Morningstar Misses Estimates, Will Pay First Dividend

In the third quarter, the firm struck a credit-research deal affecting 18,000 advisors and launched an ETF center for TD Ameritrade

Morningstar, a Chicago-based provider of independent investment research, said late Wednesday that its Q3 net income was $20.8 million, or 41 cents a share, in the third quarter, down from $22.5 million, or 45 cents a share, in the third quarter of 2009.

Analysts had expected earnings of 47 cents a share.

Despite the decline in earnings, the company said it would pay its first dividend of 5 cents a share.

The company’s consolidated revenue was $139.8 million in the third quarter of 2010, a 16.4% increase from $120.1 million in the third quarter of 2009. Excluding acquisitions and the impact of foreign currency translations, revenue increased 6.6%.

In the first nine months of 2010, revenue was $404.2 million, an increase of 13% compared with $356.4 million in the same period in 2009. Excluding acquisitions and foreign currency translations, revenue rose 2.6%.

“Organic revenue growth continued to improve in the quarter, with positive trends across most product lines. Licensed Data, Morningstar Direct, and advertising sales on Morningstar.com were the main contributors to organic revenue growth,” said Chairman and CEO Joe Mansueto in a press release. “Our investment-management business also had a good quarter, resulting from strong market performance as well as new business wins.”

Consolidated operating income declined 12.1% to $88.8 million in the first nine months of 2010, compared with $101.0 million in the first nine months of 2009. Net income was $59.0 million, or $1.16 per share, in the first nine months of 2010, compared with $68.0 million, or $1.37 per share, in the same period in 2009.

 “We’ve had a positive market response to several of our recent initiatives. For example, building our thought leadership in ETF research is a key area of focus for us, and we’ve already been able to monetize our expertise in this growing area,” Mansueto said.

During the quarter, TD Ameritrade launched a new ETF Market Center that includes a list of ETFs evaluated and selected by an investment consulting team at Morningstar Associates. In addition, Morningstar entered into its first credit research agreement with a major financial services firm to provide credit ratings and research to 18,000 financial advisors.

Segment Results                     

In the third quarter of 2010, revenue in the investment-information segment was $112.1 million, an increase of $16.6 million, or 17.4%, including $10.7 million from acquisitions.

Revenue in the investment management segment was $27.8 million, an increase of $3.1 million, including $1.3 million from acquisitions.

Revenue from international operations was $39.9 million in the third quarter of 2010, an increase of 15.5% from the same period a year ago; it included $3.5 million from acquisitions.

The company completed six acquisitions in 2009 and six in the first nine months of 2010. Because of the timing of these acquisitions, the third-quarter and year-to-date results include operating expense that did not exist in the comparable periods in 2009, Morningstar explained in its third-quarter press release.

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