Moody’s Profit Beats Estimates on Demand for Company Ratings

May 3 (Bloomberg) -- Moody’s Corp., the second-largest credit rater, reported first-quarter profit that beat analysts’ forecasts on demand for company ratings.

Net income rose to $188.4 million in the three months ended March 31, from $173.5 million a year earlier, New York-based Moody’s said today in a statement distributed by Business Wire. Earnings excluding certain items were 97 cents a share, surpassing the average estimate of 87 cents in a Bloomberg survey of seven analysts.

Moody’s has reported profit increases for three straight years as companies take advantage of record-low interest rates to sell unprecedented amounts of debt. While the pace of corporate bond issuance worldwide slowed in the first quarter, Moody’s increased its share of revenue in the market.

The company said revenue increased 13 percent to $731.8 million for the first three months of the year, from $646.8 million a year earlier. Its credit-rating unit, Moody’s Investors Service, accounted for $521.2 million of the total. Corporate debt ratings revenue increased 29 percent to $258.3 million, the company said in the statement.

Moody’s full-year net income of $690 million last year was the most since 2007, when structured-finance grades made up 39 percent of revenue. The market for complex mortgage-backed securities deteriorated that year with the collapse of the housing market and start of the credit crisis.

Lawsuit Settled

Moody’s, which helped start the business of ranking companies by their ability to repay debt in 1909, settled a lawsuit last month that claimed its grades weren’t objective when rating structured investment vehicles. The company climbed to the highest level in more than five years after investors led by Abu Dhabi Commercial Bank and King County, Washington agreed to drop their claims.

The company included a 14 cent litigation settlement charge that reduced its earnings per share to 83 cents, reflecting “higher-than-anticipated expenses associated with our resolution of two protracted litigation matters,” Chief Executive Officer Raymond McDaniel said in the statement.

Moody’s has about a dozen pending cases stemming from crisis-era ratings after more than three dozen were “disposed of,” McDaniel said on a conference call today to discuss earnings.

Shares Rally

Shares have climbed 59 percent in the past year and rose 3.6 percent today to close at $62.75 in New York, the highest level since June 2007, according to data compiled by Bloomberg. Warren Buffett’s Berkshire Hathaway Inc., the company’s biggest shareholder, reduced its holdings this week by 1.75 million shares at prices ranging from $59.93 to $60.94, according to a May 1 regulatory filing.

Corporate bond issuance worldwide fell 7.5 percent to $1.09 trillion in the first three months of the year from $1.17 trillion in the same period of 2012, Bloomberg data show.

Revenue at Standard & Poor’s, the biggest credit rater, climbed 20.4 percent during the period to $561 million on what Chief Executive Officer Harold “Terry” McGraw called “resurgence” in structured finance, the New York-based unit of McGraw Hill Financial said April 30.

To contact the reporter on this story: Matt Robinson in New York at Mrobinson55@bloomberg.net.

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