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Interactive Brokers Group, Inc. (IBKR - Free Report) reported second-quarter adjusted earnings per share of 40 cents, beating the Zacks Consensus Estimate by 14.3%. Earnings were also 8.1% higher than the prior-year quarter figure.
However, shares of the company lost nearly 3% in the after-market trading. Decline in revenue, increased expenses and dismal performance of the Market Making segment are perhaps the reasons for the decline.
The bottom-line beat was primarily driven by significant growth in net interest income, increased daily average revenue trades (“DARTs”) and an improved performance at the Electronic Brokerage segment.
The results included a loss of $2 million due to the company’s currency diversification strategy. The strengthening of the U.S. dollar against all other major currencies was primarily responsible for this loss.
On a GAAP basis, net income available to common shareholders amounted to $24.0 million or 36 cents per share, compared to $27.0 million or 44 cents per share in the prior-year quarter.
Interest Income Growth Fails to Offset Higher Expenses
Total net revenue declined 5% year over year to $369 million. The top line declined primarily because of a drop in trading gains, partially offset by a 17% surge in interest income. Further, the figure lagged the Zacks Consensus Estimate of $384 million.
Total non-interest expenses were up 6.1% from the year-ago quarter to $156 million due to a rise in all components, except execution and clearing, and employee compensation and benefits.
Income before income taxes came in at $213 million in the quarter, compared with $240 million a year ago. Similarly, pre-tax profit margin was 58%, compared with 62% in second-quarter 2015.
Capital Position Strengthens
As of Jun 30, 2016, cash and cash equivalents (including cash and securities set aside for regulatory purposes) totaled $26.8 billion, compared with $25.3 billion as of Mar 31, 2016. As of Jun 30, 2016, total assets amounted to $51.8 billion, compared to $50.2 billion as of Mar 31, 2016 while total equity was $5.7 billion, flat sequentially.
Segment Performance
Electronic Brokerage: Net revenue climbed 8% year over year to $310 million on the back of higher net interest income and mark-to-market gains. Pre-tax income was also up 2% to $191 million.
Total DARTs for cleared and execution-only customers grew 5% to 648,000. Pre-tax profit margin shrunk to 62% from 65% in the prior-year quarter.
Market Making: Net revenue plunged 67% year over year to $43 million. Pre-tax income was also down 83% to $5 million, resulting in a 12% contraction in the pre-tax margin, from the year-ago level of 42%.
Moreover, the Corporate segment reported pre-tax income of $17 million as compared with $22 million in the prior-year quarter. Net revenue amounted to $16 million, compared to $27 million in the year-ago quarter.
Dividend Announcement
Interactive Brokers has declared a quarterly cash dividend of 10 cents per share. The dividend will be paid on Sep 14, 2016 to shareholders of record as of Sep 1.
Our Take
The company is poised to capitalize on available opportunities backed by its market-leading position, focus on technological advancement and optimization of resource allocation across global electronic networks. Also, a strong liquidity and capital position will continue to support its expansion initiatives.
However, stiff competition and increasing volatility may continue to hamper the company’s near-term profitability.
Currently, Interactive Brokers carries a Zacks Rank #4 (Sell).
Among other investment brokers, both E*TRADE Financial Corp. and KCG Holdings, Inc. are slated to report quarterly results on Jul 21, while LPL Financial Holdings Inc. (LPLA - Free Report) is scheduled to release earnings on Jul 28.
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Interactive Brokers (IBKR) Tops Q2 Earnings, Stock Slides
Interactive Brokers Group, Inc. (IBKR - Free Report) reported second-quarter adjusted earnings per share of 40 cents, beating the Zacks Consensus Estimate by 14.3%. Earnings were also 8.1% higher than the prior-year quarter figure.
However, shares of the company lost nearly 3% in the after-market trading. Decline in revenue, increased expenses and dismal performance of the Market Making segment are perhaps the reasons for the decline.
The bottom-line beat was primarily driven by significant growth in net interest income, increased daily average revenue trades (“DARTs”) and an improved performance at the Electronic Brokerage segment.
The results included a loss of $2 million due to the company’s currency diversification strategy. The strengthening of the U.S. dollar against all other major currencies was primarily responsible for this loss.
On a GAAP basis, net income available to common shareholders amounted to $24.0 million or 36 cents per share, compared to $27.0 million or 44 cents per share in the prior-year quarter.
Interest Income Growth Fails to Offset Higher Expenses
Total net revenue declined 5% year over year to $369 million. The top line declined primarily because of a drop in trading gains, partially offset by a 17% surge in interest income. Further, the figure lagged the Zacks Consensus Estimate of $384 million.
Total non-interest expenses were up 6.1% from the year-ago quarter to $156 million due to a rise in all components, except execution and clearing, and employee compensation and benefits.
Income before income taxes came in at $213 million in the quarter, compared with $240 million a year ago. Similarly, pre-tax profit margin was 58%, compared with 62% in second-quarter 2015.
Capital Position Strengthens
As of Jun 30, 2016, cash and cash equivalents (including cash and securities set aside for regulatory purposes) totaled $26.8 billion, compared with $25.3 billion as of Mar 31, 2016. As of Jun 30, 2016, total assets amounted to $51.8 billion, compared to $50.2 billion as of Mar 31, 2016 while total equity was $5.7 billion, flat sequentially.
Segment Performance
Electronic Brokerage: Net revenue climbed 8% year over year to $310 million on the back of higher net interest income and mark-to-market gains. Pre-tax income was also up 2% to $191 million.
Total DARTs for cleared and execution-only customers grew 5% to 648,000. Pre-tax profit margin shrunk to 62% from 65% in the prior-year quarter.
Market Making: Net revenue plunged 67% year over year to $43 million. Pre-tax income was also down 83% to $5 million, resulting in a 12% contraction in the pre-tax margin, from the year-ago level of 42%.
Moreover, the Corporate segment reported pre-tax income of $17 million as compared with $22 million in the prior-year quarter. Net revenue amounted to $16 million, compared to $27 million in the year-ago quarter.
Dividend Announcement
Interactive Brokers has declared a quarterly cash dividend of 10 cents per share. The dividend will be paid on Sep 14, 2016 to shareholders of record as of Sep 1.
Our Take
The company is poised to capitalize on available opportunities backed by its market-leading position, focus on technological advancement and optimization of resource allocation across global electronic networks. Also, a strong liquidity and capital position will continue to support its expansion initiatives.
However, stiff competition and increasing volatility may continue to hamper the company’s near-term profitability.
INTERACTIVE BRK Price, Consensus and EPS Surprise
INTERACTIVE BRK Price, Consensus and EPS Surprise | INTERACTIVE BRK Quote
Currently, Interactive Brokers carries a Zacks Rank #4 (Sell).
Among other investment brokers, both E*TRADE Financial Corp. and KCG Holdings, Inc. are slated to report quarterly results on Jul 21, while LPL Financial Holdings Inc. (LPLA - Free Report) is scheduled to release earnings on Jul 28.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>