As Moody's Corporation's (NYSE: MCO) third quarter 2017 earnings illuminated, both of its major divisions prospered during the last three months. Moody's Investors Service (MIS) booked record revenue, while Moody's Analytics (MA) closed on a significant acquisition during the quarter. And for the second time in as many quarters, the company raised full-year earnings guidance. Below, we'll walk through details of the report, and look ahead to management's view of the final quarter of the year:
Moody's Corporation: The raw numbers
| Metric | Q3 2017 | Q3 2016 | Year-Over-Year Growth |
|---|---|---|---|
| Revenue | $1.06 billion | $917.1 million | 15.6% |
| Net income | $317.3 million | $255.3 million | 24.2% |
| Diluted earnings per share | $1.63 | $1.31 | 24.4% |
Data source: Moody's Corporation.
What happened with Moody's Corporation this quarter?
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MIS, Moody's credit rating arm, expanded revenue by 13%, to $694.2 million. U.S. revenue showed a healthy 9% increase to $427.7 million, while faster growing non-U.S. revenue jumped 21% to $266.5 million.
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Corporate finance was the primary driver of MIS's results, due to robust U.S. investment grade instruments and Asian speculative grade debt issuance.
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The company's MA segment also notched a double-digit top-line gain, rising 21% versus the prior year quarter, to $368.7 million.
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Roughly $30 million of MA's revenue increase stemmed from Moody's acquisition of European private business information publisher Bureau van Dijk, which closed on Aug. 10, 2017. However, the analytics segment could also boast of its underlying strength, as it achieved 11% organic growth during the quarter.
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The organization's operating expense in the third quarter jumped 19% to $617.5 million. Additional acquisition and operating expenses from the Bureau van Dijk transaction contributed eight percentage points to this increase. Management attributed the rest primarily to higher accruals for incentive compensation.
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Moody's profitability decreased slightly during the quarter, as the bump up in expenses slightly outran revenue improvement. Operating income margin dropped from 43.3% in the third quarter of 2016 to 41.9% over the last three months.
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The company repurchased $29.1 million worth of its own shares during the quarter, bringing its year-to-date buyback total to $163.6 million.
Image source: Getty Images.
What management had to say
In Moody's earnings release, CEO Raymond McDaniel listed many of the positive factors we've discussed above in discussing the company's robust results. McDaniel also briefly touched on the merger: