Moody's Corporation Q1 2010 Earnings Call Transcript

Moodyâ¿¿s Corporation Q1 2010 Earnings Call Transcript
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Moody’s Corporation

(MCO)

Q1 2010 Earnings Call Transcript

April 21, 2010 11:30 am ET

Executives

Liz Zale – VP, IR

Raymond McDaniel – Chairman and CEO

Linda Huber – EVP and CFO

Michelle Madelain – COO, Moody’s Investors Service

Analysts

Peter Appert – Piper Jaffray

William Bird – Bank of America/Merrill Lynch

Michael Meltz – JP Morgan

Craig Huber – Access 342

Sloan Bohlen – Goldman Sachs

Brian Shipman – Jefferies

Edward Atorino – Benchmark

Presentation

Operator

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Good day, and welcome ladies and gentlemen to the Moody's Corporation first quarter 2010 earnings conference call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company we will open up the conference for questions-and-answers following the presentation.

I will now turn the conference over to Liz Zale, Vice President of Investor Relations. Please go ahead.

Liz Zale

Thank you. Good morning, everyone and thanks for joining us on this teleconference to discuss Moody's results for the first quarter of 2010. I am Liz Zale, Vice President of Investor Relations.

Moody's release its results for the first quarter of 2010 this morning. The earnings press release and a presentation to accompany this teleconference are both available on our website at IR.Moodys.com. Ray McDaniel, Chairman and Chief Executive Officer of Moody's Corporation will lead this morning's conference call. Also making prepared remarks on the call this morning is Linda Huber, Chief Financial Officer of Moody's Corporation.

Before we begin, I call your attention to the Safe Harbor language, which can be found toward the end of our earnings release. Today's remarks may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In accordance with the act, I also direct your attention to the management's discussion and analysis section and the risk factors discussed in our annual report on Form 10-K for the year ended December 31st, 2009 and in other SEC filings made by the company, which are available on our website and on the Securities and Exchange Commission website.

These, together with the Safe Harbor statement set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statements. I should point out that members of the media may be on the call this morning in a listen-only mode.

I'll now turn the call over to Ray McDaniel.

Ray

mond

McDaniel

Thanks, Liz. Good morning and thank you to everyone for joining today's call. I'll begin by summarizing Moody's first quarter 2010 results. Linda will follow with additional financial detail and operating highlights, and I'll then speak to recent developments in the legislative and regulatory area and finish with comments on Moody's outlook for 2010. After our prepared remarks we'd be happy to respond to your questions.

Moody’s results for the first quarter reflected strong corporate and financial institution debt issuance, particularly in the high-yield sector of the corporate market. Total revenue was $477 million, up 17% year-over-year, excluding the favorable impact of foreign currency translation revenue rose 14%.

Operating income for the first quarter was $197 million, 32% above the prior year period with negligible impact from foreign currency translation. Excluding the restructuring charge in 2009 and minor adjustments to this charge in 2010 operating income increased 22%. Diluted earnings per share for the quarter were $0.47, an increase of 24% year-over-year. Excluding these restructuring items in both periods diluted EPS grew 15%.

Our performance in the first quarter reflected the strength in corporate and financial institution issuance that I just noted, as well as improved stability in the markets and customers served by Moody’s Analytics. But, we also saw deeper than expected weakness in European structured finance. We are reaffirming our full year 2010 EPS guidance of $1.75 to $1.85, due to uncertainty that issuance levels later this year will continue to over come weakness some areas of structured finance.

I’ll now turn the call over to Linda to provide further commentary on our results and other updates.

Linda Huber

Thanks, Ray. I’ll begin with revenue at the company level. As Ray mentioned Moody’s total revenue for the quarter increased 17% to $477 million. Excluding the favorable impact of foreign currency translations revenue grew 14%. US revenue grew 22%, $255 million; while revenue outside the US grows by 11%, $222 million and represented 47% of the total. Recurring revenue $281 million represented 59% of total revenue compared to 67% in the prior year period.

Looking at each of our businesses, Moody’s Investor Service revenue for the quarter was $335 million 24% year-over-year increase, excluding the favorable impact of foreign currency translations and IS revenue grew 21%. US revenue was up 30% over the prior year period; outside the US revenue grew 17% and represented 44% of total ratings revenue.

Global corporate finance revenue in the first quarter increased by 50% from year ago to $126 million and was primarily driven by strong high-yield bonds and loan issuance. Revenue growth was 49% in the US and 53% outside the US. Global structure finance revenue for the first quarter was $71 million, 1% below the prior year period.

US revenue grew 21% reflecting increase issuance activity and asset tax securities and commercial real estate finance. Non-US structure finance revenue was down 17%, the decline was due to weak issuance across most asset classes in Europe and better market conditions improved issuer’s excess to liquidity and reduced issuance of new securitization for Central Bank sponsor programs.

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