Nasdaq's 1Q Earnings Beat Ests
Nasdaq OMX Group Inc.’s (NDAQ) first-quarter 2013 operating earnings per share of 64 cents modestly surpassed the Zacks Consensus Estimate as well as the prior-year quarter earnings of 61 cents.
Nasdaq’s GAAP net income was $42 million or 25 cents per share, quite lower than $85 million or 48 cents per share recorded in the year-ago quarter. Results in the reported quarter included net after-tax charge of $66 million or 39 cents per share, primarily related to voluntary accommodation program, asset impairments, special legal expenses, reserve for SEC issue along with merger and strategic initiatives, restructuring and other items partially offset by a tax refund.
Excluding these, net income was $108 million, on par with the year-ago quarter. Meanwhile, total operating income, on a non-GAAP basis, slipped 0.5% year over year to $181 million.
Total net exchange revenues edged up 1% year over year to $418 million, but lagged the Zacks Consensus Estimate of $426 million. On a constant currency basis and excluding acquisitions, revenue declined 2% year over year in the reported quarter. The marginal growth was primarily attributable to improved information and technology revenues.
However, revenue from market services and listings continue to witness weakness. Additionally, cash equities and derivatives continued to be feeble based on lower industry trading volumes, rate per contract and market share, although market data revenue witnessed improvement.
Segment wise, Market Services net exchange revenues for the quarter declined 4.2% from the year-ago period to $182 million, based on slashed revenues, partially offset by lower cost of revenues. Listing Services revenues for the reported quarter were $55 million, down 1.8% from the year-ago period, on the back of lower fees and weakness in the U.S. market.Revenue from Information Services increased 59% to $108 million, whereas Technology Solutions revenues stood at $73 million, rising 10.6% from the year-ago quarter.
During the reported quarter, Nasdaq’s order intakes plunged to $19 million from $55 million in the year-ago quarter. Conversely, total order value (the value of orders signed that have not been recognized as revenue) improved to $524 million from $496 million in the prior-year quarter. New listings totaled 37 against 46 in the year-ago quarter.
Meanwhile, on a non-GAAP basis, operating expenses stood at $237 million, up 2.2% from the year-ago period. On a GAAP basis, total operating expenses surged 35% to $328 million from $243 million in the year-ago period, primarily spurred by higher operating costs and expense related to voluntary accommodation program. Consequently, core operating margin dipped to 43% from 44% in the year-ago quarter, led by a faltered top line.
Financial Update
As of Mar 31, 2013, Nasdaq had cash and cash equivalents of $591 million, up from $497 million at the end of 2012. Debt obligations stood at $1.83 billion, down from $1.84 billion at 2012-end. Total assets increased to $9.19 billion from $9.13 billion at 2012-end, while total equity dipped marginally to $5.20 billion from $5.21 billion in 2012.
Capital Plan
On Oct 12, 2011, Nasdaq declared a new capital plan, according to which the board approved a new stock repurchase program worth $300 million through open market operations. Accordingly, the company bought back 0.3 million shares for $10 million during the reported quarter.
Including this, Nasdaq deployed $1.18 billion in share repurchases since Jan 2010, thereby buying back 53.7 million shares at an average price of $22.03.
Guidance
Management revealed core operating expense projection of $910–930 million. Additionally, the company expects approximately $50–60 million of incremental expenses from new initiative spending and $12 million from certain corporate solution expenses. Including these charges, total operating expenses are projected within $972–1,002 million.
However, the cost guidance excludes a restructuring expense related to the latest new cost reduction plan and expenses related to the acquisitions of eSpeed and the corporate arm of Thomson Reuters. Tax rate was previously anticipated in the band of 34–37%.
Dividend
Concurrently, the board declared a cash dividend of 13 cents per share, which is payable on Jun 28, 2013 to the shareholders of record as on Jun 14, 2013.
On Mar 28, 2013, Nasdaq paid a cash dividend of 13 cents per share to the shareholders of record as on Mar 14, 2013.
Others
Nasdaq carries a Zacks Rank #4 (Sell). Meanwhile, another player of the exchange industry – CBOE Holdings Inc. (CBOE), a Zacks Rank #2 (Buy) stock, is slated to release its earnings results before the market opens on May 3, 2013. Other strong performers in the financial sector include Moody’s Corp. (MCO) and Western Alliance Bancorp. (WAL), both of which carry Zacks Rank #1 (Strong Buy).
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