Nasdaq Earnings Surge on Higher Revs - Analyst Blog

Nasdaq OMX Group Inc.'s NDAQ first-quarter 2014 operating earnings per share of 72 cents beat the Zacks Consensus Estimate by a penny and outpaced the prior-year quarter number of 64 cents.

Nasdaq's GAAP net income was $103 million or 59 cents per share, substantially higher than $42 million or 25 cents per share recorded in the year-ago quarter. Excluding extraordinary items, operating net income was $125 million compared with $108 million in the year-ago quarter.

Total net exchange revenues escalated 26.6% year over year to $529 million, also exceeding the Zacks Consensus Estimate of $526 million.On a constant currency basis and excluding acquisitions, revenues rose 9% in the reported quarter.

The improvement was primarily attributable to growth in the non-trading business segments. Non-transaction based revenues accounted for 72% of total net revenue and grew 27% from the prior-year quarter. The acquisitions of Thomson Reuters' IR, PR and Multimedia businesses and the eSpeed electronic fixed income platform were also accretive to the financials.

Segment wise, Market Services net exchange revenues spiked 17% from the year-ago period to $213 million. Listing Services revenues were 5.5% higher at $58 million, while Information Services rose 16% to $123 million. Additionally, Technology Solutions revenues surged 80% to $135 million in the reported quarter.

During the reported quarter, Nasdaq's order intakes surged to $57 million from $20 million in the year-ago period. Consequently, total order value (the value of orders signed that have not been recognized as revenues) improved to $652 million from $527 million in the prior-year quarter. New listings totaled 86 against 37 in the year-ago quarter.

Meanwhile, on a non-GAAP basis, core operating expenses stood at $315 million, up 32.9% from the year-ago period. Consequently, total operating income, on a non-GAAP basis, jumped 18.2% year over year to $214 million. However, operating margin contracted 280 basis points year over year to 40.5%.On GAAP basis, operating expenses climbed 5.2% to $345 million.

Financial Update

As of Mar 31, 2014, Nasdaq had cash and cash equivalents of $384 million, down from $398 million at 2013-end. Debt obligations of Nasdaq stood at $2.08 billion, down from $2.59 billion at 2013-end, as the company paid $121 million of debt in the reported quarter.

Total assets of Nasdaq increased to $12.98 billion from $12.58 billion at 2013-end, while total equity improved to $6.24 billion from $6.18 billion at 2013-end.

Guidance for 2014

Management remains on track to reduce gross debt-to-EBITDA ratio to mid-2x range by mid-2014. In Jan 2014, Nasdaq projected core operating expense within $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 in the range of $1.250–1.285 billion. Tax rate is anticipated in the band of 33–35% in 2014.

Dividend

On Mar 27, 2014, the board of Nasdaq hiked its regular dividend pay-out by 15% to 15 cents a share from the prior 13 cents. The raised dividend will be paid on Jun 27, 2014, to shareholders of record as on Jun 13.

On Mar 28, 2014, Nasdaq paid a cash dividend of 13 cents per share to shareholders of record as on Mar 14.

Other Stocks to Consider

Nasdaq presently carries a Zacks Rank #3 (Hold). Better-ranked financial stocks include MarketAxess Holdings Inc. MKTX and FleetCor Technologies Inc. FLT, both carrying a Zacks Rank #2 (Buy). Another financial service provider, General Finance Corp. GFN, sports a Zacks Rank #1 (Strong Buy).