CBOE Holdings (CBOE) Posts Weak Earnings on Lower Volumes - Analyst Blog

By Zacks Equity Research,

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CBOE Holdings Inc. ( CBOE ) reported second-quarter 2014 operating earnings of 50 cents per share, which lagged the Zacks Consensus Estimate by a penny and the year-ago figure of 54 cents by 7.4%. With this result, the company's average four-quarter beat stands at 3.6%.

Cboe Holdings, Inc - Quarterly EPS (BNRI) | FindTheBest

The company's operating net income declined 10% year over year to $43 million. Including extraordinary items in the prior-year quarter, reported net income decreased to $43 million or 50 cents a share from $46.2 million or 52 cents per share in the year-ago quarter.

Total operating revenue fell 5% year over year to $143.9 million and was in line with the Zacks Consensus Estimate. The decline in revenues were due to transaction fees of $97.9 million (down 7.7% year over year), access fees of $14.9 million (down 0.7%), regulatory fees of $9.7 million (down 6.7%) and other revenue of $3.9 million (down 7.1%). These were partially offset by an increase in exchange services and other fees of $9.7 million (up 4.3%) and market data fees of $7.8 million (up 36.8%).

Average daily volume decelerated 3% year over year to 4.83 million, whereas total trading volume fell 4% to $304.4 million, primarily due to muted market volatility. Moreover, average revenue per contract decreased 4% to 32.2 cents due to higher volume-based incentives for some of the multiply-listed options along with a shift in product-mix.

Total operating expenses edged down 1.6% year over year to $74.2 million. Adjusting for volume-based expenses, depreciation and amortization, accelerated stock-based compensation expense and unusual or one-time expenses, core operating expenses dipped 2.2% $48.5 million in the quarter. The decline primarily resulted from lower employee costs and outside services, while other expenses rose nominally.

Core operating income decreased 10% year over year to $69.7 million. Core operating margin also deteriorated to 48.4% from 51.2% in the year-ago period. However, effective tax rate dipped to 38.1% from 38.4% in the year-ago quarter.

Financial Update

As of Jun 30, 2014, CBOE Holdings had cash and cash equivalents of $145.1 million, down from $221.3 million at 2013-end. Total assets stood at $385.8 million at the end of Jun 2014, down from $441.6 million at 2013-end.

Meanwhile, long-term liabilities were $52.9 million, up from $49.6 million at 2013-end, although total shareholder equity fell to $263.9 million from $284.5 million at 2013-end. However, operating cash flow improved 3.7% year over year to $121.2 million at the end of Jun 2014.

Share Repurchase Update

CBOE Holdings repurchased about 1.0 million shares for $51.1 million during the reported quarter. Moreover, shares worth $230.3 million have been purchased since the inception of the share buyback program in 2011.

On Jul 30, 2014, the board of CBOE Holdings sanctioned the repurchase of an additional $100 million worth of common stock. This has expanded the previous repurchase program of $100 million announced in Dec 2013.

Including shares remaining from the previous authorization, the company had about $150.2 million shares available for buybacks at the end of Jul 2014.


Concurrently, CBOE Holdings lowered its expense outlook for 2014. Core operating expense is projected to be $186-190 million in 2014, down from prior estimate of $191-196 million. Depreciation and amortization expense was reiterated within the $38-40 million range.

Continuing stock-based compensation expense, included core expenses, is expected to be about $13 million in 2014. Meanwhile, effective tax rate is likely to be within 38.5-39.5%. Capital expenditure is projected in the band of $47-50 million, higher than $31.7 million in 2013.

Dividend Update

On Jul 30, 2014, the board of CBOE Holdings hiked its regular quarterly dividend by 17% to 21 cents per share from the prior payout of 18 cents. The raised dividend is payable on Sep 19, 2014, to shareholders of record on Aug 29.

On Jun 20, 2014, the company paid a regular quarterly dividend of 18 cents per share to shareholders of record as on May 30.

Other Stocks to Consider

CBOE Holdings carries a Zacks Rank #5 (Strong Sell) at present. However, some better-ranked financial stocks like Ladder Capital Corp. ( LADR ), Moody's Corp. ( MCO ) and Ace Ltd. ( ACE ), all bearing a Zacks Rank #2 (Buy), are worth considering.

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MOODYS CORP (MCO): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Stocks: CBOE , LADR , ACE , MCO

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