Nasdaq Reports Profit Exceeding Forecasts After Cost Cuts

Nasdaq OMX Group Inc., the second-largest U.S. equity exchange, reported fourth-quarter earnings that beat analysts’ estimates after the company cut costs amid a decline in stock-market trading.

Profit in the three months ended Dec. 31 jumped to $85 million, or 50 cents a share, from $82 million, or 45 cents, in the fourth quarter of 2011. Excluding some costs, New York-based Nasdaq OMX said it earned 64 cents a share, more than the 61-cent average estimate of analysts surveyed by Bloomberg. The stock gained 1.3 percent to $28.32 in New York today, the highest level since April 2011.

Chief Executive Officer Robert Greifeld is re-organizing business units and cutting costs as revenue from trading shrinks around the world. The exchange is expanding into derivatives, setting up a new London-based market and buying a 25 percent stake in a Dutch alternative trading system focused on stocks and equity derivatives.

“For 2013, we are looking at relatively flat costs for the underlying business,” Greifeld said in a telephone interview today. “We have a reputation for under-promising and over-delivering.”

NYSE Takeover

Nasdaq OMX’s biggest rival, NYSE Euronext, agreed last month to be acquired by futures bourse IntercontinentalExchange Inc. in a move that underscored the growing importance of derivatives. Greifeld said on a conference call today that he doesn’t see competition changing as a result of the deal.

“We compete aggressively with NYSE today, we expect that to continue post the acquisition,” he said. “We don’t compete with ICE today, and we don’t see that changing either.”

For the fourth quarter, operating expenses fell to $244 million from $259 million in the quarter a year ago. Nasdaq said total operating expenses for 2013 will be in the range of $960 million to $990 million, including $50 million to $60 million in spending on new initiatives.

“Both higher revenue and lower expenses combined to drive the beat” of analysts’ forecasts, Chris Ross, an analyst at JMP Securities in New York, said in a note today. He has a market outperform recommendation on Nasdaq. “We expect shares to outperform today.”

Net revenue for the quarter excluding rebates, clearing and other fees was $419 million, the company said. That compares with $420 million the same time a year ago.

Fund Flows

About $22 billion flowed into stock funds around the world in the week ended Jan. 9, the second-highest rate on record, according to data compiled by research firm EPFR Global going back to 1996. Funds took in money after the FTSE World index rose more than 3 percent in the first week of 2013, while the Standard & Poor’s 500 Index reached a five-year high.

Average daily volume for equities listed on all U.S. exchanges was 6.07 billion shares in the fourth quarter, 18 percent down from a year earlier, according to data compiled by Bloomberg.

Nasdaq OMX received 40 cents per 1,000 shares changing hands in U.S. equities during the fourth quarter, up 2 cents from the prior three months, for the highest level since the first quarter of 2011, the company said in a statement on Jan. 10. Its so-called revenue capture for each U.S. options contract traded was 17 cents, a decline from 18 cents in the third quarter.

The company announced plans last year to start an interest-rate derivatives trading platform in London as it seeks to expand in the region and diversify its business. The platform, known as NLX, is seeking to grab more than 10 percent of transactions in the U.K. during its first year of operation.

“We are making progress with NLX,” Greifeld said. “We are keenly aware that it’s not an easy task, but we are receiving wide encouragement from customers.”

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