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CBOE's Q4 Earnings Top, Volumes Up - Analyst Blog

Posted: 2/7/2014 10:59:00 AM
Referenced Stocks: AFG;AXP;CBOE;FNGN

CBOE Holdings Inc. ( CBOE ) reported fourth-quarter 2013 operating earnings of 52 cents per share, comfortably surpassing the Zacks Consensus Estimate of 48 cents per share and the year-ago earnings of $0.45 a share. Accordingly, operating net income grew 17% year over year to $45.6 million.

Total operating revenue increased 9% year over year to $141.8 million, and was in line with the Zacks Consensus Estimate. Higher revenues were driven by transaction fees of $99 million (up 9% year over year), exchange services and other fees of $9.6 million (up 16.1%), market data fees of $7 million (up 26.9%), regulatory fees of $7.6 million (up 16.1%) and other revenue of $3.3 million (up 10%), partially offset by a decline in access fees of $15.3 million (down 4.1%).

Average daily volume jumped 18.5% year over year to 4.89 million, whereas total trading volume escalated 22.4% to $313 million, driven by improvement across asset class. However, average revenue per contract plunged 11% to $0.316, due to higher volume-based incentives for some of the multiply-listed options along with a shift in the product-mix.

Total operating expenses dipped 2% year over year to $69.2 million. Adjusting for volume-based expenses, depreciation and amortization, accelerated stock-based compensation expense and unusual or one-time expenses, core operating expenses decreased 5.2% to $43.9 million in the quarter. The decrease was attributable to lower costs on outside services and data processing.

Consequently, operating income jumped 12% year over year to $72.6 million. Core operating margin increased to 51.2% from 49.9% in the year-ago period. However, effective tax rate rose to 36.1% from 39% in the year-ago quarter.

Full-Year 2013 Highlights

For full-year 2013, CBOE Holdings reported operating earnings of $2.03 per share, exceeding the Zacks Consensus Estimate of $1.97 and the 2012 equivalent of $1.69 a share. Operating net income surged 20% year over year to $179.6 million.

Including extraordinary items, reported net income stood at $173.9 million or $1.99 per share in 2013, compared with $155.3 million or $1.78 a share in 2012.

Total operating revenue grew 12% year over year to $572.1 million, at par with the Zacks Consensus Estimate. Total core operating expense rose 7% to $281.2 million, while core operating margin improved to 50.8% from 48.7% in 2012.

Financial Update

As of Dec 31, 2013, CBOE Holdings had cash and cash equivalents of $221.3 million, up from $135.6 million at 2012-end. Total assets stood at $441.6 million at the end of Dec 2013, up from $338.9 million at 2012-end.

However, long-term liabilities were $49.6 million, up from $47.6 million at 2012-end, while total shareholder equity rose to $284.5 million from $239.1 million at 2012-end. Operating cash flow increased 11.9% year over year to $224.4 million in 2013.

Share Repurchase Update

CBOE Holdings repurchased 0.63 million shares for $31.3 million during the reported quarter and about 0.93 million shares worth $45.3 million in 2013.

On Dec 10, 2013, the board of CBOE Holdings sanctioned the repurchase of additional $100 million worth of common stock. Including shares remaining from the previous authorization, the company had about $158 million shares available for buybacks at the end of 2013.


Concurrently, CBOE Holdings detailed its outlook for 2014. Core operating expense is projected to grow by 3-5% over 2013 to $191-196 million, primarily due to higher expenses from regulatory services. Depreciation and amortization expense should be within $38-40 million.

Continuing stock-based compensation expense included in core expenses is expected to be about $13 million in 2014, $3 million of which is anticipated in first-quarter 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 Feb 5, 2014, the board of CBOE Holdings announced a regular quarterly dividend of 18 cents per share, which is payable on Mar 21, 2014, to the shareholders of record on Feb 28.

On Dec 10, 2013, the board of CBOE Holdings announced a special dividend worth 50 cents per share, which was paid on Jan 17, 2014, to the shareholders of record on Jan 3.

On Dec 20, 2013, CBOE Holdings paid a regular quarterly dividend of 18 cents per share to shareholders of record as on Nov 29, 2013.


While CBOE Holdings carries a Zacks Rank #3 (Hold), better-ranked financial stocks include Financial Engines Inc. ( FNGN ), American Express Co. ( AXP ) and American Financial Group Inc. ( AFG ), each bearing a Zacks Rank #2 (Buy).

AMER FINL GROUP (AFG): Free Stock Analysis Report

AMER EXPRESS CO (AXP): Free Stock Analysis Report

CBOE HOLDINGS (CBOE): Free Stock Analysis Report

FINANCIAL ENGIN (FNGN): Free Stock Analysis Report

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