2010 Q4 Earnings: Morningstar Profits Rise on Acquisitions

Foreign currency also contributed to increases in revenue

Morningstar Inc. reported fourth-quarter and full-year earnings on Thursday, posting revenue of more than $151 million for the fourth quarter, representing a 23.2% increase over the fourth quarter of 2009. Consolidated operating income increased 33% to over $32 million, and net income was $27 million, or $0.54 per diluted share.

Results for the fourth quarter include $13.5 million in revenue from acquisitions. Foreign currency translations had a "slightly favorable" effect, according to Morningstar.

Revenue increased nearly 16% to $555 million for all of 2010, including nearly $48 million from acquisitions and $4.4 million from foreign currency translations. Consolidated operating income fell, however, dropping nearly 3% to $121 million. Net income was $86 million, or $1.70 per diluted share, up slightly from $82 million in 2009.

Morningstar noted that operating expense rose faster than revenue in 2010, which led to a 4.2 percentage point drop in operating margin.

In the investment information segment, revenue increased almost 29% in the fourth quarter to $120 million, including $12 million from acquisitions. Operating income increased slightly, rising from $31.2 million in the fourth quarter of 2009 to $31.6 million in the fourth quarter of 2010. Operating expense rose over 34% to nearly $23 million, primarily due to increased costs from acquisitions. Acquisitions did not have a significant impact on operating margin, which fell to 26% on higher compensation, bonus, commission, and benefits expenses.

Revenue for the information management segment grew 21% to nearly $31 million, including $1.4 million in acquisitions. Retirement advice, investment consulting and Morningstar managed portfolios were the primary growth drivers for this segment. Total assets under management increased nearly three-quarters for investment consulting to over $107 billion. For retirement advice, assets under management increased to nearly $20 billion, while managed portfolios were relatively stable, rising from $2.1 billion at the end of 2009 to $2.7 billion in 2010.

Operating income in the information management segment increased 15% to $15.7 million, while expenses increased to $15.1 million. As such, operating margin was 50.9%.

International operations garnered $44.5 million in revenue in the fourth quarter, up 24% from the same period a year ago. Revenue included $4 million from acquisitions.

Operating expenses rose $20.5 million, largely on incremental operating expenses related to the company's acquisitions in 2009 and 2010. The company paid over $102 million on acquisitions in 2010. Furthermore, 45% of growth in expenses was related to increases in salaries and staff. Bonuses and employee benefit costs also contributed to increased expenses.

Operating margin was 21.4% in the fourth quarter, up from 19.8% for the same period one year ago. For 2010, operating margin fell from 26% in 2009, to below 22%. The decline is due to "higher compensation, bonuses, sales commissions, and employee benefits as a percentage of revenue."

The effective tax rate for the fourth quarter fell 22 percentage points from the fourth quarter of 2009 to 17%. The lower tax rate reflects the reversal of nearly $4 million of expenses, and the "positive impact of certain income tax benefits."

Free cash flow for the fourth quarter topped $36 million, and was nearly $109 million for 2010. As of Dec. 31, 2010, the company had cash, cash equivalents, and investments of $365 million, up from $343 million at the end of 2009.

In 2011, Morningstar expects cash expenditures on leasehold improvements to be between $14 million and $17 million. In the first quarter of 2011, the company expects to make annual bonus payments of $38 million. Separation agreements with two former executives will cost the company over $4 million.

Read about Morningstar's third-quarter earnings.

Read AdvisorOne's 2010 Q4 earnings calendar for the financial sector for release dates and links to earnings stories.

Reprints Discuss this story
We welcome your thoughts. Please allow time for your contribution to be approved and posted. Thank you.

Most Recent Videos

Video Library ››