REUTERS – Bond-rating company Moody’s Corp (MCO.N) reported higher-than-expected quarterly profit as revenue from rating municipal bonds and structured finance instruments increased.
Moody’s shares rose 11.2 percent to close at $40.09 on the New York Stock Exchange. Douglas Arthur, an analyst at Evercore Partners, said the stock tends to be thinly traded and prone to big moves after beating estimates.
Still, the earnings report on Thursday showed Moody’s has business lines that can offset the slowdown in corporate bond issues.
Revenue for rating structured products has turned up after a long decline, “and there are some signs of increased activity in asset-backed and commercial mortgage-backed securities,” Arthur said.
Revenue from structured finance, which is about 20 percent of the company’s rating business, increased 5 percent from a year earlier to $90.7 million in the second quarter.
Moody’s posted earnings per share of 76 cents, beating analysts’ average estimate by 6 cents, according to Thomson Reuters I/B/E/S.
The report came as the McGraw-Hill Companies (MHP.N), which owns competing rating service Standard & Poor’s, also beat analysts’ estimates with its second-quarter results on Thursday.
“In both cases, the numbers beat expectations meaningfully despite a very tough financial market environment,” analyst Peter Appert of Piper Jaffray & Co said in an email to Reuters. The results, he said, “demonstrate the resilience of the business models.”
Moody’s net income was $172.5 million, down nearly 9 percent from $189 million a year earlier.
Moody’s expenses rose 8 percent to $362.3 million. The company said the increase was the result of employing more people because of acquisitions, growth of existing businesses, investments in technology for growth, and compliance with regulations.
Revenue from ratings services to corporations declined by $8.6 million to $191.5 million on a slowdown in bond issuance. But this was offset by an $8.7 million rise in revenue from public finance.
Revenue from Moody’s Analytics, the company segment that includes information and consulting businesses, rose 19 percent because of acquisitions and increased sales of credit research.
Moody’s said it still expects full-year earnings toward the “upper end” of a range of $2.62 to $2.72 per share.
(Reporting by David Henry in New York; Editing by Lisa Von Ahn, John Wallace and Phil Berlowitz)
