) first-quarter 2012 operating earnings of $2.02 per share were in
line with the Zacks Consensus Estimate, but surpassed the year-ago
quarter's earnings of $1.74 per share. Accordingly, net income
attributable to shareholders escalated 14.7% to $147.9 million when
compared with $128.9 in the year-ago quarter.
The quarterly results of ICE benefited from favorable
over-the-counter (OTC) execution and record market data revenue
that in turn led to strong top-line growth.
The upside was also attributable to capital efficiency, lower
tax rate, growth in the company's core businesses, significant
progress triggered by new initiatives and increasing demand for
commodities. This was partially offset by lower volumes-generation
from the futures segment and higher-than-expected operating
ICE's total revenue climbed 9.2% year over year to $365.2
million and also exceeded the Zacks Consensus Estimate of $362
million. The upside was mainly attributable to a 7.7% increase in
transaction and clearing fee
revenues to $322.1 million in the reported quarter, primarily
driven by strong trading volumes in ICE's energy OTC markets, new
product introduction along with increased credit default swap (CDS)
revenues accelerated 23.8% year over year to $36.4 million, while
revenues grew 13.6% to $6.7 million.
However, average daily futures volume reduced 3% year over year
to 1.6 million contracts that led to a 1% growth in transaction and
clearing revenues in the futures segment. Nevertheless, average
daily commissions in ICE's OTC energy business surged 20% year over
year to 1.95 million for the quarter, resulting in a 15%
year-over-year ascent for the transaction and clearing revenues in
the total global OTC segment. Revenue from ICE's credit default
swap (CDS) business totaled $40 million, climbing 2% over the
Meanwhile, total operating expenses increased 6.9% year over
year to $140.0 million, primarily due to increase in compensation
and benefit expenses coupled with slightly higher professional
service costs along with selling, general and administrative and
other expenses. These were partially offset by lower depreciation
and amortization expenses.
Consequently, operating income rose 10.8% year over year to
$225.2 million, while operating margin climbed to 61.7% from 60.8%
in the year-ago period. The effective tax rate was 30% against 34%
in the year-ago quarter.
At the end of the reported quarter, consolidated operating cash
flow jumped 19% year over year to $186 million. Capital
expenditures totaled $7 million, up from $5 million in the year-ago
period, while capitalized software development costs increased to
$9 million from $8 million in the year-ago quarter.
As of March 31, 2012, the company recorded unrestricted cash and
investments of $968 million (up from $823 million as of December
31, 2011), while total outstanding debt slipped to $875 million
from $888 million at 2011-end.
Share Repurchase Update
In September 2011, the board of ICE had sanctioned a new stock
repurchase program worth $300 million to be carried on over a
period of time, depending on the market conditions, while it also
had $85 million of share repurchasing capacity available from the
Meanwhile, during the reported quarter, ICE bought back shares
worth $47 million, while a total of $175 million worth of shares
were repurchased in 2011. Consequently, the company had $334
million of share repurchase capacity still in store at the end of
2011. However, no shares were repurchased during the reported
Guidance for 2012
Concurrently, management expects diluted weighted average
outstanding shares to be within 72.9-73.9 million shares for the
second quarter of 2012. Additionally, the company expects to incur
$3-4 million in acquisition expenses during the second quarter of
In February 2012, management provided an extensive expense
outlook for 2012. While total expenses are expected to be flat over
2011, adjusted expenses are estimated to rise by 3-6% over 2011.
Compensation expense should be up by 6-7%. Consolidated tax rate is
anticipated to be within 28-31% in 2012.
Additionally, ICE expects quarterly interest expense during 2012
to be in the range of $10-11 million, which includes interest
expenses associated with its debt facility and Russell Index
Capital expenditure, including capitalized software development
costs, is projected in the band of $60-65 million. Furthermore, an
additional capital expenditure of $30-35 million is expected on the
back of real estate costs associated with consolidating multiple
locations in London and in New York. ICE's diluted weighted average
outstanding share count is expected to lie in the range of
73.0-74.2 million shares.
CME Group Inc.
) reported first-quarter 2012 operating earnings of $4.02 per
share, which were at par with the Zacks Consensus Estimate but
lagged the earnings of $4.36 reported in the year-ago quarter.
Earlier this week, another prime peer,
NYSE Euronext Inc.
) reported its first-quarter 2012 operating earnings per share of
47 cents, which fell shy of the Zacks Consensus Estimate of 49
cents and were substantially lower than 68 cents recorded in the
year-ago quarter. Consequently, operating net income plunged 31.6%
year over year to $121 million from $177 million in the year-ago
Nevertheless, both of ICE's peers were severely marred by weak
volumes and sluggish clearing and transaction services during the
reported quarter, which also negatively impacted the top line of
both CME and NYSE.
Currently, ICE carries a Zacks Rank #3, implying a short-term
Hold rating and a long-term Neutral recommendation.
CME GROUP INC (CME): Free Stock Analysis Report
INTERCONTINENTL (ICE): Free Stock Analysis
NYSE EURONEXT (NYX): Free Stock Analysis Report
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