NYSE Euronext Inc.’s (NYSE:NYX) third-quarter 2011 operating earnings per share of 71 cents came in a couple cents ahead of the Zacks Consensus Estimate but substantially higher than 46 cents recorded in the year-ago quarter. Consequently, operating net income surged 54% year over year to $186 million from $121 million in the year-ago quarter.
NYSE reported GAAP net income of $200 million or 76 cents per share as compared with $128 million or 49 cents per share in the prior-year quarter. These include the impact of pre-tax merger expenses and exit costs of $29 million versus $25 million reported in the year-ago quarter.
The quarter had also recorded net gain on disposal activities of $54 million. Besides, the merger expenses in the reported quarter included $19million related to the proposed merger with Deutsche Boerse.
Gross revenues jumped 20% year over year to $1.26 billion 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) were $704 million, rising 18% from $599 million in the prior-year quarter and also exceeded the Zacks Consensus Estimate of $693 million.
The improved performance was primarily based on higher transaction and clearing fees that escalated 24.5% year over year to $904 million, listing revenue that climbed 7.6% to $113 million and technology service revenue that climbed12.2% to $92 million. Other revenue also augmented 30.2% year over year to $56 million, although marginal growth of 1% year over year was witnessed in market data revenue.
Revenue from derivatives increased 20.2% year over year to $226 million. Alongside, revenue growth was also injected by information service and technology solutions (up 10.6% year over year to $125 million) and cash trading and listings (up 18.5% year over year to $353 million).
Overall, growth in all areas were supported by modest growth in European and the US average daily trading volumes favourable currency fluctuations, higher pricing and higher connectivity revenue related to data centers in Mahwah and Basildon.
However, fixed operating expenses were almost at $445 million from $444 million in the prior-year quarter. As a result, operating margin improved to 41% from 30% in the year-ago quarter.
As of September 30, 2011, total headcount at NYSE was 3,074, up 2% from September 30, 2010 and 3% from June 30, 2011. The effective tax rate was 25.0% as compared with 24.2% in the year-ago quarter but was marginally lower than management’s guidance of 26.0% for 2011.
As of September 30, 2011, NYSE’s total debt declined $0.3 million from 2010 end to $2.1 billion, whereby the company eliminated some commercial paper. 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 declined to $49 million from $82 million in the year-ago quarter. The company expended $116 million in the first nine months of 2011, which is in line with its guidance. As a result of strong growth in adjusted EBITDA, lower capital expenditures and continued deleveraging, NYSE’s debt-to-EBITDA ratio improved to 1.6x from 2.2x recorded at the end of 2010, lowest level since the inception of NYSE in April 2007.
Stock Repurchase Update
On October 27, 2011, the board of NYSE announced its plans to repurchase shares worth $100 million along with the previously announced dividends. The buy back will be held through open market or privately negotiated transactions, subject to regulations and approvals in the US and Europe. NYSE expects to complete the share repurchase program in the rest of fourth quarter of 2011.
Thus, NYSE has resumed its $1.0 billion share buy back plan that was sanctioned in March 2008 but shelved in the fourth quarter of 2008, within which the company had already bought back shares worth $350 million.
Meanwhile, Deutsche Boerse had also announced a buy back plan of around €100 million. Both NYSE and Deutsche Boerse have agreed to initiate their respective share buyback programs in order to preserve the ownership of 40% and 60% to be held by former NYSE and Deutsche Boerse shareholders, respectively, in the combined company following the pending merger.
For 2011, NYSE management had previously projected fixed operating expenses to be less than $1,650 million on a constant dollar and fixed portfolio basis, compared with expenses of $1,678 million in 2010. Presently, total capital expenditure is expected to be less than $200 million compared with $244 million in 2010. The effective tax rate is now expected to be 25.75%, down from 26.0% in 2011.
NYSE-Deutsche Boerse Merger Update
On September 13, 2011, the proposed merger between NYSE and Deutsche Boerse received approval from the Germany’s Federal Financial Supervisory Authority (BaFin).
In August 2011, NYSE received a green signal for its merger with Deutsche Boerse from the Committee on Foreign Investment (NYSE:CFI) in the US. The CFI is a prime regulatory body in the US comprising government officials representing the justice, commerce, state, defence and homeland security departments. The board of CFI scrutinizes all the international mergers made by the US-based organizations.
In July 2011, both NYSE and Deutsche successfully completed the first lap of the merger process when both the companies managed to attain the consent from their respective majority shareholders. The overly brilliant result came in likely after the companies had reconciled with NYSE investors, in June this year, with a special dividend payout of $910 million, to be distributed upon the culmination of the merger deal.
Accordingly post merger, the Deutsche Boerse holders will receive a special dividend of €2 or $2.87 per share in addition to one share of the new holding company for every current share owned.
On the other hand, NYSE shareholders will receive a special dividend of €0.94 or $1.37 per share, apart from 0.47 share of the new holding company for every share held in NYSE before the merger. The prices for special dividends assume an exchange rate of $1.46 per euro. Meanwhile, in any case if the special dividend is not approved by the board of the new company, the investors have the choice of confronting this settlement.
However, the most stringent ongoing probe by the European Union Commission is expected to give out its report-card by December 13, 2011.
On September 1, 2011, NYSE announced the closure of the acquisition of Tokyo-based Metabit, which offers high quality market access products through more than 140 trading firms across Japan and Asia. However, the terms and financials of the deal remain undisclosed. The company intimidated about the acquisition on August 1, 2011. Accordingly, the company s NYSE Technologies portfolio will absorb Metabit that will operate as a product line.
Concurrently, the board of NYSE declared a regular quarterly dividend of 30 cents per share, which is payable on December 30, 2011, to the shareholders of record as on December 15, 2011.
Furthermore, on September 30, 2011, NYSE paid a quarterly cash dividend of 30 cents to shareholders of record as on September 15, 2011.
Last month, NYSE’s arch-rival Nasdaq OMX Group Inc. (NASDAQ:NDAQ) reported its third quarter 2011 operating earnings per share of 67 cents, which came in line with the Zacks Consensus Estimate but modestly ahead of 50 cents in the prior-year quarter.
Besides, yesterday, IntercontinentalExchange Inc. (NYSE:ICE) reported third quarter operating earnings of $1.87 per share, which were substantially ahead of the Zacks Consensus Estimate of $1.77 per share and $1.42 per share reported in the year-ago period.