Moody’s Inc.’s (MCO) fourth-quarter earnings beat the Zacks Consensus Estimate of 40 cents per share. Excluding restructuring charges, quarterly earnings  stood at 42 cents, up 13.5% from 37 cents in the year-ago period. The results reflected improvement in the credit market due to the broadening of corporate debt issuance from investment-grade into high-yield, boosting the company’s earnings.
 
Operating income, excluding restructuring charges of $177.8 million increased 41.6% from $125.6 million last year. Despite higher operating expenses, which increased 10.8% from the year-ago level, operating margin increased to 36.6% from 31.1% in the year-ago quarter due to increase in revenue.
 
Revenues for the quarter came in at $485.8 million, up 20.3% from $403.7 million reported in the year-ago quarter. The revenue increase was driven by increases in both the Moody’s business Analytics (MA) and Moody’s Investor Services (MIS) segments.
 
Excluding the favorable impact of foreign currency, revenues increased 17% year over year. The U.S. (50.0% of total revenues) and international revenues (50.0%) increased 25% and 16%, respectively. The strengthening markets are a reflection of a recovery at Moody’s.
 
We believe that Moody’s remains a solid franchise in rating debt instruments and will show substantial growth with its diversified credit research business model and international growth although we don’t expect a major improvement in the company’s Structured Finance business.
 
Segment Results
 
For the quarter, revenues at MIS increased 31% year over year, or 26% excluding foreign currency impact to $331.9 million. Within the MIS segment, Global Corporate Finance revenues increased 106% from last year in the U.S. and 90% outside the U.S. , primarily due to increased activity in the high-yield bond market.
 
This was offset by a year-over-year decrease in Structured Finance revenue. The increase of 5% in U.S. structured finance revenue was primarily due to increased issuance activity from commercial real-estate financing and asset-backed securities that was more than offset by a decrease of 25% in the non-U.S. structured finance revenue in the quarter, driven by revenue declines across all asset classes.
 
Global Financial Institutions’ revenues increased 27%, compared to the year-ago period due to strengthening of the banking sector. Both the U.S. and international financial institutions revenues increased 18% and 35%, respectively.
 
Global public, project and infrastructure finance revenues from the U.S. increased 36% from the fourth quarter of 2008, primarily driven by stimulus plan-related public finance issuance. Further, International revenue increased 35% due to strong issuance in European infrastructure finance.
 
Moody’s Analytics revenues grew 3% year over year to $153.9 million, as revenues from research, data and analytics declined, offset by growth in risk management software revenues and professional services revenues. In the U.S., MA revenues declined 5% reflecting the effects of customer attrition due to financial market disruption in late 2008 and early 2009. Outside the U.S., revenues increased 10%, primarily due to growth in the risk management software business.
 
Balance Sheet
 
Moody’s exited the quarter with $483.9 million in cash and cash equivalents and short-term investments, compared to $429.5 million in the previous quarter. During the quarter, MCO had no share repurchase activity and issued 0.4 million shares under the employee stock-based compensation plan.
 
At Dec-end, the company had $1.4 billion of share repurchase authority remaining under its current program. Total debt decreased to $1.19 billion from $1.28 billion in the previous quarter. At year-end, Moody’s had approximately $550 million of additional debt capacity available under its revolving credit facility. Moreover, the company increased its quarterly dividend by 5% to 10.5 cents per share.
 
Full-Year Results
 
Revenues for the full-year 2009 increased 2.4% year over year to $1.80 billion, versus management expectation of flat year-over-year revenues. Excluding the unfavorable impact from foreign currency translation, revenues increased 4% from the prior-year period. U.S. revenues increased 1%, while non-U.S. revenue increased 4% from the prior year.
 
Although, earnings per share of $1.70 for 2009 decreased 6.6% from $1.82 reported in the year-ago period, this was above the high end of the guidance range of $1.60 – $1.68. Earnings also surpassed the Zacks Consensus Estimate of $1.65 per share.
 
Guidance
 
Full-year 2010 revenues are expected to increase in the high-single-digit percentage range. Expenses are also expected to increase in the high-single-digit percentage range. As a result, operating margin is forecasted in the high-thirties percentage range.
 
The effective tax rate is expected to be in the range of 37% to 38%. Earnings per share is expected to be in the $1.75 – $1.85 range, a penny below the Zacks Consensus Estimate, due to higher expenses. Share repurchase is expected to resume at modest levels in 2010.
 
For the global MIS business, Moody’s expects revenues to increase in the high single-digit to low-double-digit percentage range, while Moody’s Analytics revenue growth is expected to increase in the mid single-digit percentage range, driven by growth in the professional services risk management software and research, data and analytics segments.
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