NYSE Euronext Inc.’s (NYX) fourth quarter operating earnings per share of 46 cents came in a couple of pennies ahead of the Zacks Consensus Estimate of 44 cents. However, earnings were substantially behind the 58 cents recorded in the year-ago quarter.

Results reflect weak transaction and clearing volumes, particularly in the European derivatives and U.S. cash trading that primarily lowered the top line. Both New York Portfolio Clearing (NYPC) and NYSE Liffe U.S. are currently incurring losses.

However, the company benefited from various cost reduction programs. These aided in increasing efficiency of the new initiatives taken to launch new data centers as part of its long-term strategy. Nevertheless, operating net income decreased 21% year over year to $120 million from $151 million in the year-ago quarter.

NYSE reported GAAP net income of $135 million or 51 cents per share as compared with $172 million or 66 cents per share in the prior-year quarter. These include the impact of pre-tax merger expenses, exit costs and requisite reversal of discrete tax reserves of $18 million versus $43 million reported in the year-ago quarter.

Gross revenues declined by 8.0% year over year to $1.05 billion in the reported quarter. Besides, net revenues (defined as gross revenues less direct transaction costs consisting of Section 31 fees, liquidity payments and routing and clearing fees) were $613 million, down 4% from $640 million in the prior-year quarter and also below the Zacks Consensus Estimate of $617 million.

Revenues from information service and technology solutions (up 11% year over year) were offset by a decline in derivatives (down 6% year over year) and in cash trading and listings (down 7% year over year) due to price reductions, unfavorable currency fluctuations and lower trading volumes. Fixed operating expenses decreased slightly to $425 million from $431 million in the prior-year quarter.

Full Year 2010 Highlights

For full year 2010, NYSE reported operating net income of $548 million or $2.09 per share as compared with $533 million or $2.04 per share, and exceeded the Zacks Consensus Estimate of $2.07 per share. GAAP net income was $577 million or $2.20 per share as compared with $219 million or 84 cents per share in 2009.

Net revenues edged up 1% year over year to $2.51 billion and were in line with the Zacks Consensus Estimate. Fixed operating expenses came in flat year over year at $1.68 billion in 2010 and below the management guidance. On a constant dollar, constant portfolio basis, fixed expenses were down $113 million or 7% from 2009 levels.

As of December 31, 2010, total headcount at NYSE was 2,968, down a respective 12% and 2% from December 31, 2009 and September 30, 2010. The effective tax rate was 26.5%, in line with the management’s guidance for 2010.

NYSE recorded 99 initial public offerings (IPO) worth $39.1 billion in 2010, dramatically up from 44 IPOs for $2.1 billion in 2009, reflecting signs of global market recovery. The IPO pipeline also remains strong through 2011.

As of December 31, 2010, NYSE’s total debt declined $0.3 billion from December 31, 2009 to $2.4 billion and consisted of $2.1 billion in long-term debt and $0.3 billion in short-term debt. At the end of 2010, cash and cash equivalents, investments and other securities were $0.4 billion while net debt was $2.0 billion.

Dividend Update

The board of NYSE declared a quarterly cash dividend of 30 cents for the first quarter of 2011, which will be paid on March 31, 2011 to shareholders of record as on March 16, 2011.

At the Peer

NYSE’s direct competitor, Nasdaq OMX Group Inc. (NDAQ), reported operating earnings per share of 55 cents on February 2, surpassing the Zacks Consensus Estimate by a nickel and prior-year quarter earnings of 46 cents.

Our Take

NYSE’s disciplined fixed expense control and de-leveraging of the balance sheet through debt reduction are expected to give a big boost to the company’s long-term strategies of developing clearinghouses in London and Paris by the end of 2012.

While the NYPC is expected to be operational from late first quarter of 2011, new data centers were launched in U.S. and Europe. Besides, NYSE Liffe U.S. also expects to launch trading in Eurodollar and U.S. Treasury Futures by the end of first quarter of 2011.

Through these long-term strategies, NYSE is not only working vigorously to lower its business risk but also to expand and strengthen its competitive position globally. However, increased competition, weak volumes and product pricing along with government regulations continue to pose risk on the market share and the operating leverage of the company.

 
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