MCO: Moody’s Margin Fluctuations Sour Investor Mood
Large Cap Watch List (Track at Marketocracy) member Moody’s (MCO) reported the following earnings:
Moody’s reported revenue of $583.0 million for the three months ended March 31, 2007, an increase of 32% from $440.2 million for the same quarter of 2006. Operating income for the quarter was $304.7 million and rose 28% from $238.3 million for the same period of last year. Diluted earnings per share were $0.62 for the first quarter of 2007, 27% higher than $0.49 in the first quarter of 2006.
Analysts expected the company to earn $0.58 per share on $519 million in revenue. For the full year, analysts expect $2.58 per share on $2.32 billion in sales. The company largely reiterated its previous guidance:
For Moody’s overall, we project low-teens percent revenue growth for the full year 2007. This growth assumes foreign currency translation in 2007 at current exchange rates. We continue to expect the full-year operating margin, excluding the one-time gain on the sale of Moody’s 99 Church Street building from 2006 results, to decline by approximately 150 basis points in 2007 compared with 2006. This reflects investments to sustain business growth including: international expansion, improving our analytical processes, pursuing ratings transparency and compliance initiatives, introducing new products, improving our technology infrastructure and relocating Moody’s headquarters in New York City. We expect our quarterly spending pattern to differ from previous years, which could result in quarterly operating margins that differ materially from our full-year expectations. On a GAAP basis, diluted earnings per share in 2007 are still projected to be modestly lower compared to 2006. However, excluding the one-time gain on the building sale from 2006 results, we continue to project low-double-digit percent growth in 2007 diluted earnings per share.
The “quarterly operating margins that differ materially from our full-year expectations” takes all the steam out of the apparent positive earnings surprise. Shares are down in early trading.
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