Bloomberg News

Moody’s Profit Beats Estimates as Bond Sales Surge Worldwide

July 27, 2011

(Updates with earnings forecast in fifth paragraph.)

July 27 (Bloomberg) -- Moody’s Corp., the world’s second- largest bond rater, said quarterly profit rose 56 percent as global debt issuance soared, increasing demand for ratings.

Net income climbed to $189 million, or 82 cents a share, from $121 million, or 51 cents, a year earlier, New York-based Moody’s said today in a statement distributed by Business Wire. Excluding a tax benefit, earnings were 79 cents a share for the three months ended June 30, beating the average 58-cent estimate by seven analysts in a Bloomberg survey.

Companies sold more bonds than usual in April and May, buoying Moody’s earnings, according to Douglas Arthur, an analyst at Evercore Partners Inc. in New York. Issuance has since slowed, which may be a drag on profits for the rest of the year, Arthur said in a telephone interview before Moody’s announced its results.

“Debt issuance was so strong in April and May,” Arthur said. “The surge in issuance has abruptly halted.”

Moody’s revenue increased 27 percent to $605.2 million in the second quarter. The company raised its earnings forecast for the year to a range of $2.38 to $2.48 a share, from $2.22 to $2.32. Results were strong enough to offset an expected slowdown in debt issuance in the second half, Chairman and Chief Executive Officer Raymond McDaniel said in the statement.

“Moody’s second quarter results reflected gains in all credit ratings areas,” he said. “We expect more challenging debt issuance conditions in the U.S. and Europe in the second half of 2011.”

The company also said it expects to resume buying back stock this year. It has authority to repurchase as much as $1.1 billion.

Bond Sales

Corporate bond sales from the U.S. to Europe to Asia increased 47 percent to $906 billion in the quarter ended June 30 from $618 billion in the same period of 2010, according to data compiled by Bloomberg.

About $170.4 billion of debt was issued worldwide this month through yesterday, down from $205.7 billion in the similar period last year, the data show.

Moody’s and McGraw-Hill Cos., owner of Standard & Poor’s, the largest rater by revenue, have benefited from a surge in demand for ratings as companies take advantage of interest rates close to record lows to refinance debt, Arthur said.

Stock Gains

Moody’s, whose founder John Moody created credit ratings in 1909, has climbed 41 percent this year to $37.42 as of yesterday in New York Stock Exchange composite trading, while McGraw-Hill, which is due to report earnings tomorrow, has risen 21 percent to $43.96.

Moody’s share price remains below its all-time high of $74.84, reached in 2007, when 38 percent of its revenue came from rating complex structured investments. The company won that business by inflating grades for risky securities, helping trigger the financial crisis, a Senate subcommittee said in a report in April. Structured finance accounted for $86.3 million of revenue in the second quarter, 14 percent of the total.

(Moody’s will hold a conference call for analysts and investors at 11:30 a.m. New York time. To listen, access the company’s website at ir.moodys.com)

--Editors: Sharon L. Lynch, Richard Bedard.

To contact the reporter on this story: Zeke Faux in New York at zfaux@bloomberg.net.

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net.


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