Nasdaq OMX Group Inc. (NDAQ) reported third-quarter 2014 operating earnings per share of 72 cents beat the Zacks Consensus Estimate of 70 cents. The company kept its earnings streak alive and marked five straight quarters of positive earnings surprise, with an average beat of 3.7%. Results also outpaced the prior-year quarter figure of 66 cents.
Nasdaq’s GAAP net income was $123 million or 71 cents per share, modestly higher than $113 million. Excluding extraordinary items, operating net income rose 8.8% year over year to $125 million.
However, total net exchange revenues fell 2.4% year over year to $497 million, also lagging the Zacks Consensus Estimate of $513 million. On a constant currency basis and excluding acquisitions, revenues inched down 1% in the reported quarter.
The decline was primarily owing to adverse foreign exchange rates, substantial decline in data audit collections and a certain planned revenue impacts in acquired businesses. Non-transaction based revenues also accounted for 74% of total net revenue and grew 19% from the prior-year quarter.
Detailed Analysis
Segment-wise, Market Services net exchange revenues fell 3% from the year-ago period to $194 million, reflecting lower derivative and fixed income revenues. Although Listing Services revenues rose 3.5% at $59 million, Information Services revenues edged down 2.6% to $114 million, both on a year-over-year basis. Additionally, Technology Solutions revenues dipped 1.5% to $130 million in the reported quarter.
However, Nasdaq’s order intakes fell to $28 million from $120 million in the year-ago period. Conversely, total order value (the value of orders signed that have not been recognized as revenues) improved to $621 million from $584 million in the prior-year quarter. New listings totaled 84 against 64 in the year-ago quarter.
Meanwhile, on a non-GAAP basis, core operating expenses were $284 million, down 6.7% from the year-ago period. Consequently, total operating income, on a non-GAAP basis, climbed 5.5% year over year to $213 million. Operating margin also improved to 43% from 40% in the year-ago quarter.On a GAAP basis, operating expenses fell 4.6% to $290 million.
Financial Update
As of Sep 30, 2014, Nasdaq had cash and cash equivalents of $286 million, down from $398 million at 2013-end. Debt obligations of Nasdaq were $2.35 billion, down from $2.59 billion at 2013-end.
Total assets of Nasdaq increased to $12.69 billion from $12.58 billion at 2013-end, while total equity deteriorated to $6.12 billion from $6.18 billion at 2013-end.
Capital Deployment Update
Nasdaq repurchased shares worth $27 million, for an average price of $41.39, during the reported quarter. Additional shares worth $35 million have also been bought back so far in October.
Concurrently, the company’s board sanctioned a new share buyback program worth $500 million. Including $60 million from the prior authorization, Nasdaq now has $560 million of stock available for repurchases.
On Oct 24, 2014, the board of Nasdaq declared a regular dividend of 15 cents a share, payable on Dec26, 2014, to shareholders of record on Dec 12.
On Sep 26, 2014, the company paid a cash dividend of 15 cents per share to shareholders of record as Sep 12. This payout marked an increase of 15% from 13 cents a share in Mar 2014.
Guidance for 2014
Nasdaq has tightened its core expense guidance for 2014 to $1.205–1.225 billion from the prior range of $1.215–1.235 billion.
Peers
Rival exchanges, CME Group Inc. (CME) and CBOE Holdings Inc. (CBOE), are slated to release third quarter earnings before the opening bell on Oct 30 and Oct 31, respectively.
Another close competitor, Intercontinental Exchange Inc. (ICE) will declare third quarter earnings before the opening bell on Nov 4.
Nasdaq presently carries a Zacks Rank #3 (Hold).
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