NASDAQ Beats Zacks Est, Slips YoY

Zacks

NASDAQ OMX Group Inc.’s (NDAQ) third-quarter 2012 operating earnings per share of 62 cents surpassed the Zacks Consensus Estimate by a couple of cents. However, it fell shy of the prior-year quarter’s earnings of 67 cents.

NASDAQ’s GAAP net income came in at $89 million or 52 cents per share, lower than $110 million or 61 cents per share recorded in the year-ago quarter. Results in the reported quarter included net after-tax charge of $14 million or 10 cents per share, primarily related to losses on sale of business, restructuring and other items along with merger and strategic initiatives.

Excluding these, net income was $105 million compared with $121 million in the year-ago quarter. Meanwhile, total operating income, on non-GAAP basis, slipped 11.3% year over year to $181 million.

Total net exchange revenues declined 6.2% year over year to $424 million, but exceeded the Zacks Consensus Estimate of $410 million. The year-over-year downside was primarily attributable to significantly weak revenue from market services, while growth in issuer services and market technology revenues remained sluggish. Additionally, cash equities and derivative continued to be feeble based on lower industry trading volumes and unfavorable impact from foreign exchange.

Segment wise, Market Services net exchange revenues for the quarter dropped 10.3% from the year-ago period to $269 million, based on slashed revenues, partially offset by lower cost of revenues. Issuer Services revenues for the reported quarter were $93 million, climbing 3.3% from the year-ago period on the back of slightly higher revenue from global index group, global listing services and corporate solutions. Market technology revenues inched up to $47 million from $46 million in the year-ago quarter.

During the reported quarter, NASDAQ’s order intakes dipped to $31 million from $35 million in the year-ago quarter. However, total order value (the value of orders signed that have not been recognized as revenue) strengthened to $523 million from $473 million in the prior-year quarter.

Meanwhile, on a non-GAAP basis, operating expenses marginally reduced to $228 million from $232 million in the year-ago period, primarily spurred by lower general and administrative as well as depreciation and amortization expenses along with lower compensation benefits.

These partially offset by incremental spending for professional and contract services. On a GAAP basis, total operating expenses dipped to $239 million from $241 million in the year-ago period. Operating margin fell to 44% from 47% in the year-ago quarter, led by a weak top line.

Financial Update

As of September 30, 2012, NASDAQ had cash and cash equivalents of $438 million, down from $506 million at the end of 2011. Debt obligations stood at $1.94 billion, down from $2.07 billion at 2011-end. Total assets decreased to $8.92 billion from $14.09 billion at 2011-end, while total equity climbed to $5.14 billion from $4.99 billion during the same comparable period.

Capital Plan

On October 12, 2011, NASDAQ declared a new capital plan, according to which the board of NASDAQ approved a new stock repurchase program worth $300 million through open market operations. Accordingly, NASDAQ bought back 2.2 million shares for $50 million during the reported quarter.

Including this, the company has deployed $1.12 billion in share repurchases since January 2009, thereby buying back 51.3 million shares at an average price of $21.90. In the first nine months of 2012, the company has returned $225 million to its shareholders, through buybacks and $43 million through dividend payouts.

Guidance

For 2012, NASDAQ management further lowered the operating expense outlook to the range of $865–873 million from the prior projection of $870–890 million. This excludes approximately $32–36 million of incremental expenses from new initiative spending, and about $25–26 million related to BWise and NOS acquisitions. However, including these charges, total operating expenses are projected to be within $922–935 million, down from prior estimate of $935–965 million.

NASDAQ reiterated that the new cost reduction plan aims to generate cost savings at an annualized run rate of $50 million by the end of 2012, with $25 million to be realized in 2012. This is reflected in the company’s revised expense outlook, although it excludes a restructuring expense related to this plan and voluntary accommodation program.

Dividend

Concurrently, the board of NASDAQ declared a cash dividend of 13 cents per share, which will be paid on December 28, 2012 to the shareholders of record as on December 14, 2012.

On September 28, 2012, NASDAQ paid a cash dividend of 13 cents per share to the shareholders of record as on September 18, 2012. The cash dividend was initiated on April 25, 2012, marking the first dividend payment in the company’s history.

Others

During the reported quarter, NASDAQ processed 18 initial public offerings (IPOs), at par with the year-ago period, while new listings totaled 44 against 38 in the year-ago quarter.  

Meanwhile, NASDAQ’s arch-rival NYSE Euronext Inc. (NYX) is slated to release its earnings results before the market opens on November 6, 2012.

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