Moody’s Earnings Call Insights: Stock Buybacks and European Bank Loans
Moody’s Corporation (NYSE:MCO) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.
William Bird – Lazard Capital Markets: Ray, given what your stock is doing, are you likely to front-load stock buybacks this year?
Raymond W. McDaniel Jr. – President and CEO: I think we’re going to have to look at how the stock performs over a bit longer period of time. Our thinking has been to be fairly balanced in our share repurchase throughout the year and we haven’t made any different decision at this point.
William Bird – Lazard Capital Markets: Also, I guess at a higher level, you touched on recent legal development. I was wondering if you could just give kind of your perspective just on how one gets comfortable with recent legal developments
Raymond W. McDaniel Jr. – President and CEO: Well I think the matter that I mentioned in our prepared remarks as far as the Department of Justices’ complaint is, really all I can say is that we are not a party to that and so we are not really able to comment because we don’t have any information other than what is publicly available. I would add that we don’t have any knowledge of any impending complaint by the Department of Justice raising similar claims against Moody’s.
European Bank Loans
William Warmington – Raymond James: First question for you is, there were some news this morning that the European central banks will be repaying EUR5 billion of its emergency three year loan over the next week. Just wanted to ask about – sorry, that’s EUR5 billion, about $6.7 billion U.S. How about that as a driver of the financial institution issuance in Europe in 2013.
Raymond W. McDaniel Jr. – President and CEO: Sure. I guess it’s probably worth reminding everyone that in the financial institution, (indiscernible), in particular, our business is more heavily weighted towards recurring revenue and annual pricing agreements. So, we are not as susceptible either on the positive or negative side to changes in issuance volumes. That being said, the indications – any indications of repaying loan would be an indication of potential market stability and some improved economic activity and we would have to look at that as a positive. At the same time, we do expect that deleveraging in the banking sector, particularly in Europe is going to continue and that’s a positive.
William Warmington – Raymond James: Then on the share repurchases, just wanted to ask if the intent there is to offset dilution or to create a net reduction? In that sense wanted to ask your thoughts on what the fully diluted shares exiting 2013 are that are gulped into $3.45 to $3.55 guidance?
Linda S. Huber – EVP and CFO: Sure, Bill. It’s Linda. Our intent with doing $500 million of share repurchase in 2013 would be to first cover dilution from employee issuance plan and then secondly to hopefully have some reduction in the overall share count. Now, that depends on a lot of things. A little tricky to model because as you may have noticed our share price has been a bit volatile of late. So, at this point, we are modeling a slight reduction, but we are going to have to see how it goes; very tricky to model at this point.
William Warmington – Raymond James: That $12 million amortization charge that you mentioned, I just want to confirm that works out to be about $0.05 after-tax?
Linda S. Huber – EVP and CFO: I think we are thinking it’s – yes, it’s about $0.06 after-tax, but just a rounding, Bill; but yeah, $12 million not to be tax effective.
William Warmington – Raymond James: Then one last question. Are you seeing any evidence of a shift in corporate debt issuance motives? It seems (up to turn) now the issuance has been very oriented towards refinancing. Are you starting to see any issuance to other purposes, M&A, plant expansion, something like that?