Moody's Q3 Misses Estimates as Rising Yields Weigh on Ratings Revenue

Moody's Corp. missed Wall Street's third-quarter estimates, with softer revenue in its credit ratings business as rising yields weighed on corporate bond sales. The company's shares fell after the report, according to Bloomberg.

The ratings and analytics firm posted adjusted diluted earnings of $4.14 per share, 3.9% below the consensus estimate of $4.31, AlphaStreet reported. Revenue rose 1.0% from a year earlier to $2.02 billion, with adjusted net income of $717.0 million and GAAP net income of $734.0 million, according to AlphaStreet.

Chief Executive Rob Fauber said quarterly revenue topped $2 billion for a third consecutive quarter. Adjusted operating margin was 52.6%, and adjusted earnings per share rose 6% year over year, MarketBeat reported from the company's earnings call.

The ratings arm, Moody's Investors Service, posted $1.1 billion in revenue, down 1% from a year earlier, with rated issuance off 2% at approximately $1.7 trillion. Even with the decline, issuance represented the second-highest third-quarter level on record, according to MarketBeat.

Strength within that total was concentrated in investment grade, where revenue rose 18% on 16% issuance growth, buoyed by AI infrastructure and hyperscaler financing. High-yield revenue dropped 40% and bank-loan revenue fell 27%, reflecting weaker leveraged-finance issuance, MarketBeat reported.

Fauber said issuance tied to AI infrastructure and power investment rose approximately fourfold from the prior-year quarter. AI-related issuance, broadly defined to include data centers and related infrastructure, accounted for more than half of total issuance growth year to date and about 40% of revenue growth, he said on the call. He also flagged a looming refinancing wave, noting that maturities across the U.S. and Europe, the Middle East and Africa exceed $5 trillion over the next four years.

MIS adjusted operating margin came in at 64.4%, down about 80 basis points from a year earlier. Recurring revenue rose 8%, and first-time mandates jumped 40% year over year to the highest quarterly total in five years, prompting Moody's to raise its full-year first-time mandate outlook to 900–950, MarketBeat said. The company is also taking a minority stake in PhilRatings, a Philippine domestic credit rating agency — its sixth such affiliate in Asia-Pacific, according to Fauber.

Moody's Analytics posted 3% revenue growth, or 8% on an organic constant-currency basis. Annualized recurring revenue reached approximately $3.7 billion, up about 8%, with roughly 99% of segment revenue recurring and trailing 12-month retention at 95%. Segment operating margin expanded 100 basis points to 35.3%, helped by portfolio simplification and early efficiency gains from artificial intelligence, MarketBeat reported.

Within Analytics, Decision Solutions ARR rose 10% and accounted for about 44% of segment ARR. KYC ARR increased 12%, insurance ARR grew nearly 10%, and banking ARR rose 8%. Moody's also signed a deal with SAP to embed its data into supplier onboarding and monitoring workflows, and announced a private-markets data distribution partnership with one of the world's largest asset managers, according to MarketBeat.

AI adoption is broadening across customer workflows. Users of Moody's research MCP interfaces more than quadrupled over the past three months, and usage rose more than tenfold, Fauber said. The number of customers paying for MCP access more than doubled during the quarter, with about half of the MCP pipeline by value created after the end of the second quarter. The company also cited its Risk Data Refinery, which converts unstructured insurance submissions into analytics-ready data with around 95% first-pass accuracy, and said KYC agents are growing nearly three times faster than the broader KYC business.

Moody's maintained its full-year outlook for high-single-digit revenue growth, adjusted operating margin of 52% to 53%, and adjusted diluted EPS of $16.50 to $17.00 — roughly 12% growth at the midpoint. The company continues to expect high-single-digit revenue growth at Moody's Investors Service for the full year.

Wall Street consensus on the stock stands at 13 buy ratings and 8 hold ratings, with no sell recommendations, according to AlphaStreet.