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Nasdaq Misses YoY Earnings on Higher Expense

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Nasdaq OMX Group Inc. (NDAQ - Free Report) reported second-quarter 2013 operating earnings per share of 62 cents. The result beat the Zacks Consensus Estimate by a penny but missed the prior-year quarter earnings of 64 cents.

Nasdaq’s GAAP net income was $88 million or 52 cents per share, lower than $93 million or 53 cents per share recorded in the year-ago quarter. Results in the reported quarter included net after-tax charge of $17 million or 10 cents per share, primarily related to merger and strategic initiatives.

Excluding these, net income was $105 million, lower than $111 million recorded in the year-ago quarter. Meanwhile, total operating income, on a non-GAAP basis, was at par with the year over year figure of $184 million..

Total net operating exchange revenues increased 8.4% year over year to $451 million, and exceeded the Zacks Consensus Estimate of $443 million. On a constant currency basis and excluding acquisitions, revenues grew 1% year over year in the reported quarter.

The growth was primarily attributable to improved revenues from listing, information, technology and derivatives, all driven by the recent acquisitions. However, revenues from market services continued to witness weakness owing to lower revenues from cash equities, access and broker services. While trading volumes saw some improvement after several quarters of decline, rate per contract continued to remain feeble.

Segment wise, Market Services net exchange revenues for the quarter declined 4.5% from the year-ago period to $190 million, based on slashed revenues, partially offset by lower cost of revenues. Listing Services revenues for the reported quarter were $58 million, up 5.5% from the year-ago period, on the back of improvement in both the U.S. and Europe markets.Revenues from Information Services inched up 1.9% to $108 million, whereas Technology Solutions revenues stood at $95 million, surging 41.8% from the year-ago quarter.

During the reported quarter, Nasdaq’s order intakes plunged to $44 million from $82 million in the year-ago quarter. Equally, total order value (the value of orders signed that have not been recognized as revenues) deteriorated to $507 million from $538 million in the prior-year quarter. New listings totaled 79 against 31 in the year-ago quarter.

Meanwhile, on a non-GAAP basis, operating expenses stood at $267 million, up 15.1% from the year-ago period. On a GAAP basis, total operating expenses climbed 15.9% to $292 million from $252 million in the year-ago period, primarily spurred by higher operating costs and expenses related to merger and strategic initiatives. Consequently, core operating margin dipped to 41% from 44% in the year-ago quarter, led by higher expenses.

Financial Update

As of Jun 30, 2013, Nasdaq had cash and cash equivalents of $379 million, down from $497 million at the end of 2012. Debt obligations stood at $2.65 billion, up from $1.84 billion at 2012-end. Total assets increased to $11.95 billion from $9.13 billion at 2012-end, while total equity improved to $5.86 billion from $5.21 billion in 2012.


Management revealed core operating expense projection of $925–940 million. Additionally, the company expects approximately $50–60 million of incremental expenses from new initiative spending and $145–160 million from the recent acquisitions of eSpeed and the corporate arm of Thomson Reuters. Including these charges, total operating expenses are projected within $1.12–1.16 billion.


Concurrently, the board declared a cash dividend of 13 cents per share, which is payable on Sep 27, 2013 to shareholders of record as on Sep 13, 2013.

On Jun 28, 2013, Nasdaq paid a cash dividend of 13 cents per share to shareholders of record as on Jun 14, 2013.


Nasdaq carries a Zacks Rank #3 (Hold). Meanwhile, another dominant player of the exchange industry – CME Group Inc. (CME - Free Report) , a Zacks Rank #1 (Strong Buy) stock, is slated to release its results before the market opens on Aug 1, 2013. Other outperformers of this industry include MarketAxess Holdings Inc. (MKTX - Free Report) , a Zacks Rank #1 (Strong Buy) stock, and CBOE Holdings Inc. (CBOE - Free Report) , which carries a Zacks Rank #2 (Buy).

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