NYSE profit exceeds estimates on derivatives, cost cutting

NYSE Euronext, the U.S. exchange operator being bought by IntercontinentalExchange Inc., reported second-quarter earnings that beat analysts’ estimates as revenue from derivatives trading rose and costs fell.

Net income climbed 38% to $173 million from a year earlier, the New York-based company said today in a statement. Earnings excluding some items were 63 cents a share, versus the 58-cent median estimate of analysts surveyed by Bloomberg.

IntercontinentalExchange, the 12-year-old energy and commodity futures bourse known as ICE, is buying the 220-year- old exchange operator as the profitability of equities trading declines and derivatives generate more income. European Union regulators approved the deal on June 24. While NYSE’s earnings had dropped 26% in 2012 as fewer U.S. shares changed hands, profit increased during the first three months of 2013 on lowered expenses.

“The results today indicate that ICE is getting a stronger company than initially thought,” Peter Lenardos, an analyst at RBC Capital Markets in London, wrote in e-mailed comments. He has a sector-perform recommendation on the shares, similar to hold. “This will likely be NYSE’s last results before its acquisition.”

NYSE shares rose 0.5% to $41.61 at 10:13 a.m. New York time today. They have gained 32% this year, almost twice the Bloomberg World Exchanges Index of 26 bourses. IntercontinentalExchange added 0.5% to $179.16, extending its 2013 advance to 45%.

Deal Dividend

NYSE’s board declared a third-quarter dividend of 30 cents a share provided the ICE transaction is not completed by the record date of Sept. 16. The deal, which was approved by shareholders of both companies last month, should receive approval from the Securities and Exchange Commission by Aug. 15, NYSE Chief Executive Officer Duncan L. Niederauer said on a conference call today.

“We continue to execute solidly against our business plan as we build momentum toward closing the ICE deal,” Niederauer said in the statement. “Our shareholders and the European Commission have approved the transaction, and we are working with the College of Regulators in Europe and other regulators to obtain all the appropriate remaining approvals.”

Derivatives Unit

Operating income from derivatives trading increased 21% to $103 million, accounting for about 40% of the total, according to today’s statement. Profit from equity trading and stock listings increased less than 1% to $128 million, the company said.

Options trading in the U.S. slipped to a daily average of 15.9 million contracts last year from a ninth-consecutive record of 18.1 million in 2011, data from the Chicago-based Options Clearing Corp. show. So far in 2013, it has averaged 17 million, up about 7%. U.S. exchange-listed equity trading volume averaged 6.58 billion a day last quarter, down 3.5% from the same period in 2012, data compiled by Bloomberg show.

NYSE has been cutting costs in a plan known as Project 14 meant to eliminate $250 million of expenses by the end of 2014. The company today said it has achieved 64% of the expense-reduction target and it’s likely to beat previously announced full-year cost guidance of $1.5 billion.

Nasdaq OMX Group Inc., NYSE’s smaller equity-exchange and U.S.-listings rival, reported on July 24 that second-quarter earnings missed estimates as profit declined amid costs associated with acquisitions.

Analysts project Atlanta-based ICE will say Aug. 6 that earnings rose 7% during the quarter. Deutsche Boerse AG, based in Frankfurt, reported a decrease in profit on July 25 as it predicted its business environment will deteriorate.


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