CBOE Holdings Inc. (CBOE) reported third-quarter 2014 operating earnings of 57 cents per share, which comfortably surpassed the Zacks Consensus Estimate of 54 cents and the year-ago figure of 47 cents by 21%. With this result, the company’s average four-quarter beat stands at 3.9%. Additionally, net income jumped 17% year over year to $48.4 million.
Total operating revenue grew 9% year over year to $148.9 million and was in line with the Zacks Consensus Estimate. The year-over-year revenue growth was due to transaction fees of $104.3 million (up 12.2% year over year), regulatory fees of $8.9 million (at par), exchange services and other fees of $9.5 million (up 3.3%) and market data fees of $7.8 million (up 36.8%). These were partially offset by declines in access fees of $14.7 million (down 2%) and other revenue of $3.7 million (down 7.5%).
Average daily volume improved 7% year over year to 4.95 million, while total trading volume climbed 7% to $316.9 million, reflecting enhanced market volatility. Moreover, average revenue per contract increased 4% to 32.9 cents due to shift in product-mix toward high-margin index contracts and fee adjustments implemented in Jan 2014.
However, total operating expenses rose 8% year over year to $73.8 million. Adjusting for volume-based expenses, depreciation and amortization, accelerated stock-based compensation expense and unusual or one-time expenses, core operating expenses climbed 3.3% $46.3 million in the quarter.
Core operating income increased 10% year over year to $75.1 million. Core operating margin also improved slightly to 50.4% from 50.0% in the year-ago period. However, effective tax rate dipped to 35.4% from 39.1% in the year-ago quarter.
Financial Update
As of Sep 30, 2014, CBOE Holdings had cash and cash equivalents of $126.5 million, down from $221.3 million at 2013-end. Total assets stood at $367.1 million at the end of Sep 2014, down from $441.6 million at 2013-end.
Meanwhile, long-term liabilities were $53.7 million, up from $49.6 million at 2013-end, although total shareholder equity fell to $245.1 million from $284.5 million at 2013-end. However, operating cash flow improved 6.8% year over year to $184.1 million at the end of Sep 2014.
Share Repurchase Update
CBOE Holdings repurchased about 1.0 million shares for $51.3 million during the reported quarter. Moreover, shares worth $281.6 million have been repurchased since the inception of the share buyback program in 2011.
On Jul 30, 2014, the company’s board sanctioned the repurchase of an additional $100 million worth of common stock. This has expanded the previous repurchase program of $100 million announced in Dec 2013.
Including shares remaining from the previous authorization, the company had about $118.4 million shares available for buybacks at the end of Oct 2014.
Guidance
Concurrently, CBOE Holdings reiteratedits outlook for 2014. Core operating expense was reaffirmed in the range of $186–190 million in 2014, down from the prior estimate of $191–196 million. Depreciation and amortization expense is likely to be in the $38–40 million band.
Continuing stock-based compensation expense, included core expenses, is expected to be about $13 million in 2014. Meanwhile, effective tax rate is likely to be within 38.5–39.5%. Capital expenditure is projected in the range of $47–50 million, higher than $31.7 million in 2013.
Dividend Update
On Oct 29, 2014, the board of CBOE Holdings declared a regular quarterly dividend of 21 cents per share, payable on Dec 19, 2014, to shareholders of record on Nov 28.
On Sep 19, 2014, the company paid a regular quarterly dividend of 21 cents per share to shareholders of record as on Aug 29. This was raised by 17% from the prior payout of 18 cents in Jul 2014.
CBOE Holdings carries a Zacks Rank #3 (Hold) at present.
Stocks that Warrant a Look
Better-ranked financial stocks like Markit Ltd. (MRKT), MarketAxess Holdings Inc. (MKTX) and Global Payments Inc. (GPN), all having a Zacks Rank #2 (Buy), are worth considering.
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