Like rival Standard & Poor's, owned by McGraw-Hill Cos , Moody's Investors Service has been criticized for failing to spot problems that led to the global financial crisis, and the ratings agencies are facing increased regulation.
The profit forecast and the warning on expenses overshadowed the company's higher-than-expected fourth-quarter earnings.
Moody's said it expects full-year earnings of $1.75 to $1.85 per share, up from $1.69 in 2009 but below analysts' average forecast of $1.87. It said expenses, including those related to complying with regulatory changes, will rise in the high-single digits.
I think there was some hope they'd be a little more aggressive on their 2010 forecast, said Edward Atorino, analyst at Benchmark Co, but he said Moody's executives tend to be conservative in their projections.
Moody's said revenue from rating corporate debt almost doubled in the fourth quarter from a year earlier. Revenue from rating structured debt, which slumped amid the financial crisis, was down just 13.5 percent.
Fourth-quarter profit increased to $101.9 million from $88.7 million a year earlier. Profit per share climbed to 43 cents from 38 cents.
Analysts on average expected 41 cents a share, according to Thomson Reuters I/B/E/S. Excluding restructuring adjustments, Moody's reported a profit of 42 cents a share.
Moody's shares were down $1.28, or 4.56 percent, at $26.82 in morning trading on the New York Stock Exchange.
Warren Buffett's Berkshire Hathaway Inc is the largest shareholder in Moody's, although in December Buffett reduced his holding to about 15 percent.
Standard & Poor's last week also reported higher-than-expected fourth-quarter earnings as corporate debt issuance fueled its ratings business.
But like Moody's, S&P said compliance costs are rising and increased by about $20 million in 2009, largely as a result of increased regulation.
Stepping up regulation of the ratings agencies is a feature of various reform proposals being worked on by Washington lawmakers. It is not yet clear exactly how the agencies will have to change their business.
Proposals currently on the table have steered clear of sweeping changes, such as altering the so-called issuer pays model.
Most of the agencies' revenue comes from the issuers of bonds and other debt that the agencies evaluate and rate. Critics say ratings may be colored by the agencies' need to win and keep business.
(Reporting by Elinor Comlay, editing by John Wallace)