Intercontinental Exchange (ICE), the largest global stock and derivative exchange operator, has posted its first year-over-year comparable quarter post the NYSE acquisition in Nov 2013. This will provide better visibility on ICE’s growth and expense curve, going forward. Nonetheless, launch of new energy contracts, along with successful integration of NYSE, divestment of non-core businesses have supported the timely achievement of cost synergies in 2014, thereby boosting operating leverage.
The acquisition of Holland Clearing House and its receipt of the EMIR authorization in Dec 2014 will expand ICE’s clearing facilities in the untapped region of continental Europe. Alongside, the sale of the remaining 6% stake in Euronext during the fourth quarter has further strengthened ICE’s operational and capital leverage. Strong operating cash flow and improved financial leverage also help maintain a healthy balance sheet.
A tactical business model is crucial for ICE for countering risks from stiff competition, currency fluctuations, weak rate per contract and regulatory challenges, also evident from consensus estimate being marginally south bound for 2014. Notably, sluggish trading volumes, witnessing 16% decline in derivative volumes as well as weaker cash equities and derivative volumes from NYSE in 2014, are expected to dampen revenue sources going forward. Derivative volumes further decreased 7% in Jan 2015.
Overall, ICE’s earnings track record has been quite satisfactory in the trailing four quarters. Better-than-expected results in two quarters and break-even results in the other two quarters of 2014 led to an average earnings surprise of +2.6%.
Currently, ICE has a Zacks Rank #3 (Hold), but that could definitely change following its fourth-quarter earnings report that has just been released. The key takeaways from this immediate announcement are highlighted below:
Earnings: ICE earnings came at par with our expectations. Our consensus called for EPS of $2.54, similar to the EPS reported by the company.
Revenue: Net revenues outperformed our estimate. Our consensus called for revenues of $784 million, and the company reported revenues of $800 million.
Key Stats to Note: Total operating expenses rose 7.2% year over year to $400 million in the fourth-quarter. Operating margin improved to 50% from 30.4% in the year-ago period.
ICE’s consolidated operating cash flow surged to $1.5 billion at 2014-end from $562 million at 2013-end. Total outstanding debt stood at $3.2 billion, down from $5.1 billion at 2013-end.
Shares worth $645 million were bought back in 2014. The board also declared regular quarterly dividend of 65 cents per share.
ICE expects net expense reduction of about $90 million in 2015.
Check back later for our full write up on this ICE earnings report later!
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