Moody's earnings beat Street, but shares tumble

Emmanuel Dunand/AFP/Getty Images

NEW YORK Moody's (MCO) fourth-quarter net income jumped 66 percent and revenue blew away expectations, but shares slid with many expecting the ratings agency will be the next target of the Justice Department, which filed a suit against a rival for its actions before the housing market collapse.

The Obama administration accused Standard & Poor's on Tuesday of refusing to warn investors that the housing market was collapsing in 2006 because it would be bad for business.

In the days since S&P announced that the lawsuit would be filed, Moody's shares have tumbled 15 percent, falling another 6 percent Friday.

CEO Raymond McDaniel said that he had no knowledge of any pending action against the company during a conference call with investors Friday.

For the quarter ended Dec. 31, the New York company earned $160.1 million, or 70 cents per share, up from $96.2 million, or 43 cents per share, in the same quarter last year.

Revenue jumped 33 percent to $754.2 million, easily topping Wall Street expectations for revenue of $687.1 million in revenue, according to FactSet.

U.S. revenue rose 40 percent to $400.9 million, while overseas revenue increased 26 percent to $353.3 million.

Revenue from Moody's Investors Service, its credit rating arm, rose 42 percent to $519.4 million, as global corporate finance revenue jumped 73 percent to $244.9 million on higher demand for credit ratings.

Why Moody's was not included in the Justice Department action was debated all week, though the direction of the company's stock suggests that most believe that is only a matter of time. And experts said the lawsuit could serve as a template for future action against Fitch and Moody's, the other two major credit rating agencies.

According to the lawsuit, S&P gave high marks to the investments because it wanted to earn more business from the banks that issued them. S&P has denied any wrongdoing, and it has vowed to fight the civil charges filed by the Justice Department.

For the full year, Moody's earned $690 million, or $3.05 per share, up from $571.4 million, or $2.49 per share, in 2011. Revenue rose to $2.73 billion from $2.28 billion.

The company said that despite the continued economic uncertainty, it expects market conditions to remain favorable this year and projected a 2013 profit of $3.45 to $3.55 per share. Analysts expect $3.25 per share.

But it projected a slow-down in revenue growth at Moody's Investors Service, predicting a revenue increase in the "high-single-digit percent range," down from the 20 percent increase it posted in 2012.

In afternoon trading, Moody's shares fell $2.94, or 6 percent, to $44.05, after dropping as low as $43.89 earlier in the day.

Shares of The McGraw-Hill Companies (MHP), S&P's parent company, fell 72 cents to $43.07, drawing closer to a 52-week low of $42.02.

Just days before the Justice announcement sent shares of McGraw-Hill plummeting, they hit an all-time high of $58.62.

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