ICE Group Inc.’s (ICE) fourth-quarter 2013 operating earnings of $2.00 per share comfortably surpassed the Zacks Consensus Estimate of $1.98 and the year-ago quarter figure of $1.84.
Accordingly, operating net income surged 42.2% to $192 million. This excluded after-tax extraordinary items of $372 million comprising impairment loss from the Cetip acquisition, merger costs from the NYSE Euronext acquisition and debt repayment.
Including these items, ICE Group recorded reported net loss of $176 million or $1.83 per share versus reported net income of $130 million or $1.76 per share in the year-ago quarter.
The quarterly results of ICE Group reflected robust growth in the top line, driven by incremental revenues from the NYSE Euronext acquisition, which was culminated in Nov 2013. However, equally higher expenses deterred margin and cash flow growth.
Total revenues escalated 88.9% year over year to $612 million, and was marginally higher than the Zacks Consensus Estimate of $613 million.
The year-over-year upsurge was mainly attributable to a 37.9% escalation in consolidated net transaction and clearing fee revenues which stood at $382 million. Consolidated market data revenues increased 139.5% to $91 million, whereas total listing fee revenues from NYSE Euronext stood at $35 million.
Furthermore, consolidated other revenues, which now includes NYSE Euronext-related technology services revenues and fees from trading license, regulatory and listed company services, escalated to $104 million from $9 million in the year-ago quarter.
Conversely, total operating expenses surged a whopping 243% year over year to $449 million, primarily due to increased operating expenses as well as NYSE Euronext acquisition-related transaction costs and compensation and benefits.
Subsequently, operating income declined 15.5% to $163 million. Reported operating margin stood at 26.6%, plunging from 59.6% in the year-ago period.
Full-Year 2013 Highlights
For full-year 2013, ICE Group reported operating earnings per share of $8.17, a penny higher than the Zacks Consensus Estimate of $8.16 but modestly upper than $7.60 recorded in 2012. Operating net income jumped 16% year over year to $646 million. Including extraordinary items, reported net income dropped to $254 million or $3.21 per share in 2013 from $552 million or $7.52 per share in 2012.
Total revenue surged 22.8% year over year to $1.67 billion and was in line with the Zacks Consensus Estimate. Total operating expenses rose 64.9% to $884 million. Subsequently, operating income decreased 4.5% year over year to $790 million, while reported operating margin stood at 47.2% in 2013 versus 60.7% in 2012. The effective tax rate was 46% against 29% in 2012.
Financial Update
At the end of Dec 2013, consolidated operating cash flow remained flat year over year at $735 million. Total capital ad real estate expenditures as well as capitalized software development costs stood at $181 million, up from $67 million in 2012.
As of Dec 31, 2013, the company recorded unrestricted cash and investments of $961 million (down from $1.61 billion at 2012-end level), while total outstanding debt stood at $5.1 billion from $1.13 billion at 2012-end given the purchase of NYSE Euronext. No shares were bought back in 2013.
Dividend Update
Concurrently, the board of ICE Group declared a first-quarter 2014 dividend of 65 cents, payable on Mar 31, 2014, to the shareholders of record as on Mar 17.
Guidance for 2014
Management provided its financial targets for 2014. ICE Group aims to achieve 70% of the $500 million worth of run-rate expense synergies by 2014-end. Meanwhile, total expense in the first quarter of 2014 is projected within $470–480 million.
The first-quarter interest expense is expected to be approximately of $29 million and $26–27 million of quarterly interest expense is estimated for the rest of 2014.
Depreciation and amortization expense is expected in the band of $75–80 million during the first-quarter and $320–350 million in 2014.
Moreover, ICE Group anticipates capital expenditures and capitalized software expenses projection within $180–200 million, including $50–60 million related to real estate costs in 2014.
Shares outstanding are now estimated in the range of 115–117 million in the first quarter of 2014 and 114–118 million in 2014. Consolidated tax rate is expected in the band of 27–30% in 2014.
Furthermore, ICE Group projects to report certain NYSE Technologies businesses as discontinued operations from first quarter of 2014 onwards.
Others
ICE Group presently carries a Zacks Rank #3 (Hold). Other better-ranked stocks in the financial sector include American Express Co. (AXP), ACE Ltd. (ACE) and Moody’s Corp. (MCO), all of which carry a Zacks Rank #2 (Buy).
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