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NYSE Q2 Earnings Beat, Expense Low

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NYSE Euronext Inc.’s second-quarter 2013 operating earnings per share of 63 cents outpaced the Zacks Consensus Estimate of 58 cents and the year-ago figure of 51 cents. Consequently, operating net income jumped 19.5% year over year to $153 million from $128 million in the year-ago quarter.

Reported net income of $173 million or 71 cents per share also exceeded $125 million or 49 cents per share recorded in the prior-year quarter. These primarily included the impact of merger expenses and exit costs, partially offset by gain on disposal activities during the reported quarter.

Top Line Stabilizes

Gross revenue inched up 0.9% year over year to $995 million in the reported quarter. Meanwhile, net revenue (defined as gross revenue less direct transaction costs consisting of Section 31 fees, liquidity payments, and routing and clearing fees) stood at $611 million, up 1.5% from $602 million in the prior-year quarter.

Net revenue also surpassed the Zacks Consensus Estimate of $602 million. While trading volumes and average revenue per contract improved slightly, unfavorable currency fluctuations and lower revenues in Europe added to the woes.

Top line reflected growth in transaction and clearing fees, up 1.2% year over year to $657 million and market data revenues, up 4.6% to $91 million. Other revenues were $59 million, up 15.7% from the prior-year quarter. However, listing revenues declined to $111 million from $112 million in the year-ago quarter and technology service revenues were down 11.5% year over year to $77 million.

Additionally, revenues from derivatives increased 7.1% year over year to $195 million, whereas cash trading and listings’ revenues inched up 0.7% to $302 million. However, revenues from information service and technology solutions fell 4.2% year over year to $114 million.

During the reported quarter, NYSE raised $29 billion in total global proceeds from 72 initial public offerings (IPOs) on its European and US markets, more than any global exchange group. In the prior-year quarter, the company had initiated 21 IPOs globally, raising $7.3 billion.

Expenses in Control

Meanwhile, adjusted fixed operating expenses dipped 2.9% year over year to $396 million, whereas, adjusted operating margin improved to 48% from 45% recorded in the year-ago quarter. The effective tax rate was 24% as compared with 25% in the year-ago period.

The company aimed to generate 60% of savings by the end of 2013. However, NYSE exceeded this target within the first 6 months of 2013. To date, the company has generated 64% of the $250 million target for 2014 end.

NYSE exited the reported quarter with total headcount of 3,154, up from 3,062 in the year-ago quarter.

Financial Update

As of Jun 30, 2013, NYSE had total debt of $2.2 billion, down from $2.5 billion at 2012-end. The decrease in debt was due to the retirement of $0.4 billion remaining from the 4.8% notes in Jun 2013.

At the end of Jun 2013, cash and cash equivalents, investments and other securities were $0.3 billion, while net debt was $1.9 billion. However, total capital expenditure decreased to $32 million from $41 million recorded in the year-ago quarter.

As a result of lower debt and capital expenditure, NYSE’s debt-to-EBITDA ratio improved to 1.9x at the end of Jun 2013 from 2.5x recorded at 2012-end.

Merger Update

NYSE is progressing well with its proposed merger with IntercontinentalExchange Inc. (ICE - Free Report) , announced in Dec 2012. NYSE Liffe’s clearing operations were successfully transitioned to ICE Clear Europe in Jul 2013, whereas both the companies received approval from their respective shareholders and the European regulators. The proposed merger is scheduled 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, payable on Sep 30, 2013 to the shareholders of record as on Sep 16, 2013. However, this dividend payment will become void if the merger with IntercontinentalExchange is culminated by the slated date.

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


NYSE’s prime peer, CME Group Inc. (CME - Free Report) – a Zacks Rank #1 (Strong Buy) stock – is slated to release its second-quarter results before the opening bell on Aug 1, 2013. Meanwhile, both NYSE and IntercontinentalExchange carry a Zacks Rank #3 (Hold). Another securities exchange outperformer, MarketAxess Holdings Inc. (MKTX - Free Report) ,carries a Zacks Rank #1 (Strong Buy).

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