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CBOE Beats on Q3 Earnings

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CBOE Holdings Inc. (CBOE - Free Report) reported third-quarter 2013 adjusted net earnings of 47 cents per share beating the Zacks Consensus Estimate of 45 cents per share. Results were also above of the year-ago earnings of 43 cents.

The improvement came on the back of strong trading volumes in the SPX options complex and VIX Index options, and futures.

CBOE Holdings reported net income of $41 million or 47 cents per share in the third quarter, compared to $45.2 million or 52 cents per share in the third quarter of 2012.

Quarterly Operational Update

Total operating revenues for the quarter increased 7% year over year to $136.7 million. Higher revenue was due to increase in transaction fees (up 7% year over year), regulatory fees (up 56.5% year over year), and exchange services and other fees (up 18.6% year over year), partially offset by a decline in other revenues. However, results missed the Zacks Consensus Estimate of $138 million.

Adjusting for volume-based expenses, depreciation and amortization, accelerated stock-based compensation expense and unusual or one-time expenses, core operating expenses of CBOE Holdings decreased 3% year over year to $44.8 million in the quarter. The decline was attributable to decreasing expenses in legal expenses that resulted in lower expenses for outside services. As a result operating margin increased 260 basis points year over year 50% in the reported quarter.

Average revenue per contract (total transaction fee revenue/ total reported trading volume) decreased 1% year over year to 32 cents. The downside came from an increase in volume-based incentives for some of the multiply-listed options under the VIP program of the company.

Effective tax rate for the quarter was 39.1%, up 1470 basis points year over year due to the recognition of some discrete items relating to 2012 and the years before.

Capital Management

On Jul 30, 2013, the board of directors of CBOE Holdings increased its dividend by 20% to 18 cents from 15 cents paid on Jun 21, 2013.

On Oct 24, 2013, the Board of Directors declared the third-quarter dividend of 18 cents per share that will be paid on Dec 20, 2013 to shareholders of record as on Nov 29, 2013.

CBOE Holdings repurchased 0.3 million shares for $14 million in the third quarter of 2013. The company is currently left with shares worth $89.3 million remaining under its current share repurchase authorization.

Financial Position

As of Sep 30, 2013, CBOE Holdings had cash and cash equivalents of $226.4 million, up 66.9% from 2012 end level.

Total assets of CBOE Holdings were $441.2 million at the end of the first nine months of 2013, up 30.2% from $338.9 million at Dec 31, 2012.

Cash flow from operating activities in the first nine months stood at $172.4 million, up 22.4% year over year.

2013 Guidance

Management reaffirmed its core operating expenses guidance at $189–$194 million. Further, continuing stock-based compensation expense included in core expenses was reaffirmed at approximately $18 million for full year 2013.

Lower than expended capital segment caused CBOE Holdings to lower its depreciation and amortization expense for 2013 to $34 million to $36 million, from the previous guidance of $37–$39 million.

CBOE Holdings expects capital expenditures for 2013 to be between $33 million and $36 million, lower than the previous guidance of $35 million and $40 million.

The board anticipated adjusted effective tax rate for 2013 to be in the range of 39% to 39.5%, lower than the previous guidance of 39.5%–40%.

Performance of Other Stocks

MarketAxess Holdings Inc. (MKTX - Free Report) reported its third-quarter 2013 operating net income of 44 cents per share, surpassing the Zacks Consensus Estimate by 9.1%.

Nasdaq OMX Group Inc. (NDAQ - Free Report) reported third-quarter 2013 operating earnings per share of 66 cents. The result beat the Zacks Consensus Estimate by 4 cents.

MoneyGram International Inc. (MGI - Free Report) reported third-quarter 2013 earnings per share of 31 cents, missing the Zacks Consensus Estimate by a penny.

Zacks Rank

CBOE Holdings currently carries a Zacks Rank #3 (Hold).

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