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News

Moody’s shares slide amid earnings miss

 

Tuesday, May 3, 2022

The news shaping the markets today

Russia stepped up its assault on Ukraine, launching a fresh attack on the port of Odessa. The RUB/USD forex pair traded lower on the news.


New Zealand’s building permits rose 5.8% to 4,580 in March, following a 12.2% surge in the previous month. The NZD/USD pair climbed in forex trading this morning.


South Korea’s consumer prices accelerated by 4.8% year-over-year in April, the fastest pace in more than 13 years. The KRW/USD forex pair, however, traded higher this morning.


Ireland’s manufacturing PMI fell to 59.1 in April, from 59.4 in the previous month. However, the EUR/USD pair bounced back from the fresh lows hit in the previous trading session.


Thailand’s manufacturing PMI improved to 51.9 in April, from 51.8 a month ago. Despite this being the fourth straight month of growth, the THB/USD forex pair remained broadly flat on the news.

 

What’s happening: Shares of Moody’s Corp fell on Monday, after the company reported weaker-than-expected earnings for its first quarter.

What happened: The New York-based company managed to report revenues in-line with market expectations but still missed on the earnings front.

Moody’s also lowered its earnings forecast for 2022, citing several factors.

How were the results: The financial services company reported a decline in both sales and earnings for its first quarter.

  • Revenues declined by 5% year-over-year to $1.52 billion, slightly beating the Street expectations of $1.51 billion.
  • Adjusted earnings came in at $2.89 per share, down significantly from $4.06 per share in the year-ago quarter and missing the conservative consensus estimate of $2.90 per share.

Why it matters: Revenue from MIS (Moody’s Investors Services) contracted 20% year-over-year to $827 million, as rising geopolitical concerns and higher market uncertainty impacted the issuance of all asset classes. Revenues from Moody’s Analytics grew 23% year-over-year to $695 million, while corporate finance revenues fell 31% to $417 million, following a decline in leveraged finance issuance.

“Growth in our KYC solutions and credit research led to another impressive quarter in Moody’s Analytics. This increased demand demonstrates the benefit of MA’s highly recurring revenue business model, which balances the more cyclical nature of Moody’s Investors Service,” CEO Rob Fauber said during the earnings call.

Moody’s said there was a decline in debt issuance in the US, despite high inflation. This signals that companies may be preparing for a recession.

However, the company expressed optimism around an increase in debt issuance, as the survival of some firms depends on debt. With rising inflation, such firms may become bankrupt if they weren’t able to borrow money at lower rates to pay off their current debt.

The company’s operating expenses climbed 16% year-on-year in the first quarter to $866 million, while adjusted operating margin narrowed 890 bps to 48.2%.

The company held cash and equivalents worth $1.9 billion and generated $470 million in operating cash flows in the quarter.

Moody’s projected adjusted earnings between $10.75 and $11.25 per share for fiscal 2022, down from its previous forecast of between $12.40 and $12.90 per share. Management said the lowered guidance was due to several factors, including inflation, interest rates, covid-19 and the ongoing crisis in Ukraine.

How shares responded: Shares of Moody’s fell 4.9% to close at $301.13 on Monday, following the release of latest-quarter results. The stock has shed more than 21% year to date.

What to watch: Investors will keep an eye on the US Federal Reserve’s rate decision, which has a significant impact on Moody’s overall results. Markets will also monitor any further decline in corporate debt issuance, as this could exert further pressure on the stock.

 

The markets today

European stocks will be in focus today, ahead of a couple of economic reports from the common bloc

 

Context: Markets in Europe settled lower on Monday as investors assessed the latest economic data.

Details: Europe’s markets started May on a lower note, while London’s FTSE 100 being closed for a public holiday.

Markets are also gearing up for central bank meetings later this week and remained on the sidelines ahead of monetary policy announcements from the US Federal Reserve, the Bank of England and the ECB.

Investors responded to a decline in Eurozone economic sentiment to a 13-month low of 105 in April, although factory activity growth for the month was revised slightly higher. The consumer confidence indicator also dipped to its worst level since April 2020.

The pan-European Stoxx 600 shed 1.46% to close at 443.83 on Monday, amid rising concerns around global economic growth.

Data released from Germany showed an unexpected decline in retail sales in March. The Federal Statistics Office reported a 0.1% decline in sales, versus market expectations of 0.3% growth. Although manufacturing PMI for Germany improved to 54.6 in April, versus a preliminary reading of 54.1, the DAX 40 fell 1.13% on Monday.

France’s manufacturing PMI was revised higher in April. However, the CAC 40 index lost 1.66% to close at 6,425.61 on Monday, increasing losses from the previous week.

What to watch: Investors await the release of economic data on unemployment and producer price inflation from the Eurozone. The unemployment rate, which fell to a record low of 6.8% in February, is expected to decline further to 6.7% in March. Annual producer inflation had hit a new record high of 31.4% in February and is projected to accelerate to 36.3% in March.

Markets will also keep an eye on rising covid-19 cases around the world, the ongoing Russia-Ukraine war and rising inflation.

Other Markets: US indices closed higher on Monday, with the Dow Jones, S&P 500 and Nasdaq 100 up by 0.26%, 0.57% and 1.72%, respectively.

Support & resistances for today

Technical Levels News Sentiment
EUR/USD – 1.0516 and 1.0525 Positive
GBP/USD – 1.2512 and 1.2525 Positive
Nasdaq 100 – 12999.95 and 13116.35 Positive
Nikkei 225 – 26863.66 and 26918.66 Positive
Gold – 1858.30 and 1862.63 Positive

Market snapshot

What else to watch today

Germany’s unemployment rate and unemployment change, France’s government budget value, UK’s manufacturing PMI, France’s car registrations, Italy’s car registrations, South Africa’s manufacturing PMI, Mexico’s manufacturing confidence index, Brazil’s industrial output, US Redbook index, job openings, factory orders, Logistics Manager’s index and API’s crude oil stocks, Argentina’s tax revenue, South Africa’s total vehicle sales, as well as Russia’s corporate profits.

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