CBOE Holdings' Q1 Earnings Lag Y/Y, Expense View Down - Analyst Blog

CBOE Holdings Inc.CBOE reported first-quarter 2015 operating earnings of 50 cents per share, which surpassed the Zacks Consensus Estimate of 48 cents by 4.2% but lagged the year-ago figure of 58 cents by about 14%.

With this result, the company's average four-quarter beat stands at 0.7%. Additionally, operating net income sank 15% year over year to $42.3 million. Including extraordinary items, reported net income stood at $42.1 million or 50 cents a share against $48.5 million or 56 cents per share.

Cboe Holdings Inc. - Earnings Surprise | FindTheCompany

Total operating revenue declined 10% year over year to $142.8 million. The plunge was due to transaction fees of $98.7 million (down 12.5% year over year), access fees of $13.7 million (9.9%) and regulatory fees of $8.4 million (15.2%). These were partially offset by upsides in exchange services and other fees of $9.7 million (up 2.1%), market data fees of $8 million (11.1%) and other revenues of $4.3 million (26.5%).

Both average daily volume and total trading volume tanked 15% year over year to 4.77 million and 290.7 million, respectively, reflecting a shift in product-mix toward low-margin multiply-listed contracts. However, average revenue per contract grew 3% to 34 cents due to an improvement in index contracts.

However, total operating expenses dipped 3.3% year over year to $73.3 million. Adjusting for volume-based expenses, depreciation and amortization, accelerated stock-based compensation expenses and unusual or one-time expenses, core operating expenses stood at $48 million against $47.7 million in the year-ago quarter.

Core operating income decreased 18% year over year at $73.3 million. Core operating margin also deteriorated to 48.7% from 53.6% in the year-ago period. However, effective tax rate dipped to 39% from 39.9% in the year-ago quarter.

Financial Update

As of Mar 31, 2015, CBOE Holdings had cash and cash equivalents of $137.6 million, down from $147.9 million at 2014-end. Total assets stood at $375.8 million at Mar 2015-end, down from $383.9 million at 2014-end.

Meanwhile, long-term liabilities were $61.4 million, up from $60.2 million at 2014-end, while total shareholder equity fell to $243.7 million from $250.1 million at 2014-end. Operating cash flow decreased 11.1% year over year to $78.5 million at Mar 2015-end.

Share Repurchase Update

CBOE Holdings repurchased about 0.51 million shares for $31.4 million during the reported quarter. Moreover, shares worth $341.8 million have been repurchased since the inception of the share buyback program in 2011. The company had about $58.2 million shares available for buybacks at the end of Mar 2015.

On Jul 30, 2014, the company's board sanctioned the repurchase of an additional $100 million worth of common stock, expanding the previous repurchase program worth $100 million announced in Dec 2013.


Concurrently, CBOE Holdings revised its outlook for 2015. Core operating expenses are now estimated in the range of $190-194 million in 2015, up about 1-3% from $188.9 million recorded in 2014. The revised view is lower than the previously projected band of $195-199 million.

Meanwhile, depreciation and amortization expenses continues to be in the $46-48 million band. Continuing stock-based compensation expenses, included in core expenses, are expected to be about $12 million in 2015. Meanwhile, the effective tax rate will likely be within 38.5-39.5%. Capital expenditure is projected in the range of $37-40 million.

Dividend Update

On Apr 29, 2015, the board of CBOE Holdings declared regular quarterly dividend of 21 cents per share, payable on Jun 19, to shareholders of record on May 29.

On Mar 20, 2015, the company paid a regular quarterly dividend of 21 cents per share to shareholders of record as on Feb 27. This was raised by 17% from the prior payout of 18 cents in Jul 2014.

Market Reaction

Weaker-than-expected results impelled shares of CBOE Holdings to dip 1.4% on Friday, closing at $55.51, plunging 13.8% since the beginning of 2015. The negative market reaction is also partly attributable to the ongoing fall in the CBOE Volatility Index, also reflected in the reported lower volumes for Apr 2015, casting a cautious outlook on the stock, going forward. This also justifies a Zacks Rank #5 (Strong Sell) that CBOE Holdings currently holds.

Stocks that Warrant a Look

Better-ranked financial stocks like MarketAxess Holdings Inc. MKTX , Arlington Asset Investment Corp. AI and JMP Group LLC JMP , all sporting a Zacks Rank #1 (Strong Buy), are worth considering.

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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.

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

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