A month has gone by since the last earnings report for IntercontinentalExchange (ICE - Free Report) . Shares have lost about 4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is ICE due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Intercontinental Exchange Q4 Earnings and Revenues Top
Intercontinental Exchange reported fourth-quarter 2018 adjusted earnings per share of 94 cents, beating the Zacks Consensus Estimate of 92 cents by 2.2%. Also, the bottom line improved 25.3% on a year-over-year basis.
On a GAAP basis, net income was $1.07 per share, having plunged 48.9% year over year.
For 2018, Intercontinental Exchange’s adjusted earnings of $3.59 per share surpassed the Zacks Consensus Estimate by 0.6%. Moreover, the bottom line improved 20.9% from that of 2017.
Also, revenues of $4.9 billion beat the consensus mark by 0.6% and grew 7.4% year over year as well.
The company witnessed record revenues in 2018, marking its 13th consecutive year of such an uptick, driven by customer demand for its risk management solutions and investments made in technology enhancement, expansion of content and widening of distribution network.
This apart, the company generated record cash flows in 2018, allowing it to return shareholders approximately $1.8 billion in capital, which is more than any year’s amount in its history.
Performance in Detail
Intercontinental Exchange’s revenues of $1.3 billion increased 14.1% year over year on higher revenues at transaction and clearing, net (26.8%), data services (2.7%), listings segments (7.7%) and other revenues (20.4%). Moreover, the top line outpaced the Zacks Consensus Estimate by 2.1%.
Total operating expenses rose 14.1% year over year to $632 million, primarily due to higher compensation and benefits, professional services, technology and communication, selling, general and administrative plus depreciation and amortization. Adjusted operating expenses were $553 million in the fourth quarter, up nearly 15% from the year-ago quarter’s figure.
Adjusted operating income improved 13.5% year over year to $755 million. Adjusted operating margin was 58%, flat with the year-ago quarter.
Trading and Clearing's adjusted operating income of $425 million grew 23.9% year over year while adjusted operating margin contracted 200 basis points. Data and Listings' adjusted operating income rose 2.5% year over year to $330 million while adjusted operating margin of 51% is intact with the prior-year quarter.
As of Dec 31, 2018, Intercontinental Exchange had cash and cash equivalents of $724 million, up 35.3% from the level as of Dec 31, 2017. Long-term debt of $6.5 billion jumped 52.1% from 2017-end level.
Total equity was $17.2 billion as of Dec 31, 2018, up 1.4% from $16.9 billion as of Dec 31, 2017.
Free cash flow was $1.7 billion for 2018, surging 32.1% from the level in 2017.
Share Repurchase and Dividend Update
In 2018, the company bought back shares worth $1.2 billion and paid dividends amounting to $555 million.
First-Quarter 2019 Guidance
Data revenues are estimated between $540 million and $545 million.
Operating expenses are projected in the range of $535-$545 million.
The company expects interest expense of $71 million in the period.
Weighted average shares outstanding are anticipated between 568 million and 574 million shares (representing share repurchases made in January 2019).
The company estimates data revenues to range between $2.19 billion and $2.24 billion.
Operating expenses are predicted in the band of $2.15-$2.20 billion.
For 2019, the company assumes expense synergies to be $30 million.
With respect to capital expenditure, the company expects the metric between $290 million and $320 million for operational, non-operational capex and capitalized development.
Effective tax rate is envisioned within 22.5-24.5%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, ICE has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, ICE has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.