NASDAQ Beats, Volumes Fumble

NASDAQ OMX Group Inc.’s (NDAQ - Analyst Report) second-quarter 2012 operating earnings per share of 64 cents surpassed the Zacks Consensus Estimate of 60 cents and the prior-year quarter’s earnings of 62 cents a share.

NASDAQ’s GAAP net income came in at $93 million or 53 cents per share, slightly ahead of $92 million or 51 cents per share recorded in the year-ago quarter. Results in the reported quarter included net charge of $18 million or 11 cents per share, primarily related to asset impairment, restructuring and other items, along with merger and strategic initiatives.

Excluding these, net income was $111 million compared with $112 million in the year-ago quarter. Meanwhile, total operating income, on non-GAAP basis, slipped 1.6% year over year to $184 million.

Total net exchange revenues edged up 2.2% year over year to $424 million, and also surpassed the Zacks Consensus Estimate of $416 million. The upside was primarily attributable to improved revenue from market services, although issuer services and market technology revenues remained sluggish.

Additionally, cash equities and derivative continued to be feeble based on lower industry trading volumes and unfavorable impact from foreign exchange.

Segment wise, Market Services net exchange revenues for the quarter climbed 4.3% from the year-ago period to $289 million, based on lower cost of revenues.

Issuer Services revenues for the reported quarter were $91 million that inched down from $92 million in the year-ago period on the back of higher global index group and corporate solutions, which were offset by lower global listing services revenue.

Market technology revenues declined to $44 million from $46 million in the year-ago quarter.

During the reported quarter, NASDAQ’s order intakes soared to $77 million from $56 million in the year-ago quarter. Consequently, total order value (the value of orders signed that have not been recognized as revenue) strengthened to $529 million from $483 million in the prior-year quarter.

Meanwhile, on a non-GAAP basis, operating expenses marginally rose to $229 million from $228 million in the year-ago period, primarily spurred by higher general and administrative expenses, and incremental spending for professional and contract services.

Consequently, operating margin was at par with the year-ago quarter at 45%. On a GAAP basis, total operating expenses dipped 3.1% year over year to $249 million.

Financial Update

As of June 30, 2012, NASDAQ had cash and cash equivalents of $491 million, down from $506 million at the end of 2011. Debt obligations stood at $1.95 billion, down from $2.07 billion at 2011-end. Total assets decreased to $8.93 billion from $14.09 billion at 2011-end, whereas total equity dipped to $4.97 billion from $4.99 billion at the end of 2011.

Capital Plan

On October 12, 2011, NASDAQ declared a new capital plan, according to which the board of NASDAQ approved a new stock repurchase program worth $300 million through open market operations.

Accordingly, NASDAQ bought back 5.3 million shares for $125 million during the reported quarter. Including this, the company has deployed $1.07 million in share repurchases since January 2009, thereby buying back 49.1 million shares at an average price of $21.85.

During the reported quarter, NASDAQ also deployed cash of about $57 million to acquire a majority interest in BWise – a leader in enterprise governance, risk management and compliance software.

Guidance

For 2012, NASDAQ management further lowered the operating expense outlook to the range of $870–890 million from the prior projection of $880–900 million. This excludes approximately $40–50 million of incremental expenses from new initiative spending, and about $25 million related to BWise and NOS acquisitions. However, including these charges, total operating expenses are projected to be within $935–965 million.

Previously, NASDAQ stated that the 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 related to this plan and voluntary accommodation program.

Dividend

Concurrently, the board of NASDAQ declared a cash dividend of 13 cents per share, which will be paid on September 28, 2012 to the shareholders of record as on September 18, 2012.

On April 25, 2012, NASDAQ initiated a cash dividend of 13 cents per share, which was paid on June 29, 2012 to the shareholders of record as on June 15, 2012. This marked the first dividend payment in the company’s history.

Others

During the reported quarter, NASDAQ processed 15 initial public offerings (IPOs) versus 30 in the year-ago period, while new listings totaled 31 against 53 in the year-ago quarter.

Meanwhile, NASDAQ’s arch-rival NYSE Euronext Inc. (NYX - Analyst Report) is slated to release its earnings results before the market opens on August 3, 2012.