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CBOE Holdings Posts Solid 1Q Earnings

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CBOE Holdings Inc. (CBOE - Free Report) reported first quarter 2013 operating earnings of 50 cents per share, surpassing the Zacks Consensus Estimate of 47 cents per share. Results were also ahead of the year-ago earnings of 37 cents by 35%.

The improvement came on the back of strong growth in the proprietary products of CBOE. Trading volume in the VIX Index options and futures reached new records, while trading in the S&P 500 options complex also increased considerably, driven by increase in SPX Weeklys.

During the quarter, CBOE reported net income of 48 cents per share, up 29.7% year over year. The diffrerence of 2 cents was due to non-recurring one-time charges.

Quarterly Operational Update

Total operating revenues for the quarter increased 18% year over year to $142.7 million. Higher revenue was due to increase in transaction fees (up 16.9% year over year), regulatory fees (up 106.6% year over year), exchange services and other fees (up 22% year over year), and other revenue (up 73.9% year over year), partially offset by a decline in market data fees (down 13.1% year over year). Results also surpassed the Zacks Consensus Estimate of $138 million.

Total operating expenses of CBOE increased 14.5% year over year to $73.3 million in the quarter. Increase in expenses came from higher employee costs (up 21.9%), outside services (up 53.9%), royalty fees (up 17.7%) and other expenses (up 11.9%).  

The extent of increase in operating revenues offset the increase in expenses, thereby pushing up operating income by 20.9% year over year to $69.4 million in the reported quarter.

Average revenue per contract increased 35.7% year over year to 38 cents. Results were driven by a shift in the mix of trading volume, with contracts carrying the highest rate per contract, index options and futures contracts representing 37.9% of trading volume during the quarter, up 1250 basis points year over year.

Effective tax rate for the quarter was 38.3%, down 300 basis points year over year.

Capital Management

On May 1, 2013, the Board of Directors declared a first-quarter dividend of 15 cents per share representing a year-over-year hike of 25%. The quarterly dividend will be paid on Jun 21, 2013 to shareholders of record as on May 31, 2013.

CBOE is currently left with shares worth $103.3 million remaining under its current share repurchase authorization.

Financial Position

As of Mar 31, 2013, CBOE had cash and cash equivalents of $210.5 million, up 55.2% from 2012 end level.

Total assets of CBOE were $409.6 million at the end of the first quarter, up 20.9% from $338.9 million at Dec 31, 2012.

Cash flow from operating activities increased 50.4% year over year to $$95.3 million.

2013 Guidance

Management expects core operating expenses between $189–$194 million and continuing stock-based compensation expense included in core expenses to be approximately $18 million for full year 2013.

Depreciation and amortization expense for 2013 is expected to be in the range of $37–$39 million.

CBOE expects capital expenditures to be between $35 million and $40 million for 2013.

The board anticipated adjusted effective tax rate for 2013 to be in the range of 39.5%–40%.

Performance of Other Stocks

MoneyGram International Inc. (MGI - Free Report) reported first-quarter 2013 earnings per share of 27 cents, modestly higher than the Zacks Consensus Estimate of 24 cents and the year-ago quarter earnings of 23 cents.

Nasdaq OMX Group Inc.’s (NDAQ - Free Report) first-quarter 2013 operating earnings per share of 64 cents modestly surpassed the Zacks Consensus Estimate as well as the prior-year quarter earnings of 61 cents.

CME Group Inc. (CME - Free Report) reported first-quarter 2013 operating earnings per share of 73 cents. The result was in line with the Zacks Consensus Estimate of 73 cents but lagged the year-ago quarter’s earnings of 80 cents.

Zacks Rank

CBOE currently carries a Zacks Rank #2 (Buy).

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