Moody's (MCO) Q3 2026 earnings review
Moody's analytics software grows, but its ratings revenue falls
Moody's data and software arm kept growing, but its credit ratings business shrank as risky borrowers stayed away. Sales rose 1%, or 3% without the units it sold last year. Chief executive Rob Fauber called it another quarter of strong earnings growth and held the full-year plan, which by our math now needs ratings revenue to stop falling in the fourth quarter.
| Sales | $2,023M +1% from a year ago; +3% without the sold units and currency |
|---|---|
| Profit per share, excluding one-offs | $4.14 +6% from a year ago |
| Analytics contract value (ARR) | $3,688M +7.9% by our math; +8.6% last quarter |
| Full-year outlook | Unchanged adjusted profit per share $16.50–17.00 |
⚖️ Verdict: 🔴 Bearish
The story got worse, because the ratings downturn arrived a quarter before the company's own plan said it would, and profit growth now comes from buybacks and a lower tax rate rather than from operations. The good news: the analytics arm grew 8% once the sold units are stripped out, and widened its margin by a full point.
The question now is whether borrowing by AI and data-centre builders can hold ratings revenue level while high-yield and leveraged-loan deals stay scarce. One answer is that this investment-grade wave is a multi-year cycle that carries the business through; the other is that these frequent borrowers pay lower fees, so volume no longer reaches revenue. Fourth-quarter ratings revenue, which the plan has roughly flat, will tell.
🐂 Bull Case
Analytics Grew 8% Once the Sold Units Are Stripped Out
Moody's Analytics, the arm that sells data, research and risk software by subscription, reported sales up 3%. The reported figure understates it, because Moody's sold its Learning Solutions and Regulatory Solutions units over the past year. Without those units and currency moves, sales rose 8%.
- Banking software: down 16% as reported, up 19% underlying
- Insurance software: up 10% underlying
- KYC, the customer-screening tools: up 8%
- Data and Information: up 8%; Research and Insights: up 3%
The sales that remain are almost all subscriptions, which the company describes as "a continued shift toward recurring revenue". Subscriptions were 99% of the arm's sales, so the growth rate above is close to the rate customers are renewing and expanding at.
What to watch: underlying growth in the fourth quarter against the high-single-digit full-year plan. A reading near 8% again would mean the slower contract growth described in the bear cards has not yet reached reported sales.
The Analytics Margin Widened a Full Point
Moody's Analytics, the data and software arm, earned 35.3 cents of adjusted operating profit per dollar of sales, up 1.0 percentage point from a year ago. Pay and benefits, its largest cost, fell 1.2 points of the arm's sales because headcount costs stayed flat while sales rose, by our math.
Other costs rose 0.3 points of sales, which the company attributes to "investments to support growth and higher incentive compensation". Finance chief Noémie Heuland set a target in July of a margin in the mid-to-high 30s by the end of 2027, so this quarter is on that path.
What to watch: the fourth-quarter margin, which by our math must reach about 36% for the full-year plan's middle point. A reading there would confirm the arm's cost programme is working even as its contract growth slows.
Positives this quarter didn't test
Three growth drivers that management has described on recent calls got no numbers in the results release. The company mentions only "continued momentum in private markets" inside its financial-institutions ratings line, so none of these can be read from the materials supplied.
- Private credit ratings: a count of new mandates or, better, revenue in dollars would show whether the 40%-plus growth cited in July continued.
- First-time mandates: the quarterly count against the 750–850 full-year range set in July.
- Moody's data inside AI tools such as Microsoft Copilot and Amazon QuickSight: any paying revenue or customer count from these connections.
🐻 Bear Case
Ratings Revenue Fell as Risky Borrowers Stayed Away
Moody's Investors Service, the credit ratings business, earns most of its fees when companies and governments sell new debt. Finance chief Noémie Heuland told investors in July to expect low-single-digit growth there in the third quarter. Revenue fell 1% instead.
Corporate Finance, the largest ratings line, lost 8%, which the company blamed on "lower Leveraged Finance issuance". Investment-grade fees rose on "issuance associated with AI-related financing and hyperscaler investments", so the AI borrowing wave is real but did not cover the gap.
- Investment-grade transaction fees: up 18% on 16% more rated debt
- High-yield transaction fees: down 40% on 21% less rated debt
- Leveraged-loan transaction fees: down 27%
- Public and infrastructure finance revenue: up 11%
Fees fell faster than deals. Total transaction revenue dropped 5% while rated volume slipped 2%, so by our math Moody's earned about 3% less per dollar of debt rated. Management has said frequent large borrowers pay lower rates under pricing programmes, and they were the ones still issuing.
What to watch: fourth-quarter ratings revenue against the roughly flat result the company's plan calls for. Another decline would mean AI-related borrowing cannot offset a weak high-yield market, and the full-year ratings outlook would be out of reach.
Analytics Contract Value Grew Less This Quarter
Moody's reports annualized recurring revenue, or ARR, the yearly value of the subscription contracts its analytics arm has signed. ARR tells you where next year's sales come from. It grew 7.9% by our math, down from 8.6% in June, and the company rounds both to high single digits.
The flow behind that rate weakened more. Moody's added $27 million of contract value in the quarter, against $46 million in the same quarter last year on the same currency basis, by our math. Banking software contracts fell $8 million from June, the only line to shrink.
That matters because Heuland said in July that banking would exit the year growing in the high single digits, down from 10%. It got there two quarters early, so the renewal uplift from customers moving to the new lending suite may be fading faster than planned.
What to watch: ARR growth at year-end against the high-single-digit plan. A reading below 8% would mean the analytics arm cannot hold its growth rate while the ratings business goes through a downturn.
Buybacks and a Lower Tax Rate Made the Profit Growth
"Moody’s delivered another quarter of strong profitability and earnings growth, with disciplined execution and healthy cash generation amidst an increasingly complex operating environment," chief executive Rob Fauber said. Adjusted operating profit was $1,064 million against $1,062 million a year ago, so operations did not grow.
Profit per share excluding one-offs still rose 6%, because the share count fell 3.5% after the buybacks and the tax rate dropped to 24.0% from 25.4% on a lapsed statute of limitations. Strip those out and adjusted net income rose about 2%.
The buybacks cost more than the business generates. Moody's returned $3.1 billion to shareholders in nine months against $2.2 billion of free cash flow, so cash fell $871 million since December. Net debt rose to $5.3 billion from $4.5 billion by our math, part-funded by the two unit sales.
What to watch: fourth-quarter buybacks against the $500–700 million of free cash flow the plan implies by our math. Spending the remaining $447 million of the buyback ceiling would mean another quarter of returns funded from the balance sheet.
Risks this quarter didn't answer
Three standing concerns got no new evidence in the results release, which carries no product, competitive or call commentary. Each is readable only from the call transcript or the quarterly filing, neither of which is in the materials here.
- AI replacing paid analytics: any comment on competitors building on cheaper AI models, or on customers cutting licences, would move this either way.
- Private credit revenue: a dollar figure for the ratings and analytics income tied to private lenders would show whether the busiest growth area is also a durable one.
- Restructuring savings: Moody's charged $27 million this quarter and $86 million this year; a realized-savings figure would show how much reaches the margin.
👓 Other Themes
A Second Gain on the Regulatory Solutions Sale
Moody's booked a $115 million pre-tax gain on the Regulatory Solutions unit it sold in the second quarter, worth $0.47 per share after tax. The release does not say what triggered it. The gain is why reported profit per share rose 18% while the adjusted figure rose 6%.
Moody's Now Assumes More Defaults and Wider Spreads
The full-year outlook rests on assumptions the company revised this quarter. It now expects the global speculative-grade default rate "To finish at around 3.8% by year-end", up from 3%, and high-yield spreads to widen to about 300 basis points within a quarter. It also assumes one more rate rise each from the Fed and the ECB.
💲 Other KPIs
Flat from a year ago at 4.2% of sales, as it has been for a year. The full-year plan of about $450 million leaves $179 million for the fourth quarter by our math, more than double last year's final quarter, because the New York and London office moves fall there.
Up 2% from a year ago by our math, against 8% growth at December. Deferred revenue is cash customers have paid for subscriptions not yet delivered, so slower growth here tends to lead slower reported analytics sales. Part of the gap is the two sold units leaving the balance.
Up 3% from a year ago by our math and down $194 million since December, when ratings billing peaked. Receivables grew a little faster than sales this quarter, which is the normal pattern when monitoring fees are billed in arrears.
🔮 Guidance
Unchanged. Sales are up 8% after nine months. By our math the fourth quarter must grow about 4% to reach the bottom of the range. The middle of the range needs about 8%. The two segment outlooks at their middle points add up to about 3% for the quarter, so the total only works if both units land near their top ends.
Unchanged. Total expenses rose 2% this quarter and 5% over nine months, inside the range. The company lists incentive pay and growth spending as the pressures, offset by the two sold units and cost cuts.
Unchanged. The margin is 45.7% after nine months, so by our math the plan allows a fourth quarter near 41%, the same as last year's final quarter. Restructuring and the office move sit inside this figure.
Unchanged. Nine months stand at 53.7%, so by our math the plan allows a fourth-quarter margin near 49%, the same as last year's final quarter. The range has held all year while the result has run above it.
Unchanged. Net interest cost was $54 million this quarter and $178 million over nine months, so the plan leaves $42–62 million for the fourth quarter by our math, above last year's $33 million.
Unchanged. The figure is income only because it includes the $296 million of gains on the two unit sales. Nine months stand at $135 million, so by our math the plan has a fourth-quarter cost of $45–65 million, mostly interest.
Unchanged. The rate was 24.0% this quarter and 24.4% over nine months by our math. Heuland said in July she expected the year to finish toward the high end, which is the worse side for profit per share.
Unchanged. Nine months delivered $12.98, including $1.18 of gains on unit sales. By our math the plan leaves $3.02–3.52 for the fourth quarter, about 4% below last year's final quarter at the middle. No further sale gains are assumed.
Unchanged. Nine months delivered $13.14. By our math the plan leaves $3.36–3.86 for the fourth quarter, about 1% below last year's $3.64 at the middle. Profit growth would stop, after running at 6% this quarter and over 20% in the first half.
Unchanged. Nine months produced $2,471 million, up 21%. By our math the plan leaves $679–879 million for the fourth quarter, against $858 million last year, so the company expects cash generation to slow with ratings revenue.
Unchanged. Nine months produced $2,200 million, up 22%. By our math the plan leaves $500–700 million for the fourth quarter, about 23% below last year at the middle, because capital spending for the office moves roughly doubles in that quarter.
Unchanged. Moody's has bought back $2.55 billion so far, so the ceiling leaves $447 million for the fourth quarter by our math. That sits just inside the free cash flow the plan implies for the period, after a year of returns well above cash generated.
Unchanged. Analytics sales are up 5% after nine months and 3% this quarter, held back by the units Moody's sold. By our math the middle of the range needs about 5% growth in the fourth quarter, when the Learning Solutions sale drops out of the comparison.
Unchanged. Underlying analytics sales grew 8% in the quarter and 8% over nine months, so the year sits at the middle of the range with one quarter to go.
Unchanged. Contract value grew 7.9% by our math, down from 8.6% in June, and the company rounds it to 8%. Management has said analytics sales are weighted to the second half, so the year-end figure decides whether the range holds.
Unchanged. The analytics margin is 33.8% after nine months, so by our math the middle of the range needs about 36% in the fourth quarter, against 35.7% a year earlier. The final quarter is normally the arm's strongest.
Unchanged. Ratings revenue is up 10% after nine months despite this quarter's 1% fall. By our math the middle of the range needs a flat fourth quarter at about $949 million, which matches what Heuland said in July. The range allows anything from a 4% fall to 5% growth.
Unchanged. The ratings margin is 66.6% after nine months, so by our math a 65% full year implies a fourth quarter near 49%, well below last year's 58.5%. Either the plan is cautious or the company expects a sharp rise in year-end costs.
❓ Key Questions
Why did banking software contract value fall from June?
Banking ARR dropped $8 million in the quarter while every other line grew. The release does not say whether a customer left, a migration uplift lapsed or contracts were repriced.
What triggered the second Regulatory Solutions gain?
Moody's booked $115 million on a sale that closed last quarter. Investors need to know whether this is the contingent payment that was due in the second half and whether any amount remains.
How much ratings revenue comes from frequent-issuer pricing programmes?
Transaction fees fell faster than rated volume this quarter. The share of fees earned under discounted programmes would show whether the AI-related borrowing wave can lift revenue, not only volume.
What is private credit revenue in dollars?
The release mentions momentum in private markets without a figure. Counts of mandates cannot show whether this growth area is large enough to offset weak high-yield issuance.
How does the total sales plan fit the segment plans?
By our math the segment outlooks at their middle points give 7% full-year growth, but the total outlook says high single digits. Investors should ask which unit management expects to land near its top end.