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NYSE Euronext Inc.’s first-quarter 2013 operating earnings per share of 57 cents surpassed the Zacks Consensus Estimate by a penny but were modestly ahead of 47 cents recorded in the year-ago quarter. Consequently, operating net income improved 14.9% year over year to $139 million from $121 million in the year-ago quarter.

NYSE reported GAAP net income of $126 million or 52 cents per share compared with $87 million or 34 cents per share in the prior-year quarter. These primarily included the impact of merger expenses, exit costs as well as stock-based compensation charge during the reported quarter.

Top Line Levels Up

Gross revenues inched up 1% year over year to $963 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 $600 million, at par with $601 million in the prior-year quarter.

Total net revenue also edged past the Zacks Consensus Estimate of $598 million. While trading volumes improved slightly, unfavorable currency fluctuations and lower average revenue per contract in Europe added to the woes.

Top-line reflected improvement in transaction and clearing fees that climbed 4.1% year over year to $634 million, while listing and other revenues remained flat at $110 million and $56 million, respectively.  However, deterioration was witnessed in market data revenue that declined 8.8% year over year to $83 million. Moreover, technology service revenue decreased 7% to $80 million.

Conversely, revenue from derivatives jumped 14.2% year over year to $201 million, although cash trading and listings’ revenue decreased 5.6% year over year to $287 million. Even revenue from information service and technology solutions fell 7.4% year over year to $112 million.

During the reported quarter, NYSE raised $12.1 billion in total global proceeds from 26 initial public offerings (IPOs) on its European and US markets, more than any global exchange group. In prior-year quarter, the company had initiated 45 IPOs globally, raising $9.8 billion.

Tight Lid on Expenses

Meanwhile, adjusted fixed operating expenses dipped 8.1% year over year to $372 million, whereas, operating margin improved to 37% from 33% recorded in the year-ago quarter. The effective tax rate was 24% as compared with 25% in the year-ago period.

During the reported quarter, NYSE generated savings worth $147 million from Project 14, which represented 59% of the total $250 million estimated to be saved by the end of 2014.

NYSE exited the reported quarter with a total headcount of 3,171, marginally up from 3,079 in the year-ago quarter.

Financial Update

As of Mar 31, 2013, NYSE’s total debt of $2.5 billion was at par with 2012-end level. Total debt includes $0.4 billion remaining from the 4.8% June 2013 notes, which is slated to be retired in the second quarter of 2013.

At the end of Mar 2013, cash and cash equivalents, investments and other securities were $0.5 billion while net debt was $2 billion. However, total capital expenditure decreased to $27 million from $43 million recorded in the year-ago quarter.

As a result of flattened debt and lower capital expenditure, NYSE’s debt-to-EBITDA ratio improved to 2.3x at the end of Mar 2013 from 2.5x recorded at 2012-end.

Guidance for 2013

Management reiterated total operating expenses to be around $1.525 billion in 2013. Including the savings from Project 14, expenses are expected to about $1.465 billion.

Previously, NYSE disclosed that the debt-refinancing executed in Oct 2012 should help save an annualized interest expense of $15 million in 2013 and $24 million in 2014. Subsequently, the company anticipated debt-to-EBITDA ratio to improve to 2.0x in 2013 from 2.5x in 2012.

Total capital expenditures are expected to be approximately $150 million in 2013, lower than 2012 levels. Meanwhile, effective tax rate is expected to be between 24% and 25%.

Additionally, NYSE is progressing well with its proposed merger with IntercontinentalExchange Inc. (ICE - Analyst Report), announced in Dec 2012. The shift to ICE Clear Europe and the proposed merger are to culminate in the second half of 2013.

Dividend Update

Concurrently, the board of NYSE declared a regular quarterly dividend of 30 cents per share, which is payable on Jun 28, 2013, to the shareholders of record as on Jun 14, 2013.

Furthermore, on Mar 28, 2013, NYSE had paid a quarterly cash dividend of 30 cents to shareholders of record as on Mar 14, 2013.

Others

While both NYSE and IntercontinentalExchange carry a Zacks Rank #3 (Hold), other performers in the financial sector include Euronet Worlwide Inc. (EEFT - Snapshot Report) and MoneyGram International Inc. (MGI - Analyst Report), both of which carry Zacks Rank #2 (Buy).

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