ICE Group Q1 Earnings In Line, Up Y/Y - Analyst Blog

ICE Group Inc.ICE posted first-quarter 2014 operating earnings of $2.60 per share. This was at par with the Zacks Consensus Estimate of $2.60 and higher than the year-ago quarter figure of $2.03 per share, primarily due to lower share count in the year-ago quarter.

Accordingly, operating net income surged 102.3% year over year to $301 million. This excluded after-tax cost related to NYSE Euronext acquisition worth $39 million in the reported quarter, while another $13.3 million was recorded in the year-ago quarter, related to merger costs and duplicate rent expense.

Including these items, ICE Group recorded reported net income of $262 million or $2.27 per share versus $135 million or $1.85 per share in the year-ago quarter.

The quarterly results of ICE Group reflected robust growth in the top line, driven by incremental revenues from the NYSE Euronext acquisition, which was culminated in Nov 2013. However, equally higher expenses deterred margin and cash flow growth.

Total net revenues escalated about 165% year over year to $932 million, and swiftly exceeded the Zacks Consensus Estimate of $907 million.

The year-over-year upsurge was mainly attributable to a 91.3% spike in consolidated net transaction and clearing fee revenues which stood at $574 million. Consolidated market data fees revenues increased 124.4% to $133 million, whereas total listing fee revenues from NYSE Euronext was at $91 million, higher than $35 million in the prior quarter.

Furthermore, consolidated other revenues, which now includes NYSE Euronext-related technology services revenues and fees from trading license, regulatory and listed company services, escalated to $134 million from $11 million in the year-ago quarter.

Conversely, total operating expenses surged a whopping 244% year over year to $523 million, primarily due to increased operating expenses as well as NYSE Euronext acquisition-related transaction costs and compensation and benefits.

Subsequently, operating income jumped 104.5% to $409 million. Reported operating margin came in at 43.9%, plunging from 56.8% in the year-ago period. The effective tax rate stood at par at 28%.

Financial Update

At the end of Mar 2014, consolidated operating cash flow surged to $519 million from $150 million in the year-ago quarter. Capital expenditures totaled $31 million, up from 16 million in the year-ago period, while capitalized software development costs grossed $20 million, up from $9 million in the year-ago quarter.

As of Mar 31, 2014, the company recorded unrestricted cash and investments of $1.0 billion (up from $961 million at 2013-end), while total outstanding debt stood at $4.9 billion from $5.1 billion at 2013-end. No shares were bought back during the quarter.

Cash and cash equivalents totaled $964 million at the end of Mar 2014, up from $961 million at 2013-end. Moreover, total assets appreciated to $65.9 billion, whereas total equity rose to $12.95 billion, from 2013-end levels.

Dividend Update

Concurrently, the board of ICE Group declared a second-quarter 2014 dividend of 65 cents, payable on Jun 30, 2014, to shareholders of record as on Jun 16.

On Mar 31, 2014, ICE Group paid its first-quarter 2014 dividend of 65 cents to shareholders of record as on Mar 17.

Guidance for 2014

Management detailed its financial targets for 2014, reflecting higher expenses and capital expenditure. Total expense in the second quarter of 2014 is projected within $485–495 million, of which the ICE segment is likely to incur about $390–400 million.

For full-year 2014, the ICE segment projects operating expenses of about $1.56–1.58 billion, and includes acquisition-related transaction and integration costs.

Other revenues are expected to be approximately of $120–130 million in second-quarter 2014. About $26–27 million of quarterly interest expense is estimated for the rest of 2014.

Depreciation and amortization expense is expected in the band of $85–90 million during the second-quarter and $360–370 million in 2014.

Moreover, ICE Group anticipates capital expenditures and capitalized software expenses to be $200–210 million in 2014 and $60–65 million in second-quarter 2014. The yearly estimate includes $70–80 million related to real estate costs in 2014, higher than the prior projection.

Shares outstanding are now estimated in the range of 115–116 million in the second quarter of 2014 and 114–117 million in 2014. Consolidated tax rate is expected in the band of 27–30% in 2014.

Furthermore, the guidance excludes certain non-strategic NYSE Technologies businesses, which are expected to be divested from mid-2014 onwards but are already part of discontinued operations. ICE Group also aims to achieve 70% of the $500 million worth of run-rate expense synergies by 2014-end.

Others

ICE Group presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the financial space include Euronet Worldwide Inc. EEFT, General Finance Corp. GFN and State Auto Financial Corp. STFC, all of which sport a Zacks Rank #1 (Strong Buy).