Nasdaq OMX Group Inc. (NDAQ) reported fourth-quarter 2014 operating earnings per share of 75 cents, beating the Zacks Consensus Estimate by a penny. The company kept its earnings streak alive, marking positive earnings surprise in all of the four quarters of 2014, with an average beat of 2.2%. Results also exceeded the prior-year quarter figure of 69 cents.
Nasdaq’s GAAP net income was $87 million or 50 cents per share, down from $141 million or 81 cents a share in the year-ago period. Excluding extraordinary items, operating net income rose 8.4% year over year to $129 million.
However, total net exchange revenues dipped 0.6% year over year to $517 million, also lagging the Zacks Consensus Estimate of $523 million. Excluding currency fluctuations, organic net revenues improved 3% in the reported quarter.
Results reflected low-single digit organic growth, higher listings and IPOs, debt reduction and core operating expense control. These were partially offset by adverse foreign exchange rates, decline in technology revenues and sluggish market services from the prior-year quarter.
Detailed Analysis
Segment-wise, Market Services net exchange revenues rose 0.5% from the year-ago period to $205 million, reflecting lower equity derivative and fixed income revenues. Listing Services revenues grew 5.2% at $61 million, while Information Services revenues improved 5.6% to $113 million, both on a year-over-year basis. However, Technology Solutions revenues declined 8.6% to $138 million in the reported quarter.
Nasdaq’s order intakes surged to $193 million from $139 million in the year-ago period. Subsequently, total order value (the value of orders signed that have not been recognized as revenues) improved to $704 million from $660 million in the prior-year quarter. New listings totaled 118 against 94 in the year-ago quarter.
Meanwhile, on a non-GAAP basis, core operating expenses were $296 million, down 5.4% from the year-ago period. Consequently, total operating income, on a non-GAAP basis, climbed 6.8% year over year to $221 million. Operating margin also improved to 43% from 40% in the year-ago quarter.On a GAAP basis, operating expenses escalated 22% to $344 million.
Highlights of 2014
For full-year 2014, Nasdaq reported operating earnings per share of $2.88, which were at par with the Zacks Consensus Estimate but outpaced $2.60 per share recorded in 2013. Operating net income rose 9.7% over 2013 to $499 million.
Including extraordinary items, GAAP net income came in at $414 million or $2.39 per share, lower than $385 million or $2.25 per share recorded in 2013.
Total net exchange operating revenues climbed 9.1% year over year to $2.07 billion and were in line with the Zacks Consensus Estimate. Core operating expenses increased 7.5% year over year to $1.21 billion on a non-GAAP basis. Hence, operating margin improved to 42% from 41% in 2013.
Financial Update
As of Dec 31, 2014, Nasdaq had cash and cash equivalents of $427 million, up from $398 million at 2013-end. Debt obligations of Nasdaq were $2.31 billion, down from $2.59 billion at 2013-end.
Total assets of Nasdaq increased to $12.09 billion from $12.58 billion at 2013-end, while total equity deteriorated to $5.79 billion from $6.18 billion at 2013-end.
Capital Deployment Update
Nasdaq repurchased 1.4 million shares worth $58 million, for an average price of $42.07, during the reported quarter. A total of $178 million was bought back in 2014, since the company resumed buybacks in second-quarter 2014.
In Oct 2014, the company’s board had sanctioned a new share buyback program worth $500 million.
On Jan 29, 2015, the board of Nasdaq declared a regular dividend of 15 cents a share, payable on Mar 27, 2015, to shareholders of record on Mar 13.
On Dec 26, 2014, the company paid a cash dividend of 15 cents per share to shareholders of record as Dec 12. This was increased by 15% from 13 cents a share in Mar 2014.
Guidance for 2015
Nasdaq provided its total expense guidance for 2015 in the range of $1.12–1.15 billion. This includes R&D spending of $30–40 million, excluding which core expense is expected to be within $1.09–1.11 billion.
Peers
Rival exchanges, Intercontinental Exchange Inc. (ICE) and CBOE Holdings Inc. (CBOE), are slated to release fourth-quarter earnings before the opening bell on Feb 5 and Feb 6, respectively.
Another close competitor, CME Group Inc. (CME) will declare fourth-quarter earnings after the closing bell on Feb 5.
Nasdaq presently carries a Zacks Rank #3 (Hold).
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