Weak Volumes Melts ICE in 3Q - Analyst Blog
05 Novembre 2012 - 2:44PM
Zacks
IntercontinentalExchange Inc.’s (ICE)
third-quarter 2012 operating earnings of $1.79 per share modestly
exceeded the Zacks Consensus Estimate of $1.72 a share. However,
the results lagged the year-ago quarter’s earnings of $1.85 per
share.
Accordingly, net income attributable to shareholders dipped 4.2%
to $131.1 million compared with $136.9 in the year-ago quarter.
Including extraordinary items, reported net income in the year-ago
quarter was $132.6 million or $1.80 per share, while no such items
were recorded in the reported quarter.
The quarterly results of IntercontinentalExchange reflected
strong decline in transaction and clearing fee revenues driven by
weak performance from the over-the-counter (OTC) segment and credit
default swap (CDS) business. This not only marred the top line but
also limited margin expansion. However, some cushion was provided
by capital efficiency, strict expense control, lower tax rate and
growth in the company’s market data and other businesses.
Total revenue fell 5.2% year over year to $323.3 million and
also lagged the Zacks Consensus Estimate of $325 million. The
downside was mainly attributable to a 7.4% increase in consolidated
transaction and clearing fee revenues to
$279.2 million in the reported quarter, primarily driven by
significant declines in trading volumes in
IntercontinentalExchange's power and energy future markets along
with decreased credit default swap (CDS) clearing revenues.
However, consolidated market data
revenues improved 11.5% year over year to $35.9 million, while
consolidated other revenues escalated
14.2% to $8.1 million.
Additionally, average daily futures volume slid 4% year over
year to 1.5 million contracts and led to a meagre 1% growth in
transaction and clearing revenues in the futures segment. Also,
average daily commissions in IntercontinentalExchange's OTC energy
business reduced 9% year over year to 1.4 million in the quarter,
due to which the transaction and clearing revenues in the total
global OTC segment witnessed a 16% year-over-year decline. Revenue
from IntercontinentalExchange’s CDS business totaled $33 million,
plunging 28.3% from $46 million in the prior-year quarter.
However, total operating expenses slipped 5.6% year over year to
$129.1 million, primarily due to decrease in compensation and
benefit expenses coupled with lower depreciation and amortization
expenses, acquisition-related transaction costs and professional
service costs. These were partially offset by higher selling,
general and administrative expenses
Consequently, operating income fell 4.9% year over year to
$194.1 million, while operating margin stood flat at 60% from the
year-ago period. The effective tax rate was 27% against 30% in the
year-ago quarter.
Financial Update
At the end of the first nine months of 2012, consolidated
operating cash flow grew 6% year over year to $573 million. Capital
expenditures totaled $24 million, while capitalized software
development costs increased to $26 million, both at higher than the
first nine months of 2011.
As of September 30, 2012, the company recorded unrestricted cash
and investments of $1.2 billion (up from $823 million as of
December 31, 2011), while total outstanding debt slipped to $850
million from $888 million at 2011-end.
Meanwhile, IntercontinentalExchange expanded its share
repurchase authorization to $500 million during the reported
quarter. While $13 million worth of stock was bought back in
October 2012, $487 million remained available for repurchases at
the end of last month.
Guidance for 2012
Concurrently, management anticipates its expense for 2012 to be
up by 0–2% over 2011. Diluted weighted average outstanding shares
are projected to be within 73.0–74.0 million shares for the fourth
quarter of 2012. For full-year 2012, shares outstanding are
anticipated in the range of 72.9–73.9 million shares.
Previously, IntercontinentalExchange anticipated capital
expenditures and capitalized software expenses are projected to be
within $35–40 million, including $7–9 million related to real
estate costs, during the second half of 2012.
Peer Take
On October 25, CME Group Inc. (CME) reported
third-quarter 2012 operating earnings per share of 70 cents,
breezing past the Zacks Consensus Estimate by a penny but
significantly lagging behind the year-ago quarter’s earnings of 95
cents. Results reflected strong expense control and stable average
rate per contract that were more than offset by very feeble volumes
and reduced clearing and transaction services along with market
data revenue during the reported quarter. This also led to the
top-line plunge.
Furthermore, another prime peer, NYSE Euronext
Inc. (NYX) is slated to release its financial results
before the bell on November 6, 2012.
Currently, IntercontinentalExchange carries a Zacks Rank #4,
implying a short-term Sell rating and a long-term Neutral
recommendation.
CME GROUP INC (CME): Free Stock Analysis Report
INTERCONTINENTL (ICE): Free Stock Analysis Report
NYSE EURONEXT (NYX): Free Stock Analysis Report
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