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UPDATE 4-Moody's profit rises, beats Street; shares jump
April 27, 2011 / 12:18 PM / 7 years ago

UPDATE 4-Moody's profit rises, beats Street; shares jump

* Q1 EPS 67 cents vs Street view 54 cents

* Raises 2011 EPS view to $2.22-$2.32

* Boosts quarterly dividend to 14 cents a share

* Shares close up 6.7 percent (Adds details on Fed bond buying and rates plan; updates shares)

By Clare Baldwin and David Henry

NEW YORK, April 27 (Reuters) - Bond rating company Moody’s Corp (MCO.N) posted a 37 percent rise in first-quarter profit, topping Wall Street expectations, as corporate debt issuance surged.

The company also raised its quarterly dividend and increased its full-year earnings forecast and the news sent Moody’s shares up 6.7 percent.

But the uptick in issuance might not last, an analyst said.

The first-quarter results included a surprise increase in structured finance ratings -- a business that has been troubled since the financial crisis -- due to a new European regulatory requirement for a second rating opinion on some outstanding securities.

And the main source of the Moody’s ratings business, its corporate bond ratings, could slow.

“My sense is that a lot of this (corporate finance business) has been refinancing churn in the U.S. and that is starting to run its course,” said Douglas Arthur, an analyst at Evercore Partners.

Arthur, who cut his rating on Moody’s stock to “equal-weight” from “buy” before the earnings news, said the wave of U.S. corporate refinancing could slow before capital expenditures, leveraged buyouts and mergers and acquisitions pick up. Business from Europe has been dampened by sovereign debt crises, he said.

Moody’s raised its full-year guidance based on a strong first quarter.

Analysts on average expected Moody’s to report first-quarter earnings of 54 cents a share, according to Thomson Reuters I/B/E/S.

The company beat that by 13 cents, posting earnings of 67 cents per share, up from 47 cents a year earlier.

It raised the midpoint of its full-year earnings outlook by 10 cents -- it now expects 2011 earnings of $2.22 to $2.32 per share, up from a previous forecast of $2.12 to $2.22.

It increased its quarterly dividend to 14 cents a share from 11.5 cents.

Moody’s shares closed up $2.40 at $38.31 on the New York Stock Exchange.

A GOOD TIME TO REFINANCE?

Low global interest rates are prompting companies to refinance their debt and pushing investors to take more risk on higher-yielding corporate bonds.

The Federal Reserve on Wednesday confirmed it will finish out its $600 billion bond buying program in June, but repeated its plan to keep rates low for an “extended period.” [ID:nN26291565]

McGraw-Hill Cos Inc MHP.N, which houses rival ratings agency Standard & Poor‘s, beat Street earnings estimates on Tuesday, also because of strong bond issuance. [ID:nN26251951]

S&P estimated there will be $1.2 trillion to $1.5 trillion of U.S. and European bond and loan maturities to refinance annually from 2011 to 2014.

Moody’s Investors Service, the ratings agency business at Moody’s Corp, saw its revenue rise 23 percent to $412.6 million in the first quarter. Most of the gains came from rating corporate bonds, but there were also gains in long-troubled structured finance.

Moody’s said revenue from rating global structured finance instruments increased 25 percent from a year earlier to $89.4 million. Despite the surge, the business is still a fraction of what it was at the peak of the credit boom. In the last quarter of 2006, structured finance generated $275.6 million of revenue, half of Moody’s total from ratings. In the most recent quarter, structured finance accounted for 22.7 percent of ratings revenue.

Moody‘s, S&P and Fimalac’s LBCP.PA Fitch made hundreds of millions of dollars rating structured finance products such as mortgage bonds during the financial crisis. Ratings agencies were criticized for giving many of those securities higher ratings than they deserved.

Moody’s said first-quarter revenue rose to $577.1 million from $476.6 million a year earlier. (Reporting by Clare Baldwin and David Henry; editing by John Wallace and Andre Grenon)

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