NYSE Fourth-Quarter Profit Tops Estimates on Cost CuttingNandini Sukumar, Whitney Kisling and Lindsey Rupp
NYSE Euronext, the U.S. exchange operator being bought by IntercontinentalExchange Inc., reported fourth-quarter earnings that beat analyst estimates after the company cut costs.
Net income fell 75 percent to $28 million from $110 million a year earlier, the New York-based company said today in a statement. Earnings excluding some items were 43 cents a share, compared with the 38-cent mean estimate of 16 analysts surveyed by Bloomberg. The projections ranged from 35 cents to 42 cents.
IntercontinentalExchange, a 12-year-old energy and commodity futures bourse, agreed in December to acquire NYSE, the owner of the largest American equity exchange, in an $8.2 billion deal set to close in the second half of this year. The deal could bring benefits from cross-selling services or an initial public offering of its Euronext business, Chief Executive Officer Duncan Niederauer said on a conference call with analysts today.
“NYSE shares are tied to ICE stock price, but better revenues and faster cost saves could bode well for combined company, giving both names an upward bias on these results,” Ed Ditmire, a New York-based analyst with Macquarie Group Ltd., wrote in a note after today’s report.
The shares rose 1 percent to $35.22 today, closing at the highest level since July 2011. The shares have risen for the past nine days, the longest winning streak since 2006. Shares of IntercontinentalExchange, known as ICE, added 1.6 percent to $143.54, its highest level since May 2008. The Bloomberg World Exchanges Index has climbed 11 percent this year.
Earnings at the 220-year-old NYSE have fallen for the past four quarters as U.S. stock trading slumped 18 percent in 2012 and options volume slowed from a record. The company has been cutting costs in a plan known as Project 14 meant to eliminate $250 million of expenses by the end of 2014, after European regulators barred the exchange from a planned merger with Deutsche Boerse AG in February 2012.
Operating costs in 2013 will be $1.53 billion, with core expenses $200 million lower than in 2011, the company said today. Capital expenditures will be $150 million, down from $191 million in 2012.
The company also plans to refinance its debt, saving $15 million this year and $24 million in 2014, Chief Financial Officer Michael Geltzeiler said on the call.
Expenses fell 5.8 percent to $392 million last quarter, according to the release today. The cost cuts from debt refinancing and the Project 14 efficiency measures helped offset an 11 percent drop in net revenue, which excludes rebates paid and fees collected from some traders, the company said.
Stock-trading and listings revenue fell 10 percent and derivatives revenue declined 14 percent during the quarter, according to today’s statement.
U.S. exchange-listed equity volume averaged 6.42 billion a day in 2012, down from 7.8 billion in 2011, data compiled by Bloomberg show. Options trading in the U.S. slowed to a daily average of 15.9 million contracts from a ninth-consecutive record of 18.1 million the previous year, data from the Chicago-based OCC show.
NYSE submitted antitrust filings and a proxy statement to the Securities and Exchange Commission in relation to the deal with IntercontinentalExchange last month. Niederauer said on the call that he’s “cautiously optimistic” the deal will close as planned later this year.
The companies are focused on obtaining regulatory approval, Niederauer said. NYSE Euronext and ICE said in December that they plan to explore an IPO for Euronext, which operates bourses in Paris, Lisbon, Brussels and Amsterdam.
“We certainly see further upside for investors from revenue synergies,” Niederauer, who will be president of the combined company after the merger, said today. “Any IPO of Euronext would occur as soon after the close as practical, but as you would expect our focus right now is on the approval process for the merger.”
Under the terms of the deal, NYSE shareholders can elect to take $33.12 in cash, 0.2581 share of IntercontinentalExchange or a mix of $11.27 in cash and 0.1703 stock. The transaction is expected to increase earnings by more than 15 percent in the first year and achieve $450 million in estimated cost savings, the majority of which will be achieved in the second year after the deal closes.
Nasdaq OMX Group Inc., NYSE’s smaller equity-exchange and U.S.-listings rival, said Jan. 31 that fourth-quarter earnings exceeded estimates after the company cut costs.
Analysts project Atlanta-based IntercontinentalExchange will say tomorrow that earnings declined 1 percent the last three months of 2012, while Deutsche Boerse, based in Frankfurt, said today 2012 adjusted preliminary net income was about 660 million euros ($893.84 million) on net revenue of 1.93 billion euros.