UPDATE 3-Moody's beats estimates even as costs rise

Thu Apr 26, 2012 1:04pm EDT

* Net income $173.5 million vs $155.5 million year earlier

* Q1 EPS 76 cents vs 69 cents Street view

* Expenses rise 16 percent with hiring, tech costs

* Company says outlook at 'upper-end' of full-year EPS range

By David Henry

April 26 (Reuters) - Bond-rater Moody's Corp beat Wall Street estimates as income rose nearly 12 percent in the first quarter, despite an increase in costs. More bond issues drove revenue higher.

Net income was $173.5 million, or 76 cents a share, compared with $155.5 million, or 67 cents a share, a year earlier, the company said in a statement on Thursday.

Analysts on average had expected a profit of 69 cents a share, according to Thomson Reuters I/B/E/S.

While revenue from global corporate debt ratings increased 10 percent, or $19 million, the company also got a $15 million boost to the line from work on government, project and infrastructure finance. Revenue from public issues in the U.S. increased 37 percent.

Moody's said it expected full-year earnings would come in "toward the upper end" of a previously announced range of $2.62 to $2.72 per share.

But CEO Raymond McDaniel added that executives "remain cautious about market conditions for the remainder of the year." If the company does earn $2.72 per share this year, the result would be 9 percent higher than last year's $2.49 a share.

Moody's shares fell 23 cents, or 0.5 percent, to $41.74 in early afternoon trading in New York.

McDaniel said in a conference call that many of the deals the company rated were to refinance existing debts and were issues he had not expected to see brought to market until later this year. He said he now expects the second half of the year will not be as strong as the first half.

"April is running light," said Chief Financial Officer Linda Huber.

Expenses for the corporation rose by $50.8 million, or 16 percent, and the operating profit margin fell to 41.6 percent from 43.3 percent. The company said the increase was the result of additional hiring and spending for technology and acquisitions.

Higher expenses reported Tuesday by McGraw-Hill Companies at its competing ratings company, Standard & Poor's, hurt that company's stock price despite a rise in profits. Both companies said that large portions of the additional spending was to hire people to grow their businesses.

Revenue at Moody's analytics division, which sells financial research, data and software for assessing risk, increased 18 percent from a year earlier. The division, which is intended to stabilize the company against big swings in bond issuance, provided 30 percent of corporate revenue in the quarter.

Bond sales by U.S. corporations in the first quarter increased nearly 10 percent from a year earlier, according to Thomson Reuters data.

Moody's shares have more than doubled the performance of the broader stock market this year, climbing 25 percent through Wednesday as the European debt crisis eased and bond issuance rebounded from the weak volumes of late 2011.

Investors have become increasingly confident in recent months that new regulations will not wipe out the profits of the big rating agencies. The new regulations are a consequence of bad ratings on mortgage-related bonds in the credit bubble. The agencies have also been criticized by European officials over downgrades in their countries.

Moody's said it did not buy back any stock in the quarter, but issued 2.6 million shares to pay employees. The company said it had 224.7 million shares outstanding at the end of March, about 1 percent fewer than a year earlier.

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