010, but also expect market conditions to remain challenging until economic improvement across key markets is sustained. With this outlook, we are projecting a stronger revenue increase and a return to earnings growth for 2010, with ongoing expense management to support business initiatives and regulatory and compliance efforts."
Fourth Quarter Revenue
For Moody's Corp. overall, global revenue of $485.8 million increased 20 percent from the fourth quarter of 2008. Excluding the favorable impact of foreign currency translation, revenue increased 17 percent. U.S. revenue of $245.1 million for the fourth quarter of 2009 increased 25 percent from the fourth quarter of 2008, while revenue generated outside the U.S. of $240.7 million increased 16 percent from the prior-year period. Revenue generated outside the U.S. represented 50 percent of Moody's total revenue for the quarter, down from 52 percent in the year-ago period.
Global revenue for Moody's Investors Service ("MIS") for the fourth quarter of 2009 was $331.9 million, an increase of 31 percent from the prior-year period. Excluding the favorable impact of foreign currency translation, revenue grew 26 percent. U.S. revenue of $179.1 million for the fourth quarter of 2009 increased 42 percent from the fourth quarter of 2008. Outside the U.S., revenue of $152.8 million increased 19 percent from the year-ago period, according to Moody's.
Within MIS, global corporate finance revenue of $115.2 million in the fourth quarter of 2009 increased 99 percent from the same quarter of 2008. U.S. corporate finance revenue increased 106 percent from the fourth quarter of 2008, while outside the U.S., revenue increased 90 percent from the prior-year period. Growth was primarily driven by activity in the high-yield bond market.
The company said global structured finance revenue totaled $78.7 million for the fourth quarter of 2009, a decrease of 14 percent from a year earlier. U.S. structured finance revenue increased 5 percent from the year-ago period, reflecting increased issuance activity from asset-backed securities and commercial real-estate finance. Non-U.S. structured finance revenue decreased 25 percent, driven by revenue declines across all asset classes as improved credit market conditions slowed use of securitization for central bank supported programs.
Global financial institutions revenue of $72.0 million in the fourth quarter of 2009 increased 27 percent compared to the same quarter of 2008, due to gains from the banking sector. U.S. financial institutions revenue increased 18 percent, while non-U.S. revenue increased 35 percent.
Global public, project and infrastructure finance revenue was $66.0 million for the fourth quarter of 2009, an increase of 36 percent from the fourth quarter of 2008. U.S. revenue increased 36 percent from the prior-year period, primarily driven by stimulus plan-related public finance issuance. Non-U.S. revenue increased 35 percent with strong issuance in European infrastructure finance.
Global revenue for Moody's Analytics ("MA") for the fourth quarter of 2009 reached $153.9 million, up 3 percent from the same quarter of 2008. Foreign currency translation did not materially impact revenue. Reflecting a realignment of revenue by product grouping in both periods, revenue from subscription-based research, data and analytics of $106.0 million declined by 1 percent from the prior-year period; risk management software revenue of $42.3 million grew 21 percent; and professional services revenue of $5.6 million decreased 26 percent from the prior-year period. A reconciliation table for MA revenue is available at the end of this press release.
In the U.S., MA revenue of $66.0 million for the fourth quarter of 2009 declined 5 percent from the prior-year period, reflecting the effects of customer attrition due to financial market disruption in late 2008 and early 2009. Outside the U.S., revenue increased 10 percent over the prior-year period to $87.9 million, primarily due to growth in the risk management software business.
Fourth Quarter and Full-Year Expenses
According to the company, fourth quarter 2009 expense for Moody's Corp. of $306.9 million was 10 percent higher than in the prior-year period and included higher accruals for performance-based compensation. Moody's reported operating margin for the fourth quarter of 2009 was 36.8 percent. Excluding the restructuring adjustments in the current period, expenses were 11 percent higher than the prior-year period and operating margin was 36.6 percent, compared to 31.1 percent in the prior-year period. Without the unfavorable impact of foreign currency translation, reported expenses increased 8 percent.
Full-year 2009 expenses for Moody's Corp. of $1,109.7 million were 10 percent higher than the prior year. Excluding restructuring adjustments in both periods, Moody's expenses were 8 percent higher in 2009, primarily due to incremental expenses from businesses acquired in the fourth quarter of 2008 and higher incentive compensation.
Moody's said its effective tax rate was 38.3 percent for the fourth quarter of 2009, compared with 28.6 percent for the prior-year period. The increase was primarily due to a favorable true-up of the full-year 2008 tax accrual in the fourth quarter of 2008. In addition, the 2008 effective tax rate included realization of U.S. manufacturing and research credits and deductions. The annual effective tax rate for 2009 was 37.0 percent compared to 36.7 percent for 2008.
Full-Year 2009 Revenue Results
The release said that revenue at Moody's Investors Service totaled $1,217.7 million for the full-year 2009, an increase of 1 percent from the prior-year period. Excluding the unfavorable impact of foreign currency translation, revenue increased 3 percent. U.S. revenue of $663.1 million increased 3 percent, while non-U.S. revenue of $554.6 million decreased 1 percent from the prior year.
Moody's Analytics revenue rose to $579.5 million for the full-year of 2009, up 5 percent from the full-year of 2008. Excluding the unfavorable impact of foreign currency translation, revenue increased by 7 percent. Revenue from research, data and analytics declined by 1 percent to $413.6 million, and professional services revenue was down 10 percent to $20.8 million. For the risk management software business, revenue increased 33 percent to $145.1 million, due to the acquisition of Fermat International in late 2008 and good growth from legacy products and services. U.S. revenue of $257.7 million decreased 3 percent from the full-year 2008 results. Non-U.S. revenue of $321.8 million increased 13 percent from 2008 and represented 56 percent of total revenue, up from 52 percent in 2008.
Capital Allocation and Liquidity
On December 15, Moody's said it increased its quarterly dividend by 5 percent to 10.5 cents per share of Moody's common stock. During the fourth quarter of 2009, Moody's did not repurchase shares and issued 0.4 million shares under employee stock-based compensation plans. Outstanding shares as of December 31, totaled 236.9 million, representing a 1 percent increase from a year earlier. Additionally, as of December 31, Moody's had $1.4 billion of share repurchase authority remaining under its current program. At year-end, Moody's had $1.2 billion of outstanding debt and approximately $550 million of additional debt capacity available under its revolving credit facility. Moody's reduced total outstanding debt by $87 million during the fourth quarter and $274 million for the full-year of 2009. At year-end, total cash and cash equivalents were $473.9 million, an increase of $228 million from a year earlier.
Assumptions and Outlook for Full-Year 2010
Moody's said its outlook for 2010 is based on assumptions about many macroeconomic and capital market factors, including interest rates, corporate profitability and business investment spending, merger and acquisition activity, consumer borrowing and securitization, and the eventual withdrawal of government-sponsored economic stabilization initiatives. 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.
For Moody's overall, the Company expects full-year 2010 revenue to increase in the high-single-digit percent range. Full-year 2010 expenses are also expected to increase in the high-single-digit percent range. Full-year 2010 operating margin is projected in the high-thirties percent range and the effective tax rate is expected in the range of 37 to 38 percent. Share repurchase is expected to resume at modest levels in 2010 subject to available cash flow and other capital allocation decisions. The Company expects diluted earnings per share for full-year 2010 in the range of $1.75 to $1.85. This outlook assumes foreign currency translation at end-of-year 2009 rates.
For the global MIS business, revenue for the full-year 2010 is expected to increase in the high-single- to low-double-digit percent range. Within the U.S., MIS revenue is expected to increase in the mid-teens percent range, while non-U.S. revenue is expected to increase in the mid-single-digit percent range. Corporate finance revenue is expected to increase in the high-teens percent range with anticipated growth in speculative-grade issuance activity offset by moderation of investment-grade issuance from the high volume of 2009. Structured finance revenue is expected to increase in the mid-single-digit percent range reflecting modest growth in most asset classes. Revenue from financial institution ratings is expected to increase in the low-single-digit percent range, while revenue from public, project and infrastructure finance is expected to increase in the low-double-digit percent range.
For Moody's Analytics, full-year 2010 revenue is expected to increase in the mid-single-digit percent range. Revenue growth is expected in the low-single-digit percent range for research, data and analytics, in the mid-teens percent range for risk management software, and in the high-single- to low-double-digit percent range for professional services. MA revenue is expected to increase in the low-single-digit percent range in the U.S. and in the mid-single-digit percent range outside the U.S.
According to the release, Moody's provides credit ratings, research, tools and analysis that contribute to transparent and integrated financial markets. Moody's Corp. is the parent company of Moody's Investors Service, which provides credit ratings and research covering debt instruments and securities, and Moody's Analytics, which encompasses Moody's non-ratings businesses including risk management software for financial institutions, quantitative credit analysis tools, economic research and data services, data and analytical tools for the structured finance market, and training and other professional services. The Corp., which reported revenue of $1.8 billion in 2009, employs approximately 4,000 people and maintains a presence in 27 countries.
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