CBOE Holdings (CBOE) Misses Q2 Earnings, Hikes Dividend

CBOE Holdings Inc. (NASDAQ:CBOE) reported second-quarter 2016 operating earnings of 60 cents per share, which missed the Zacks Consensus Estimate of 61 cents by 1.6%. Earnings improved 11% year over year.

The bottom-line growth can be attributed to higher transaction fees due to increment in trading volumes. The upside was, however, partially offset by higher operating expenses due to rise in royalty fees, compensation and benefits and professional fees and outside services.

Including one-time items, net income jumped 15% year over year to 62 cents per share.

Second-Quarter Performance Details

Total operating revenue grew 10% year over year to $163.3 million primarily due to 20% higher transaction fees as well as exchange services and other fees. In the reported quarter, exchange services and other fees increased 17.5% to $11.4 million and transaction fees rose by 16% year on year to $117.9 million. This was partially offset by lower access fees, and other revenues. However, revenues were in line with the Zacks Consensus Estimate.

Total trading volume of CBOE Holdings inched up 5.5% year over year to or 4.6 million contracts per day. Average daily trading volume in high-margin index options and futures contracts surged 22%, while lower margin multiply-listed options declined 4% year on year.

Revenue per contract (RPC) climbed 10.1% to 40.5 cents compared with 36.8 cents in the prior-year quarter. Increase in RPC was driven by favorable shift in the mix of products traded along with higher volume from index options and futures contracts, which generate the highest RPC.

Total operating expenses increased 13% year over year to $85.3 million, primarily due to higher royalty fees, compensation and benefits, depreciation and amortization, and professional fees and outside services costs. Total adjusted operating expenses rose 11% to $83.8 million. The company’s core operating expenses were up 13% to $52.7 million due to higher professional fees and outside services as well as compensation and benefits. Volume-based expenses, including royalty fees and order routing fees, increased 11% to $19.2 million on higher trading volume in licensed index and futures products.

Operating margin declined 160 basis points year over year to 47.7% due to a higher operating expenses and increase in revenues.

Financial Update

As of Jun 30, 2016, CBOE Holdings had cash and cash equivalents of $53 million, down 49% from $102.3 million at the end of 2015. Total assets came in at $406.6 million at the end of Jun 2016, up 5.7% from $384.8 million at year-end 2015.

Long-term liabilities rose to $51.6 million from $51.1 million at year-end 2015, while total shareholders’ equity was $265.8 million in the second quarter as against $259.6 million as of Dec 31, 2015.

Net operating cash flow increased 8.6% year over year to $114.9 million in the second quarter.

Dividend and Share Repurchase Update

The board of directors declared an increased dividend of 25 cents per share for the third quarter of 2016, which represents a 9% increase from the prior-quarter dividend of 23 cents per share.

CBOE Holdings bought back about 0.3 million shares for $18.1 million during the reported quarter. Notably, about 10.9 million shares worth $503 million have been repurchased since the inception of the share buyback program in 2011 at an average purchase price of $45.95 per share. The company had shares worth about $97 million remaining under its authorization as of Jun 30, 2016.

2016 Outlook

The company reaffirmed its 2016 outlook. Core operating expenses are estimated in the range of $211–$215 million. Depreciation and amortization expenses are projected in the $46–48 million band. Continuing stock-based compensation expenses, included in core expenses, are expected at about $13.5 million in 2016. Additionally, accelerated stock-based compensation expenses, recognized on a quarterly basis, are expected at $1 million for 2016. The effective tax rate will likely be within 38.5–39.5%. Capital expenditure is projected in the range of $47–$49 million.

Zacks Rank

CBOE Holdings presently carries a Zacks Rank #3 (Hold).

Performance of Other Stocks

Among the securities exchanges, CME Group Inc. (NASDAQ:CME) , Nasdaq, Inc. (NASDAQ:NDAQ) and MarketAxess Holdings Inc.'s (NASDAQ:MKTX) second-quarter earnings beat Zacks Consensus Estimate.