NYSE Euronext Inc.’s (NYX) third quarter 2011
operating earnings per share of 71 cents came in a couple ahead of
the Zacks Consensus Estimate but substantially higher than 46 cents
recorded in the year-ago quarter. Consequently, operating net
income surged 54% year over year to $186 million from $121 million
in the year-ago quarter.
NYSE reported GAAP net income of $200 million or 76 cents per
share as compared with $128 million or 49 cents per share in the
prior-year quarter. These include the impact of pre-tax merger
expenses and exit costs of $29 million versus $25 million reported
in the year-ago quarter.
The quarter had also recorded net gain on disposal activities of
$54 million. Besides, the merger expenses in the reported quarter
included $19million related to the proposed merger with Deutsche
Boerse.
Gross revenues jumped 20% year over year to $1.26 billion in the
reported quarter. Meanwhile, net revenues (defined as gross
revenues less direct transaction costs consisting of Section 31
fees, liquidity payments and routing and clearing fees) were $704
million, rising 18% from $599 million in the prior-year quarter and
also exceeded the Zacks Consensus Estimate of $693 million.
The improved performance was primarily based on higher
transaction and clearing fees that escalated 24.5% year over year
to $904 million, listing revenue that climbed 7.6% to $113 million
and technology service revenue that climbed12.2% to $92 million.
Other revenue also augmented 30.2% year over year to $56 million,
although marginal growth of 1% year over year was witnessed in
market data revenue.
Revenue from derivatives increased 20.2% year over year to $226
million. Alongside, revenue growth was also injected by information
service and technology solutions (up 10.6% year over year to $125
million) and cash trading and listings (up 18.5% year over year to
$353 million).
Overall, growth in all areas were supported by modest growth in
European and the US average daily trading volumes favourable
currency fluctuations, higher pricing and higher connectivity
revenue related to data centers in Mahwah and Basildon.
However, fixed operating expenses were almost at $445 million
from $444 million in the prior-year quarter. As a result, operating
margin improved to 41% from 30% in the year-ago quarter.
As of September 30, 2011, total headcount at NYSE was 3,074, up
2% from September 30, 2010 and 3% from June 30, 2011. The effective
tax rate was 25.0% as compared with 24.2% in the year-ago quarter
but was marginally lower than management’s guidance of 26.0% for
2011.
Financial Update
As of September 30, 2011, NYSE’s total debt declined $0.3
million from 2010 end to $2.1 billion, whereby the company
eliminated some commercial paper. At the end of the reported
quarter, cash and cash equivalents, investments and other
securities were $0.4 billion while net debt was $1.7 billion.
Total capital expenditure declined to $49 million from $82
million in the year-ago quarter. The company expended $116 million
in the first nine months of 2011, which is in line with its
guidance. As a result of strong growth in adjusted EBITDA, lower
capital expenditures and continued deleveraging, NYSE’s
debt-to-EBITDA ratio improved to 1.6x from 2.2x recorded at the end
of 2010, lowest level since the inception of NYSE in April
2007.
Stock Repurchase Update
On October 27, 2011, the board of NYSE announced its plans to
repurchase shares worth $100 million along with the previously
announced dividends. The buy back will be held through open market
or privately negotiated transactions, subject to regulations and
approvals in the US and Europe. NYSE expects to complete the share
repurchase program in the rest of fourth quarter of 2011.
Thus, NYSE has resumed its $1.0 billion share buy back plan that
was sanctioned in March 2008 but shelved in the fourth quarter of
2008, within which the company had already bought back shares worth
$350 million.
Meanwhile, Deutsche Boerse had also announced a buy back plan of
around €100 million. Both NYSE and Deutsche Boerse have agreed to
initiate their respective share buyback programs in order to
preserve the ownership of 40% and 60% to be held by former NYSE and
Deutsche Boerse shareholders, respectively, in the combined company
following the pending merger.
Outlook
For 2011, NYSE management had previously projected fixed
operating expenses to be less than $1,650 million on a constant
dollar and fixed portfolio basis, compared with expenses of $1,678
million in 2010. Presently, total capital expenditure is expected
to be less than $200 million compared with $244 million in 2010.
The effective tax rate is now expected to be 25.75%, down from
26.0% in 2011.
NYSE-Deutsche Boerse Merger Update
On September 13, 2011, the proposed merger between NYSE and
Deutsche Boerse received approval from the Germany’s Federal
Financial Supervisory Authority (BaFin).
In August 2011, NYSE received a green signal for its merger with
Deutsche Boerse from the Committee on Foreign Investment (CFI) in
the US. The CFI is a prime regulatory body in the US comprising
government officials representing the justice, commerce, state,
defence and homeland security departments. The board of CFI
scrutinizes all the international mergers made by the US-based
organizations.
In July 2011, both NYSE and Deutsche successfully completed the
first lap of the merger process when both the companies managed to
attain the consent from their respective majority shareholders. The
overly brilliant result came in likely after the companies had
reconciled with NYSE investors, in June this year, with a special
dividend payout of $910 million, to be distributed upon the
culmination of the merger deal.
Accordingly post merger, the Deutsche Boerse holders will
receive a special dividend of €2 or $2.87 per share in addition to
one share of the new holding company for every current share
owned.
On the other hand, NYSE shareholders will receive a special
dividend of €0.94 or $1.37 per share, apart from 0.47 share of the
new holding company for every share held in NYSE before the merger.
The prices for special dividends assume an exchange rate of $1.46
per euro. Meanwhile, in any case if the special dividend is not
approved by the board of the new company, the investors have the
choice of confronting this settlement.
However, the most stringent ongoing probe by the European Union
Commission (EUC) is expected to give out its report-card by
December 13, 2011.
Business Update
On September 1, 2011, NYSE announced the closure of the
acquisition of Tokyo-based Metabit, which offers high quality
market access products through more than 140 trading firms across
Japan and Asia. However, the terms and financials of the deal
remain undisclosed. The company intimidated about the acquisition
on August 1, 2011. Accordingly, the company s NYSE Technologies
portfolio will absorb Metabit that will operate as a product
line.
Dividend Update
Concurrently, the board of NYSE declared a regular quarterly
dividend of 30 cents per share, which is payable on December 30,
2011, to the shareholders of record as on December 15, 2011.
Furthermore, on September 30, 2011, NYSE paid a quarterly cash
dividend of 30 cents to shareholders of record as on September 15,
2011.
Peer Take
Last month, NYSE’s arch-rival Nasdaq OMX Group
Inc. (NDAQ) reported its third quarter 2011 operating
earnings per share of 67 cents, which came in line with the Zacks
Consensus Estimate but modestly ahead of 50 cents in the prior-year
quarter.
Besides, yesterday, IntercontinentalExchange
Inc. (ICE) reported third quarter operating earnings of
$1.87 per share, which were substantially ahead of the Zacks
Consensus Estimate of $1.77 per share and $1.42 per share reported
in the year-ago period.
INTERCONTINENTL (ICE): Free Stock Analysis Report
NASDAQ OMX GRP (NDAQ): Free Stock Analysis Report
NYSE EURONEXT (NYX): Free Stock Analysis Report
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