Morningstar Reports Disappointing 4th Qtr and 2013 Full-Year Results

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Last week Morningstar Inc., a Chicago-based provider of independent investment research, announced disappointing single digit revenue and earnings gains in reporting both 4th Quarter and full-year 2013 financial results.  A few days later, Morningstar announced a quarterly dividend of 0.17 per share.

4th Qtr 2013 Results

For the 4th Qtr of 2013, Morningstar reported consolidated revenue of $180.5 million — a modest 5.8% increase from $170.6 million revenue total recorded in the fourth quarter of 2012.  Wall Street analysts expected $184.30 million in revenue for the quarter.  Excluding acquisitions, divestitures, and foreign currency translations, Morningstar reported a revenue gain of 5.5% in the fourth quarter of 2013.

The firm reported $41.9 million in consolidated operating income for the fourth quarter, an increase of 6.7% compared with $39.3 million in the same period a year earlier.  Net income from continuing operations was $31.3 million, or $0.68 cents per share in the fourth quarter of 2013, compared with $27.8 million, or $0.58 cents per share, in the same quarter of 2012.  This missed Wall Street’s consensus EPS estimate for the quarter of $0.77 per share.

2013 Full-Year Results

For the full-year year ended Dec. 31, 2013, Morningstar reported revenue of $698.3 million, an increase of 6.1% compared with $658.3 million recorded in 2012. The firm also announced that operating income totaled $170.7 million in 2013, an increase of 13.3% compared to $150.7 million posted in 2012.

Net income from continuing operations was $123.5 million, or $2.66 per share, in 2013, compared with $102.9 million, or $2.10 per share, in 2012.  This was slightly better than Wall Street analysts’ consensus estimates of $2.62 for 2013 as a whole.

Joe Mansueto, chairman and chief executive officer of Morningstar, explained the most recent financial report, saying, “Despite a few headwinds, we had decent growth for the year, driven by strong results for Morningstar Direct, Morningstar Data, Morningstar Managed Portfolios, and Retirement Solutions. We had higher operating expense in the fourth quarter because of a step up in hiring as well as additional legal and professional fees. Overall, though, we’re pleased with organic revenue growth for the year and our prospects as we continue to focus on widening Morningstar’s economic moat.”

For more details on Morningstar’s most recent financial earnings report, click the following link http://corporate.morningstar.com/us/asp/subject.aspx?xmlfile=174.xml&filter=PR5063

Dividend Announcement

A few days later, Morningstar declared a quarterly dividend of 17 cents per share, payable on April 30, 2014 to shareholders of record as of April 11, 2014.  This represents a $0.68 annualized dividend and a dividend yield of 0.84%.

This dividend is in line with the quarterly dividend Morningstar management paid out in the prior quarter, and is 36% higher than the 12.5 cents per share dividend paid out in the same quarter last year.

Integrity’s Take

While Wall Street expected better 4th Quarter results from Morningstar, we are more encouraged by the research firm’s performance. Clearly, Morningstar was able to maintain decent sales growth in the latter half of 2013, despite the fact that many Wall Street customers remained cautious for much of the year.  In our mind, the biggest issue for Morningstar is will it be able to keep its expenses in line with its revenue growth going forward, particularly as the firm continues to invest in a variety of longer-term projects.

 

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