NYSE Euronext Inc.
) first-quarter 2012 operating earnings per share of 47 cents 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 quarter.
NYSE reported GAAP net income of $87 million or 34 cents per
share as compared with $155 million or 59 cents per share in the
prior-year quarter. These include the impact of pre-tax merger
expenses and exit costs of $31 million in the reported quarter
versus $21 million in the year-ago quarter. These were partially
offset by tax benefit of $42 million in the reported quarter
against $61 million in the year-ago quarter.
Gross revenues plummeted 17.1% year over year to $952 million 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) stood at
$601 million, sliding 11.5% from $679 million in the prior-year
quarter and the Zacks Consensus Estimate of $616 million.
The deteriorating performance was primarily due to the weak
transaction and clearing fees that plunged 25.3% year over year to
$609 million and market data revenue that declined 5.2% year over
year to $91 million. Together, these constitute about 74% of the
However, these were marginally offset by technology service
revenue that grew 4.9% to $86 million, listing revenue that crawled
up 1.0% to $110 million, and other revenue that improved 21.7% year
over year to $56 million.
Revenue from derivatives dipped 25.4% year over year to $176
million, whereas cash trading and listings' revenue slipped 7.3%
year over year to $304 million. Nevertheless, revenue from
information service and technology solutions climbed 4.3% year over
year to $121 million.
Overall, top-line results reflected declining volumes across all
global derivatives and cash trading venues. Unfavorable currency
fluctuations and lower average revenue per contract added to the
However, fixed operating expenses dipped 2.9% year over year to
$403 million, although operating margin deteriorated to 33% from
39% in the year-ago quarter. In the reported quarter, total
headcount at NYSE was 3,079, marginally up from 3,077 as of
December 31, 2011 and 3,028 as of March 31, 2011. The effective tax
rate was 25% as compared with 26% in the year-ago quarter.
Moreover, during the reported quarter, NYSE raised $9.8 billion
in total global proceeds from 45 initial public offerings (IPOs) on
its European and US markets, more than any global exchange
As of March 31, 2012, NYSE's total debt of $2.1 billion was
almost at par with 2011-end. 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 increased to $43 million from $35 million recorded in
the year-ago quarter.
As a result of higher capital expenditure and slightly higher
debt, NYSE's debt-to-EBITDA ratio deteriorated to 2.0x from 1.6x
recorded at the end of 2011, which was the lowest level since the
inception of the company, in April 2007.
Stock Repurchase Update
During the reported quarter, NYSE bought back 4.3 million shares
at an average price of $29.73 per share, for about $127 million.
Accordingly, the company had $425 million of stock available for
repurchases at the end of March 2012. Management is also committed
to complete this sanctioned share repurchase by the end of
Last year, NYSE had resumed its $1.0 billion share buy back
plan, which was sanctioned in March 2008 but was shelved in the
fourth quarter of 2008, within which the company had already bought
back shares worth $350 million. Additionally, NYSE bought back $100
million of stock during the fourth quarter of 2011, leaving $552
million in the current stock repurchase authorization at
Long-Term Growth Outlook
After the termination of its proposed merger with Deutsche
Boerse, management declared a two-year target plan in April this
year. This plan is projected to drive accelerated earnings growth
through a blend of top-line growth initiatives, which includes
diversification of growth into non-core space of information and
Previously, on March 28, 2012, NYSE announced its intention of
building clearinghouse - NYSE Liffe Clearing - in London that
should be operational between the second and third quarters of
2013. This is a significant attempt to erect an exchange entity on
a vertical clearing model.
Initially, NYSE projects to commence the clearing of derivative
contracts, while the equity trades will still be cleared by
LCH.Clearnet, which cleared all of the company's trades until now,
for the time being. Management also aims to transfer all the
derivative trades from Amsterdam, Brussels, Lisbon and Paris to
London by the first quarter of 2014.
Additionally, NYSE has scheduled the European launch of a new
electronic retail derivatives market in the first quarter of 2013.
The company has been mulling over this business proposition for
over nine months now. This retail derivative market will trade in
Contracts for Difference (
) and will include products such as commodities, currency pairs,
equities and indices. The CFD market is particularly designed for
retail and professional clients who look for tax-efficient
Post the clearance of the deal with the respective partners and
vendors, which is expected soon, NYSE expects to add other products
such as oil, metals, foreign exchange, bonds and interest rates
across all CFD markets in the industry. Management also elucidated
that the foreign exchange CFD market itself is worth about $8
billion, thereby offering ample scope of intense expansion of other
products in the retail derivative market.
While NYSE plans to launch the CFD market and kick-start NYSE
Liffe Clearing, as announced last week, in 2013; the company
projects to incur costs within the range of $1.627-$1.652 billion
in 2012, almost in line with management's prior guidance of less
than $1.666 billion. This also includes $30 million estimated for
shifting its clearing business from LCH.Clearnet to its own Liffe
Clearing, further validating the company's capital expenditure
target of $200 million in 2012, up from $170 million in 2011.
Nevertheless, NYSE expects to generate annual cost savings worth
$250 million by the end of 2014 and additional profits from the CFD
market from the same year onwards. While most of the annual cost
synergies are expected to be generated in the form of intense
expense management, $90 million worth of saving is projected from
organizational efficiencies that include centralization of
operations and expansion of a shared service model.
Another $90 million of cost synergies is expected to be achieved
by giving up its legacy systems and organizing its technology
across the business platform. NYSE also anticipates generating
another $70 million of savings by narrowing down its business
portfolio as well as self-focusing on core operations and
Through these business-building and cost-cutting efforts, the
company already expects to recognize 25% of the savings by the end
of this year and another 60% by next year-end.
Overall, NYSE looks forward to a disciplined cost management and
healthy capital deployment. While the outlook for trading volumes
and currencies remains cautious in the near term, the company
believes a modest improvement in the operating environment should
Concurrently, the board of NYSE declared a regular quarterly
dividend of 30 cents per share, which is payable on June 29, 2012,
to the shareholders of record as on June 15, 2012.
Furthermore, on March 30, 2012, NYSE had paid a quarterly cash
dividend of 30 cents to shareholders of record as on March 15,
Last week, a couple of NYSE's arch-rivals reported their first
NASDAQ OMX Group Inc.
) reported its first-quarter 2012 operating earnings per share of
61 cents, which came in a couple of cents below the Zacks Consensus
Estimate. However, results were in line with the prior-year
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.
It appeared that the dominant players of the exchange industry
have been marred by weak volumes and sluggish clearing and
transaction services, which also faltered the top line for both the
peers of NYSE.
Currently, NYSE carries a Zacks Rank #3, implying a short-term
Hold rating and a long-term Neutral recommendation.
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): Free Stock Analysis Report
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