Nasdaq OMX Group Inc. (NDAQ) continued its earnings streak when it reported second-quarter 2014 results. With this, the company marked four straight quarters of positive earnings surprise, with an average beat of 3.8%. Second-quarter operating earnings per share came in at 70 cents, which beat the Zacks Consensus Estimate of 68 cents and outpaced the prior-year quarter figure of 62 cents.
Nasdaq’s GAAP net income was $101 million or 59 cents per share, substantially higher than $88 million or 52 cents per share in the year-ago quarter. Excluding extraordinary items, operating net income rose 14.3% to $120 million from $105 million in the year-ago quarter.
Total net exchange revenues escalated 16% year over year to $523 million, also exceeding the Zacks Consensus Estimate of $519 million. On a constant currency basis and excluding acquisitions, revenues rose 4% in the reported quarter.
The improvement was primarily attributable to growth in the non-trading business segments, which recorded organic growth of 9%. Non-transaction-based revenues also accounted for 74% of total net revenue and grew 19% from the prior-year quarter.
Theacquisitions of Thomson Reuters' IR, PR and Multimedia businesses and the eSpeed electronic fixed income platform were also accretive to the financials. While derivative volumes continued to weaken, NASDAQ Private Market and NLX appear poised for lucrative long-term opportunities.
Detailed Analysis
Segment-wise, Market Services net exchange revenues rose 6.3% from the year-ago period to $202 million. Listing Services revenues were 3.4% higher at $60 million, while Information Services revenues rose 15% to $123 million. Additionally, Technology Solutions revenues surged 43.8% to $138 million in the reported quarter.
However, Nasdaq’s order intakes fell to $32 million from $45 million in the year-ago period. Conversely, total order value (the value of orders signed that have not been recognized as revenues) improved to $638 million from $512 million in the prior-year quarter. New listings totaled 111 against 79 in the year-ago quarter.
Meanwhile, on a non-GAAP basis, core operating expenses were $308 million, up 15.4% from the year-ago period. Nevertheless, total operating income, on a non-GAAP basis, jumped 16.8% year over year to $215 million. Consequently, operating margin improved slightly to 41.1% from 40.8% in the year-ago quarter. On a GAAP basis, operating expenses climbed 13.7% to $332 million.
Financial Update
As of Jun 30, 2014, Nasdaq had cash and cash equivalents of $314 million, down from $398 million at 2013-end. Debt obligations of Nasdaq stood at $2.41 billion, down from $2.59 billion at 2013-end. The company paid $100 million of debt in the reported quarter and the same worth $221 million was repaid in the first half of 2014.
Total assets of Nasdaq increased to $13.12 billion from $12.58 billion at 2013-end, while total equity improved to $6.21 billion from $6.18 billion at 2013-end.
Capital Deployment Update
Nasdaq repurchased shares worth $93 million, for an average price of $36.46, during the reported quarter.
On Jul 24, 2014, the board of Nasdaq declared a regular dividend of 15 cents a share, payable on Sep 26, 2014, to shareholders of record as on Sep 12.
On Jun 27, 2014, Nasdaq paid a cash dividend of 15 cents per share to shareholders of record as on Jun 13. The payout marked an increase of 15% from 13 cents a share in Mar 2014.
Guidance for 2014
In Jan 2014, Nasdaq projected core operating expense of $1.215–1.235 billion in 2014. Additionally, the company expects approximately $35–50 million of incremental expenses from new initiative or GIFT spending in 2014.
Including these charges, total expenses are projected to be $1.250–1.285 billion. Tax rate is anticipated in the band of 33–35% in 2014.
Other Stocks to Consider
Nasdaq presently carries a Zacks Rank #4 (Sell). Better-ranked financial stocks include Total System Services Inc. (TSS), VeriFone Systems Inc. (PAY) and Qiwi Plc (QIWI), all of which sport a Zacks Rank #1 (Strong Buy).
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