Moody's Q3 2026 Earnings: The $4.24 Quarter Built on a $115M Divestiture Gain

On October 21, 2026, Moody's Corporation reported third-quarter revenue of $2,023 million, up just 1% — and diluted EPS of $4.24, up 18%. The 17-point gap between those two growth rates is the entire story of this quarter: a $115 million gain on the sale of the MA Regulatory Solutions business did more for the bottom line than the ratings and analytics franchises combined. Strip it out and the quarter reads very differently. This is the company at its most Moody's — a toll booth on global debt issuance printing 44.8% operating margins, while management quietly prunes the portfolio underneath it.

The Headline Numbers​

Every figure below comes from the Form 10-Q and the earnings release. The quarter ended September 30, 2026:

Read the rows in order and the quarter decomposes cleanly. Revenue barely moved. Operating income actually fell $11 million as expenses grew 2% against 1% revenue growth. Then below the operating line, the $115 million divestiture gain flipped non-operating results from a $50 million expense last year to $62 million of income — a $112 million swing that accounts for essentially all of the $101 million pre-tax income growth. Add $2.6 billion of year-to-date buybacks shrinking the share count 3.5%, and 1% revenue growth becomes 18% EPS growth. The machinery works. Whether you admire it depends on how you feel about gains on asset sales funding per-share growth.

Revenue Deep Dive: Two Businesses, Opposite Quarters​

Moody's is two companies stapled together: Moody's Investors Service (MIS), the ratings agency that taxes every bond sold, and Moody's Analytics (MA), the subscription software and data business. They had opposite quarters.

MA's headline 3% understates the health of the franchise. Organic constant-currency growth was 8%, recurring revenue was 99% of the segment, and ARR grew 8% to $3.7 billion, "led by Decision Solutions, which increased 10% year-over-year," per the release. The drag is deliberate portfolio surgery: "Transaction revenue declined 76% year-over-year, primarily reflecting the Learning Solutions divestiture and a continued shift toward recurring revenue." Banking revenue inside Decision Solutions tells the same story in miniature — down 16% as reported, up 19% organically — because the divested Regulatory Solutions unit used to sit there. When a segment's worst-looking line is up 19% on a like-for-like basis, the divestiture program is flattering the future at the expense of the present. That is the good kind of distortion.

MIS, meanwhile, "delivered $1.1 billion in revenue, down 1% year-over-year against a record prior-year comparison, primarily reflecting lower Leveraged Finance issuance." The mix underneath is a credit-market weather report: investment-grade revenue up 18% on "strong large corporate financing activity, particularly in the technology sector, including issuance associated with AI-related financing and hyperscaler investments," while high-yield collapsed 40% and leveraged loans fell 27%. One half of the leveraged-finance market is booming because AI data centers need funding; the other half is dormant. Structured finance (+5%), financial institutions (+2%) and public, project and infrastructure finance (+11%, "driven by U.S. Public Finance, Sovereign and data center-related financing") all grew. Data centers appear twice in the release's growth drivers. The AI buildout is now a ratings-revenue line item.

The Margin Story: 44.8% and the Cost of Growth​

The 90 basis points of operating margin compression is mechanical: "Operating expenses increased 2% versus the prior-year period, as investments to support growth and higher incentive compensation were partially offset by recent business divestitures and continued cost discipline." Expenses growing at twice the rate of revenue will always cost margin at a fixed-cost business — and that is what a ratings agency is. The segment margins show where the leverage cuts both ways: MA expanded 100bps to 35.3% on "strong revenue growth," while MIS slipped 80bps to 64.4% because transaction revenue fell and the cost base did not. Sixty-four percent is still the highest margin in the S&P 500's financial sector. There is no pricing discussion in the release at all — no "pricing momentum," no realized price increases — which for a business with this much pricing power reads as a dog that did not bark. Either prices are fine and unremarkable, or management would rather you look at the issuance volumes.

Net margin jumped more than 400bps, but that is the divestiture gain wearing a margin costume. Ignore it; the operating lines are the business.

The One Big Question: How Much of the 18% Is Real?​

GAAP diluted EPS grew 18%. Adjusted diluted EPS grew 6%. The 12-point gap is the question every Moody's investor has to answer, and the release's own reconciliation hands you the pieces:

The bridge is honest. Management excludes the $115 million pre-tax gain ($81 million after tax) from its own preferred metric, and adjusted EPS of $4.14 still grew a respectable 6% on 1% revenue growth — the buyback doing its quiet work. The add-backs are the familiar Moody's litany: amortization of acquired intangibles (a real cost of the acquisition strategy, excluded anyway), restructuring charges (the third straight year of them — $59M in FY2024, $108M in FY2025, $86M through nine months of 2026 — which strains the "not reflective of ongoing cost structure" framing), and $7 million of duplicate rent during the move to the new New York headquarters.

So: 6% is the operating number, and it is fine. The other 12 points are a one-time gain plus fewer shares. Nothing is hidden — the release discloses all of it — but anyone annualizing $4.24 is annualizing an asset sale. Full-year guidance, reaffirmed across every line, implies the same: diluted EPS of $16.00–$16.50 against adjusted $16.50–$17.00, with the nine-month GAAP figure of $12.98 already carrying $207 million of after-tax divestiture gains. Q4 has to be clean for the year to land clean.

Tracking a $100B Company in Plain Text​

A ratings agency is the purest test of double-entry bookkeeping as an analytical tool: there is no inventory, no cost of goods, almost no capex — just revenue in, compensation out, and the difference swept into buybacks. Modeling it in Beancount forces every one of those flows to reconcile. Read how we model every company for the conventions; here is Moody's Q3 exactly as filed, in millions:

; FY2026Q3 Income Statement — quarter ended September 30, 2026
; Check: −2023 + 524 + 442 + 124 + 27 − 115 + 53 + 232 + 2 + 734 = 0 ✓
 
2026-09-30 * "Moody's Corporation" "FY2026Q3 Income Statement"
  Income:Revenue                             -2023 MUSD  ; revenue (MA 936 + MIS 1,087)
  Expenses:CostOfRevenue                       524 MUSD  ; operating
  Expenses:SellingGeneralAdministrative        442 MUSD  ; selling, general and administrative
  Expenses:DepreciationAndAmortization         124 MUSD  ; depreciation and amortization
  Expenses:Restructuring                        27 MUSD  ; restructuring (total expenses 1,117; operating income 906; margin 44.8%)
  Income:OtherNet                             -115 MUSD  ; gain on business divestitures: MA Regulatory Solutions (divested Q2 2026, Note 11)
  Income:OtherNet                               53 MUSD  ; interest expense, net (54) + other non-operating income, net 1 (total non-operating income, net 62)
  Expenses:IncomeTax                           232 MUSD  ; provision for income taxes (income before provision 968)
  Expenses:OtherNet                              2 MUSD  ; net income attributable to noncontrolling interests, deducted as the filing does
  Equity:Adjustments                           734 MUSD  ; net income attributable to Moody's offset (RE set by balance assertion)

Income posts negative (credit), expenses positive (debit), and the transaction sums to zero. The balance-sheet number that tells the Moody's story is treasury stock: $17,593 million at cost, up from $14,978 million nine months earlier — the accumulated receipt for a decade of converting ratings profits into fewer shares. Cash fell $871 million this year while the company returned $3.1 billion to shareholders, because that is the entire capital allocation strategy: there is nothing else to spend it on.

The Multi-Year Arc: Compounding Through the Cycle​

This ledger opens at FY2024 with two audited annuals and the latest quarter — the full span:

Three things compound here. First, issuance: MIS revenue grew 9% in FY2025 and is running 10% ahead year-to-date, because refinancing walls and AI capex keep the bond printer fed. Second, mix: MA's recurring base (99% of segment revenue, $3.7 billion of ARR) grows through the quarters when issuance pauses, which is exactly what happened in Q3. Third, the share count: diluted shares fell from 182.7 million in FY2024 to 173.3 million this quarter, so every dollar of net income buys 5% more EPS than it did two years ago. Operating margin has expanded 280bps in a year while free cash flow — $2.2 billion in nine months, up 22% — funds the whole loop. This is the flywheel working as designed.

The Verdict: Bull vs. Bear​

Bull Case

• MIS leverage to the AI capex cycle is just starting: investment-grade issuance up 18% with hyperscaler and data-center financing named as drivers, and a refinancing wall behind it.
• MA is a $3.7 billion ARR compounder growing 8–10% organically with 99% recurring revenue and expanding margins (35.3%, +100bps) — a software business stapled to a ratings monopoly.
• Capital return is relentless and credible: $3.1 billion year-to-date against full-year buyback guidance of up to $3.0 billion, plus a $1.03 quarterly dividend — all funded by $2.2 billion of free cash flow, not leverage.
• Guidance reaffirmed across all 18 lines with Q4 carrying no divestiture noise, implying high-single-digit full-year revenue growth and $16.00–$16.50 GAAP EPS.
• The portfolio is getting cleaner, not thinner: two low-growth divestitures (Learning, Regulatory Solutions) exited at gains, leaving higher-margin recurring revenue behind.

Bear Case

• The quarter's earnings quality is poor: operating income fell while the $115 million divestiture gain — 12% of pre-tax income — plus buybacks manufactured all of the EPS growth.
• Leveraged finance, the highest-margin ratings revenue, is frozen: high-yield down 40%, leveraged loans down 27%. If IG follows, MIS has no offset.
• "Restructuring" has recurred three years running ($59M → $108M → $86M in nine months) alongside asset-abandonment charges and duplicate HQ rent — the adjusted metrics exclude a permanent construction zone.
• The balance sheet is being strip-mined for buybacks: cash down to $1.5 billion, treasury stock at $17.6 billion against $3.3 billion of Moody's equity, with $568 million of debt coming current.
• At 99% recurring revenue, MA has no transaction upside left to surprise with — and reported growth of 3% is what the multiple pays for, not the 8% organic figure.

Our Take: Buy the franchise, discount the quarter. Moody's earned its multiple the boring way — 44.8% operating margins, 8% ARR growth, $2.2 billion of free cash flow — and the divestiture gains are disclosed, excluded from guidance metrics, and genuinely non-recurring. But $4.24 is not the run rate; $4.14 is, and even that leans on buybacks. The real signal this quarter is in the issuance mix: AI infrastructure financing flowing through investment-grade ratings while leveraged finance sleeps. As long as the data centers keep borrowing, the toll booth keeps compounding.