Moody's Corporation updated its guidance for the full year ending December 31, 2016
Full year 2016 GAAP EPS is currently expected to be $4.70 to $4.80, which now includes an anticipated non-cash foreign exchange gain of approximately $0.18 related to a subsidiary reorganization, offset in part by an approximate $0.04 restructuring charge associated with cost management initiatives. Excluding these items, the Company expects full year 2016 non-GAAP EPS of $4.55 to $4.65. The Company expects to record the foreign exchange gain in its fourth quarter results and the restructuring charge in its third quarter results.
“Increased issuance activity combined with a greater impact from our cost savings initiatives has resulted in a modestly improved outlook,” said Raymond McDaniel, President and Chief Executive Officer of Moody’s. “Excluding the impact of the specific items noted above, we expect 2016 EPS of $4.55 to $4.65.”
To reflect the Company’s current view of business conditions as well as the impact of the aforementioned foreign exchange gain and restructuring charge, the Company is updating certain components of Moody’s 2016 revenue and expense guidance.
Full year global MIS revenue is still expected to decrease in the low-single-digit-percent range, while US revenue is now expected to be approximately flat and public, project and infrastructure finance revenue is now expected to increase approximately 10%.
The effective tax rate is now expected to be 31% to 31.5%, including an approximate one percentage point favorable change due to the foreign exchange gain noted above which is not taxable.
A full summary of Moody’s guidance as of September 28, 2016 is included in the table at the end of this press release. Moody’s outlook for 2016 is based on assumptions about many geopolitical conditions and macroeconomic and capital market factors, including interest rates, foreign currency exchange rates, corporate profitability and business investment spending, mergers and acquisitions, consumer borrowing and securitization, and the amount of debt issued. These assumptions are subject to uncertainty, and results for the year could differ materially from our current outlook. Our guidance assumes foreign currency translation at August 31, 2016 exchange rates. Specifically, our forecast reflects exchange rates for the British pound (?) of $1.31 to ?1 and for the euro (€) of $1.11 to €1.
Moody’s will host its Investor Day conference today in New York City.
ABOUT MOODY'S CORPORATION
Moody's is an essential component of the global capital markets, providing credit ratings, research, tools and analysis that contribute to transparent and integrated financial markets. Moody’s Corporation (NYSE: MCO) is the parent company of Moody's Investors Service, which provides credit ratings and research covering debt instruments and securities, and Moody's Analytics, which offers leading-edge software, advisory services and research for credit and economic analysis and financial risk management. The corporation, which reported revenue of $3.5 billion in 2015, employs approximately 10,800 people worldwide and maintains a presence in 36 countries.
Moody’s outlook for 2016 is based on assumptions about many geopolitical conditions and macroeconomic and capital market factors, including interest rates, foreign currency exchange rates, corporate profitability and business investment spending, merger and acquisition activity, consumer borrowing and securitization, and the amount of debt issued. These assumptions are subject to some degree of uncertainty, and results for the year could differ materially from our current outlook. Moody’s guidance assumes foreign currency translation at August 31, 2016 exchange rates. Specifically, our forecast reflects exchange rates for the British pound (?) of $1.31 to ?1 and for the euro (€) of $1.11 to €1.
|MOODY'S CORPORATION||Current guidance as of September 28, 2016||
Last publicly disclosed guidance on
|Revenue||increase in the low-single-digit percent range||NC|
|Operating expense||increase in the mid-single-digit percent range||NC|
|Depreciation & amortization||Approximately $130 million||NC|
|Operating margin||Approximately 41%||NC|
|Adjusted operating margin||Approximately 45%||NC|
|Effective tax rate||31% - 31.5%||32-32.5%|
|GAAP EPS||$4.70 to $4.80||$4.55 to $4.651|
|Non-GAAP EPS||$4.55 to $4.65||N/A|
|Capital expenditures||Approximately $125 million||NC|
|Free cash flow||Approximately $1 billion||NC|
|Share repurchases2||Approximately $1 billion||NC|
|MIS||Current guidance as of September 28, 2016||
Last publicly disclosed guidance on
July 22, 2016
|MIS global||decrease in the low-single-digit percent range||NC|
|MIS U.S.||Approximately flat||decrease in the low-single-digit percent range|
|MIS Non-U.S.||decrease in the low-single-digit percent range||NC|
|CFG||decrease in the low-single-digit percent range||NC|
|SFG||decrease in the high-single-digit percent range||NC|
|FIG||increase in the mid-single-digit percent range||NC|
|PPIF||increase approximately 10%||increase in the mid-single-digit percent range|
|MA global||increase in the mid-single-digit percent range||NC|
|MA U.S.||increase in the low-double-digit percent range||NC|
|MA Non-U.S.||increase in the low-single-digit percent range||NC|
|RD&A||increase in the high-single-digit percent range||NC|
|ERS||increase in the high-single-digit percent range||NC|
|PS||decrease in the low-single-digit percent range||NC|
NC- There is no difference between the Company's current guidance and the last publicly disclosed guidance for this item.
N/A – Not applicable.
1 Expected to be toward the lower end of the range.
2 Subject to available cash, market conditions and other ongoing capital allocation decisions
Non-GAAP Financial Measures:
|In addition to the non-GAAP financial measures presented and reconciled in the text of this press release, the tables below reflect certain adjusted results that the SEC defines as "non-GAAP financial measures" as well as a reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. Management believes that such non-GAAP financial measures, when read in conjunction with the Company's reported results, can provide useful supplemental information for investors analyzing period-to-period comparisons of the Company's performance, facilitate comparisons to competitors' operating results and provide greater transparency to investors of supplemental information used by management in its financial and operational decision-making. These non-GAAP measures, as defined by the Company, are not necessarily comparable to similarly defined measures of other companies. Furthermore, these non-GAAP measures should not be viewed in isolation or used as a substitute for other GAAP measures in assessing the operating performance or cash flows of the Company.|
Adjusted Operating Income and Adjusted Operating Margin:
The table below reflects a reconciliation of the Company’s operating margin to adjusted operating margin. The Company defines adjusted operating income as operating income excluding depreciation and amortization and restructuring charges. The Company utilizes adjusted operating income because management deems this metric to be a useful measure for assessing the operating performance of Moody’s, measuring the Company's ability to service debt, fund capital expenditures, and expand its business. Adjusted operating income excludes depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. Adjusted Operating Income also excludes restructuring charges as the frequency and magnitude of these charges may vary widely across periods and companies. Management believes that the exclusion of these items, detailed in the reconciliation below, allows for a more meaningful comparison of the Company’s results from period to period and across companies. The Company defines adjusted operating margin as adjusted operating income divided by revenue.
|Year Ended December 31,
|Operating margin guidance||Approximately 41%|
|Depreciation and amortization||Approximately 4%|
|Adjusted operating margin guidance||Approximately 45%|
Free Cash Flow:
|The table below reflects a reconciliation of the Company’s net cash flows from operating activities to free cash flow. The Company defines free cash flow as net cash provided by operating activities minus payments for capital additions. Management believes that free cash flow is a useful metric in assessing the Company’s cash flows to service debt, pay dividends and to fund acquisitions and share repurchases. Management deems capital expenditures essential to the Company’s product and service innovations and maintenance of Moody’s operational capabilities. Accordingly, capital expenditures are deemed to be a recurring use of Moody’s cash flow.|
Year Ended December 31,
|Net cash flows from operating activities guidance||Approximately $1.1 billion|
|Capital additions guidance||(Approximately $125 million)|
|Free cash flow guidance||Approximately $1.0 billion|
|The Company presents this non-GAAP measure to exclude the impact of foreign exchange gains related to the liquidation of a finance subsidiary as well as restructuring charges to allow for a more meaningful comparison of Moody’s diluted earnings per share from period to period. Management believes that the exclusion of these items, detailed in the reconciliation below, allows for a more meaningful comparison of the Company’s Diluted EPS from period-to-period. Below is a reconciliation of these measures to their most directly comparable U.S. GAAP amount (amounts do not total due to rounding):|
|Year Ended December 31,
|Diluted EPS attributable to Moody's common shareholders-GAAP||$4.70 to $4.80|
|FX gain due to a subsidiary reorganization||(Approximately $0.18)|
|Diluted EPS attributable to Moody's common shareholders - Non-GAAP||$4.55 to $4.65|