NYX Nyse Euronext

NASDAQ OMX Group Inc.’s (NDAQ) first-quarter 2012 operating earnings per share of 61 cents fell shy of the Zacks Consensus Estimate of 63 cents, but were in line with the prior-year quarter’s earnings.

NASDAQ’s GAAP net income came in at $85 million or 48 cents per share, lagging behind $104 million or 57 cents per share recorded in the year-ago quarter. Results in the reported quarter included net charge of $23 million or 13 cents per share, primarily related to debt extinguishment, asset impairment, restructuring and other items along with merger and strategic initiatives.

Excluding these, net income was $108 million compared with $110 million in the year-ago quarter. Total operating income on non-GAAP basis declined 5.2% year over year to $182 million.

Total net exchange revenues edged down 0.5% year over year to $411 million, also lagging behind the Zacks Consensus Estimate of $421 million. The downside was primarily attributable to reduced revenue from market services, weak volumes and continued sluggishness in cash equity and derivative trading. These were partially supported by modest growth in market data, issuer services and market technology revenues.

Segment wise, Market Services net exchange revenues for the quarter edged down 1.8% from the year-ago period to $276 million, based on poor transaction services. Issuer Services revenues for the reported quarter were $90 million, inching up 1.1% from the year-ago period on the back of flattish-to-slight uptick from global index group and corporate solutions, partially offset by lower global listing services revenue. Market Technology revenues climbed 4.7% year over year to $45 million.

During the reported quarter, NASDAQ’s order intakes sharply soared to $55 million from $6 million in the year-ago quarter. Consequently, total order value (the value of orders signed that have not been recognized as revenue) strengthened to $496 million from $471 million in the prior-year quarter.

Meanwhile, on non-GAAP basis, operating expenses increased 3.6% from the prior-year period to $229 million, primarily spurred by higher marketing and advertising expenses, and incremental spending for professional and contract services. Consequently, operating margin slipped to 44% from 46% in the year-ago quarter. On a GAAP basis, total operating expenses climbed 4.2% year over year to $230 million.

Financial Update

As of March 31, 2012, NASDAQ had cash and cash equivalents of $525 million, substantially up from $506 million at the end of 2011. Debt obligations stood at $2.07 billion, at par with 2011-end levels. While total assets decreased to $9.02 billion from $14.09 billion at 2011-end, total equity increased to $5.16 billion from $4.99 billion at the end of 2011.

Capital Plan

On October 12, 2011, the board of NASDAQ approved a new stock repurchase program worth $300 million through open market operations. NASDAQ bought back 1.9 million shares for $50 million during the reported quarter. Including this, the company has deployed $950 million in share repurchases since January 2009, buying back 43.7 million shares at an average price of $21.66.

Moreover, according to new regulations proposed by the European Market Infrastructure Regulation (EMIR), recently NASDAQ’s Nordic Clearing executed a member default fund, whereby the clearing members are required to contribute to the total regulatory capital.

As of March 31, 2012, total member contributions stood at $163 million, of which $145 million were cash contributions. Subsequently, NASDAQ released $83 million in clearing capital, with an additional estimated $30 million to be released in the second quarter of 2012.

Guidance

For 2012, NASDAQ management further lowered its operating expense outlook to the range of $880–900 million from the prior projection of $915–935 million. This excludes approximately $40–50 million of incremental expenses from new initiative spending. However, including these charges, total operating expenses are projected to be within $920–950 million.

Additionally, NASDAQ’s 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 of $30 million related to this plan.

Dividend

Concurrently, the board of NASDAQ initiated a cash dividend of 13 cents per share, which is to be paid on June 29, 2012 to the shareholders of record as on June 15, 2012. This marks the first dividend payment in the company’s history.

Others

During the reported quarter, NASDAQ processed 21 initial public offerings (IPOs), while new listings totaled 43 against 34 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 April 30, 2012.

 
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