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NASDAQ OMX Group Inc.’s (NDAQ - Analyst Report) fourth-quarter 2012 operating earnings per share of 64 cents modestly surpassed the Zacks Consensus Estimate of 61 cents as well as the prior-year quarter earnings of 62 cents.
NASDAQ’s GAAP net income was $85 million or 50 cents per share, fairly higher than $82 million or 45 cents per share recorded in the year-ago quarter. Results in the reported quarter included net after-tax charge of $11 million or 14 cents per share, primarily related to special legal expenses, restructuring and other items along with merger and strategic initiatives, partially offset by a value added tax refund.
Excluding these, net income was $108 million compared with $113 million in the year-ago quarter. Meanwhile, total operating income, on a non-GAAP basis, slipped 0.5% year over year to $186 million.
Total net exchange revenues edged down 0.2% year over year to $419 million, but exceeded the Zacks Consensus Estimate of $412 million. On a constant currency basis and excluding acquisitions, revenue declined 3% year over year in the reported quarter.
The year-over-year weakness was primarily attributable to significantly weak revenue from market services. While growth in market technology revenues remained sluggish issuer services revenue witnessed improvement. Additionally, cash equities and derivatives continued to be feeble based on lower industry trading volumes and an unfavorable impact from foreign exchange.
Segment wise, Market Services net exchange revenues for the quarter declined 3.9% from the year-ago period to $270 million, based on slashed revenues, partially offset by lower cost of revenues. Issuer Services revenues for the reported quarter were $101 million, up 11.0% from the year-ago period.
The upside came on the back of higher revenue from global index group and corporate solutions, which includes the acquisitions of BWise and Glide Technologies. Market Technology revenues were flat at $48 million in the reported quarter.
During the reported quarter, NASDAQ’s order intakes surged to $95 million from $36 million in the year-ago quarter. Consequently, total order value (the value of orders signed that have not been recognized as revenue) improved to $546 million from $458 million in the prior-year quarter. New listings totaled 55 against 56 in the year-ago quarter.
Meanwhile, on a non-GAAP basis, operating expenses stood at $233 million, in line with the year-ago period. On a GAAP basis, total operating expenses dipped to $244 million from $259 million in the year-ago period, primarily spurred by lower operating costs and partially offset by slightly higher expenses on compensation benefits along with professional and contract services. Operating margin also came in almost flat at 44.4% from 44.5% in the year-ago quarter, led by a faltered top line.
Highlights of Full-Year 2012
For full-year 2012, NASDAQ reported operating earnings per share of $2.50, which exceeded the Zacks Consensus Estimate of $2.48 but lagged $2.53 recorded in 2011. Operating net income reduced 5.1% over 2011 to $432 million.
This excluded $80 million or 46 cents per share of net after-tax charges related to restructuring, loss on business divestiture, special legal expenses along with merger and strategic initiatives, partially offset by value added tax refund. Including these, GAAP net income came in at $352 million or $2.04 per share, lower than $387 million or $2.15 per share recorded in 2011.
Total net exchange operating revenues inched down 1.8% year over year to $1.65 million, but came in line with the Zacks Consensus Estimate of $1.65 billion. GAAP operating expenses decreased to $973 million from $986 million in the year-ago period, although operating expenses increased 0.5% year over year to $918 million on a non-GAAP basis. Operating margin fell to 44% from 46% in 2011.
As of December 31, 2012, NASDAQ had cash and cash equivalents of $497 million, down from $506 million at the end of 2011. Debt obligations stood at $1.93 billion, down from $2.07 billion at 2011-end. Total assets decreased to $9.13 billion from $14.09 billion at 2011-end, while total equity climbed to $5.21 billion from $4.99 billion in 2011.
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 2.1 million shares for $50 million during the reported quarter.
Including this, the company deployed $1.17 billion in share repurchases since January 2010, thereby buying back 53.4 million shares at an average price of $21.97. In 2012, the company returned $275 million to its shareholders through buybacks.
Management revealed core operating expense projection of $910–930 million, which includes $50 million of expenses from the acquisitions executed in 2012. Additionally, the company expects approximately $50–60 million of incremental expenses from new initiative spending.
Including these charges, total operating expenses are projected within $960–990 million. However, the cost guidance excludes a restructuring expense related to the latest new cost reduction plan and the voluntary accommodation program. Tax rate is anticipated in the band of 34–37%.
Concurrently, the board declared a cash dividend of 13 cents per share, which will be paid on March 28, 2013 to the shareholders of record as on March 14, 2013.
On December 28, 2012, NASDAQ paid a cash dividend of 13 cents per share to the shareholders of record as on December 14, 2012. The cash dividend was initiated on April 25, 2012, marking the first dividend payment in the company’s history.
NASDAQ carries a Zacks Rank #3 (Hold). Meanwhile, another player of the exchange industry – CBOE Holdings Inc. (CBOE - Analyst Report), a Zacks Rank #2 (Buy) stock, is slated to release its earnings results before the market opens on February 8, 2013. Other strong performers in the financial sector include Euronet Worlwide Inc. (EEFT - Snapshot Report) and The Travelers Cos. Inc. (TRV - Analyst Report), both of which carry Zacks Rank #1 (Strong Buy).