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TD Ameritrade Beats Q4 Earnings Estimates

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TD Ameritrade Holding Corp. (AMTD - Free Report) reported fiscal fourth-quarter 2013 (ended Sep 30) earnings of 36 cents per share, beating the Zacks Consensus Estimate by a penny. The results also surpassed the prior-year quarter figure of 26 cents.

For fiscal 2013, earnings came in at $1.22 per share, beating the Zacks Consensus Estimate of $1.20. Additionally, earnings were above $1.06 per share earned in the prior year.

Better-than-expected results came on the back of increased revenues. Further, rise in both total client assets and daily average client trades were the positives. However, higher expenses were a headwind.

TD Ameritrade’s net income for the said quarter was $200 million, up 40% from the prior-year quarter. For fiscal 2013, net income was $675 million, up 15% year over year.

Quarter in Detail

Net revenue rose 10% year over year to $709 million. This was due to increase in total asset-based revenue and transaction-based revenues. However, net revenue was below the Zacks Consensus Estimate of $714.0 million.

For fiscal 2013, net revenue was $2.8 billion, up 5% year over year. Net revenue was in line with the Zacks Consensus Estimate of $2.8 billion.

Average client trades per day in the quarter increased 16% year over year to 381,657. Net new client assets were $10.1 billion, stable from the past year.

At the quarter-end, TD Ameritrade reported total client assets worth $555.9 billion, up 18% year over year. Moreover, average spread-based balance was $88.8 billion, up 17% from $76.2 billion in the prior-year quarter. Average fee-based balance was $122.3 billion, up 31% year over year.

Net interest revenue was $119.0 million, up 3% year over year.

Operating income increased 20% year over year to $279 million. The rise was due to increased revenues, partly offset by a rise in expenses. Net interest margin (NIM) was 1.41%, down 25 basis points from 1.66% in the prior-year quarter.

Total operating expense rose 4% year over year to $430.0 million. This was mainly due to increase in employee compensation and benefits expenses, clearing and execution costs, occupancy and equipment costs as well as depreciation and amortization expenses.

Balance Sheet

As of Sep 30, 2013, TD Ameritrade’s cash and cash equivalents were $1.1 billion, compared with $0.9 billion as of Sep 30, 2012. Shareholders’ equity was $4.7 billion compared with $4.4 billion as of Sep 30, 2012.

Capital Deployment Update

Along with the earnings release, TD Ameritrade declared a 33% increase in its quarterly dividend to 12 cents per share. The dividend will be paid on Nov 19, 2013 to shareholders of record as of Nov 9.

Additionally, the company declared a special cash dividend of 50 cents per share. This will be paid on Dec 17, 2013 to shareholders of record as of Dec 3. This is the second time the company has declared a special dividend in a fiscal year.

Outlook for Fiscal 2014

The company has also released an updated outlook for fiscal 2014. It expects earnings per share to be $1.20–$1.40 for the fiscal year 2014. Additionally, average client trades per day are predicted to be in the range of 365,000 to 425,000.

Further, the company expects net revenue to be in the range of $2,790 million to $3,175 million. Additionally, operating expenses are forecasted to be in the band of $1,710 million to $1, 875 million

Performance of Competitors

Among other investment brokers, Charles Schwab Corporation’s (SCHW - Free Report) third-quarter 2013 earnings beat the Zacks Consensus Estimate, while results at Interactive Brokers Group, Inc. (IBKR - Free Report) came in line with the Zacks Consensus Estimate.

Our Viewpoint

Innovations in online trading, long-term investment in products and services, delivery of advanced customer service, creative as well as cost-effective marketing and sales, along with prudent expense management are TD Ameritrade’s key strategies to boost its trading and investing business.

Further, the company’s association with The Toronto-Dominion Bank (TD - Free Report) provides an opportunity to cross sell its products. This is expected to be a significant growth driver for TD Ameritrade’s organic assets.

Amid a volatile operating environment, TD Ameritrade witnessed a rise in both organic client assets and trading volumes, which bode well going forward. However, a low interest rate environment and stringent regulations pose as challenges.

At present, TD Ameritrade carries a Zacks Rank #2 (Buy).

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