NYSE Euronext Inc.’s (NYX) third-quarter 2012
operating earnings per share of 44 cents were 3 cents higher than
the Zacks Consensus Estimate of 41 cents but were significantly
lower than 71 cents recorded in the year-ago quarter. Consequently,
operating net income nosedived 41.9% year over year to $108 million
from $186 million in the year-ago quarter.
NYSE reported GAAP net income of $124 million or 44 cents per
share compared with $200 million or 76 cents per share in the
prior-year quarter. These primarily include the impact of pre-tax
merger expenses and exit costs of $18 million in the reported
quarter versus $29 million in the year-ago quarter.
These were partially offset by tax benefit of $30 million in the
reported quarter against $64 million in the year-ago quarter. The
reduction of tax rate in UK to 24% from 25% added 2 cents per share
to the earnings.
Top Line Loses Pace
Gross revenues plummeted 28.3% year over year to $902 million in
the reported quarter. Meanwhile, net revenues (defined as gross
revenues less direct transaction costs consisting of Section 31
fees, liquidity payments and routing and clearing fees) stood at
$559 million, sliding 20.6% from $704 million in the prior-year
quarter. It also fell short of the Zacks Consensus Estimate of $570
million.
The deteriorating performance was primarily due to the poor
transaction and clearing fees that plunged 36.9% year over year to
$570 million as well as market data revenue that declined 8.6% year
over year to $85 million. Together, these constitute about 73% of
the gross revenue.
While listing revenue remained almost unchanged at $112 million
from $113 million in the year-ago period, technology service
revenue deteriorated 12.0% to $81 million and other revenue slipped
3.6% year over year to $54 million.
Revenue from derivatives reduced 27.4% year over year to $164
million, whereas cash trading and listings’ revenue decreased 20.1%
year over year to $282 million. Moreover, revenue from information
service and technology solutions dipped 9.6% year over year to $113
million.
Overall, top-line results reflected drastic decline in volumes
across all global derivatives and cash trading venues. Alongside,
unfavorable currency fluctuations and lower average revenue per
contract added to the woes. The financial services technology sales
are also experiencing a challenging period.
Expenses in Control
However, fixed operating expenses dipped 6.7% year over year to
$388 million, although, operating margin deteriorated to 31% from
41% recorded in the year-ago quarter. In the reported quarter,
total headcount at NYSE was 3,061, marginally down from 3,077 as of
December 31, 2011 and 3,074 as of September 30, 2012. The effective
tax rate was 21% as compared with 24.2% in the year-ago
quarter.
Additionally, during the reported quarter, NYSE raised $27.0
billion in total global proceeds from 76 initial public offerings
(IPOs) on its European and US markets, more than any global
exchange group. This came in lower than the prior-year period and
prior quarter’s level.
Financial Update
As of September 30, 2012, NYSE’s total debt of $2.5 billion was
higher than $2.1 billion at 2011-end. At the end of the reported
quarter, cash and cash equivalents, investments and other
securities were $0.4 billion while net debt was $2.1 billion.
However, total capital expenditure lowered to $41 million from $49
million recorded in the year-ago quarter.
As a result of higher debt and capital expenditure, NYSE’s
debt-to-EBITDA ratio deteriorated to 2.4x from 1.6x recorded at the
end of 2011, which was the lowest level since the inception of this
organization in April 2007.
On October 5, 2012, NYSE raised $850 million from the sale of
notes that are slated to mature in October 2017 and bear an
interest of 2%. The net proceeds were utilized to pre-redeem $336
million of the outstanding $750 million 4.80% notes that were due
in June 2013, €80 million of the €1 billion 5.375% notes due in
June 2015, reduction in outstanding commercial paper and for other
business operations.
Management believes this debt-refinancing will help save an
annualized interest expense of $15 million in 2013 and $24 million
in 2014.
Stock Repurchase Update
During the reported quarter, NYSE bought back 4.7 million shares
at an average price of $25.46 per share for about $120 million,
thus buying back 15.9 million shares for $424 million in the first
nine months of 2012. Accordingly, the company had $128 million of
stock available for repurchases at the end of September 2012.
Management is also committed to complete this sanctioned $1.0
billion share repurchase program by the end of 2012.
Last year, NYSE had resumed its $1.0 billion share buyback plan,
which was sanctioned in March 2008. However, this plan was shelved
in the fourth quarter of 2008, within which the company had already
bought back shares worth $350 million. Additionally, NYSE bought
back worth $100 million of stock during the fourth quarter of 2011,
leaving $552 million in the current stock repurchase authorization
at 2011-end.
Growth Outlook
While management laid out a detailed long-term growth plan in
the first quarter of 2012, NYSE believes that its ongoing strategic
initiatives coupled with its cost reduction plan and lower share
count from stock repurchases should aid in achieving higher
earnings growth in 2013 and beyond. Effective tax rate is expected
to be 24% in 2012.
Dividend Update
Concurrently, the board of NYSE declared a regular quarterly
dividend of 30 cents per share, which is payable on December 28,
2012, to the shareholders of record as on December 14, 2012.
Furthermore, on September 28, 2012, NYSE had paid a quarterly
cash dividend of 30 cents to shareholders of record as on September
14, 2012.
Peer Take
Most of NYSE’s peers have reported their third quarter results
in the last fortnight. NASDAQ OMX Group Inc.
(NDAQ) reported its third quarter operating earnings per share of
62 cents, which surpassed the Zacks Consensus Estimate by a couple
of cents. However, it fell shy of the prior-year quarter’s
earnings, of 67 cents, by a nickel based on weak volumes across
businesses.
Further, 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.
It appears that the dominant players of the exchange industry
have been marred by weak volumes and sluggish clearing and
transaction services, which also faltered the top line for both the
peers of NYSE. Hence, the exchange industry performers are focusing
high on expense management in order to sustain earnings growth.
Currently, NYSE carries a Zacks Rank #4, implying a short-term
Sell rating although its long-term recommendation remains
Underperform.
CME GROUP INC (CME): Free Stock Analysis Report
NASDAQ OMX GRP (NDAQ): Free Stock Analysis Report
NYSE EURONEXT (NYX): Free Stock Analysis Report
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