Moody's Corporation's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Moody's Corp. (MCO)

Q1 2012 Earnings Call

April 26, 2012 11:30 am ET

Executives

Salli Schwartz - Global Head, IR

Ray McDaniel - Chairman & CEO

Linda Huber - EVP & CFO

Analysts

Peter Appert- Piper Jaffray

Craig Huber - Huber Research Partners

Doug Arthur - Evercore

Jennifer Huang - UBS

Presentation

Operator

Good day and welcome ladies and gentlemen to the Moody’s Corporation first quarter 2012 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 the conference up for question-and-answers following the presentation. I would now like to turn the conference over to Salli Schwartz, Global Head of Investor Relations. Please go ahead.

Salli Schwartz

Thank you. Good morning, everyone, and thanks for joining us on this teleconference to discuss Moody’s first quarter results for 2012. I am Salli Schwartz, Global Head of Investor Relations.

Moody’s released its results for the first quarter 2012 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, President 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 towards 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 sections and the risk factors discussed in our annual report on Form 10-K for the year ended December 31, 2011 and in other SEC filings made by the company which are available on our website and on the Securities and Exchange Commission’s website. These, together with the Safe Harbor statements, set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statements.

I would also like to 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 McDaniel

Thank you, Salli. Good morning and thank you to everyone for joining today’s call. I’ll begin by summarizing Moody’s first quarter 2012 results. Linda will follow with additional financial detail and operating highlights and I’ll then speak to recent regulatory developments and finish with comments on our outlook for 2012. After our prepared remarks, we’ll be happy to respond to your questions.

First quarter revenue of $647 million increased 12% over the prior year period primarily reflecting increased corporate and public project and infrastructure debt issuance as well as continued solid performance from Moody’s Analytics. All reporting units of both Moody’s Investor Service and Moody’s Analytics grew in the first quarter of 2012 compared to the prior year period.

Operating income for the first quarter was $269 million, an 8% increased from the prior-year period. Diluted earnings per share for the quarter of $0.76 increased 13% year-over-year. While the level of issuance activity was strong in first quarter, we remain cautious about market conditions for the remainder of the year. As a result we are reaffirming our 2012 EPS guidance of $2.62 to $2.72, but now expect to be toward the upper end of the range.

I will 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 12% to $647 million. The US first quarter revenue increased 14% to $344 million while revenue outside the US grew 10% to $303 million and represented 47% of Moody’s total revenue, down slightly from the 48% in the year-ago period. Recurring revenue of $330 million represented 51% of the total, essentially flat to the prior year period.

Now looking at each of our businesses starting with Moody’s Investor Service, revenue for the quarter was $453 million, a 10% increase year-over-year. Foreign currency translation unfavorably impacted Moody’s Investor Service revenue by $4 million. US revenue for MIS increased 13% over the prior year period, while revenue outside the US increased 6% and represented 43% of total ratings revenue.

Global corporate finance revenue in the first quarter increased 10% from the year-ago period to $201 million. Revenue grew 8% in the US while outside the US revenue increased 15% year-over-year. The growth in global corporate finance revenue reflected stronger investment grade and solid speculative grade bond issuance activity.

Global structured finance revenue for the first quarter was $94 million, 5% above the prior-year period. In the US revenue increased 15% year-over-year primarily due to strength asset backed securities and commercial real estate. Most other areas of the US structured finance market remained weak. International structured finance revenue was down 2% reflecting weaker issuance volumes in European asset-backed securities in the first quarter of 2012 as well as demand in the first quarter of 2011 for ratings of outstanding securitization placed with the European Government sponsored facility.

Global financial institutions revenue of $79 million increased 2% from the same quarter of 2011. US revenue was essentially flat as compared to the first quarter of 2011 while non-US revenue grew 4%. Global revenue for the public project and infrastructure business rose 23% year-over-year to $79 million. Revenue was up 37% in the US reflecting strength in both public finance and project finance.

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