ICE Earnings Narrowly Beat Estimate


By Minghe Hu
Medill Reports

Intercontinental Exchange (NYSE: ICE), which owns the New York Stock Exchange, reported Wednesday net earnings roared 248 percent to $1.2 billion, or $2.08 per diluted share, in its fourth quarter ended Dec. 31, 2017, from $352 million, or 59 cents per diluted share, a year earlier, assisted by a $764 million benefit from U.S. tax reform.

Excluding the tax benefit, the company reported $433 million, or 73 cents per diluted share, up 1 percent compared with $428 million, or 71 cents per diluted share, a year earlier, surpassing the Wall Street expectation of 72 cents per share. Total revenue excluding transaction-based expenses, was $1.14 billion, flat compared with the quarter a year ago.

Quarterly revenues of ICE  Source: Bloomberg. Feb. 7, 2018 (Minghe Hu/MEDILL)
Quarterly revenues of ICE have been growing over the years, though less recently. Source: Bloomberg. Feb. 7, 2018 (Minghe Hu/MEDILL)

“We are pleased to deliver our twelfth consecutive year of record revenue,” said ICE Chairman and CEO Jeffrey C. Sprecher in a press release. “We achieved this by executing on our strategy to deliver best-in-class trading, clearing, listings and information services while continuing to expand our range of content and distribution solutions to meet the evolving needs of the market. As we look to 2018 and beyond, we are focused on innovation and growth to serve our customers and build shareholder value.”

The total operating expenses of the quarter ended Dec. 31, decreased 4.8 percent to $552 million from $580 million a year ago.

The revenue from the transaction and clearing business, the largest income of ICE, fell 7.3 percent to $758 million from $818 million a year ago.

The annual revenue of the segment decreased 7.4 percent to $3.1 billion from $3.4 billion compared with a year earlier, although the open interest of all exchanges increased 11 percent in 2017.

“If you look into the exchange landscape, you definitely see the revenue composition of some exchanges, especially ICE, more towards the information data and analytic businesses, and away from their trading businesses,” said Michael Wong, an analyst at Morningstar Inc., in an interview.

Average daily volume for futures and options increased 10 percent in 2017, which was led by a 15 percent growth in average daily volume on BRIC index franchise, and 28 percent increase in European and UK interest rate volumes.

Revenue in the energy business, which made up 47 percent of the total revenue of transaction and clearing revenues, exceeding $900 million, was driven by growth on energy volume, especially Brent Crude Oil complex volume. Average volume of Gasoil business average volumes were up 19 percent because of growing demand from European and Asian markets.

Revenue in the data service segment, providing current and historical data analysis, was up 1.9 percent to $525 million from $515 million in the year-ago quarter. The full-year revenue of data service rose 5.3 percent to $2 billion, assisted by innovative products, including pricing services, reference data products and index offerings in pricing and analytics business.

According to the 2018 guidance of ICE, data revenue will have a 6 percent to 7 percent growth.

Full-year revenue of ICE was $4.63 billion, up 2.9 percent from $4.50 billion a year ago, and annual earnings were $2.5 billion, or $4.23 per diluted share, up 77 percent from $1.4 billion, or $2.37 per diluted share, a year ago.

Wong said ICE, like other exchanges, is not depending on trading businesses to generate strong revenue because of environmental uncertainty and the highly competitive nature of the exchange industry.

Referring to the regulation of MiFID II in Europe, Intercontinental Exchange Chairman and Chief Executive Officer Jeff Sprecher said that despite some uncertainty created for commodity customers by the implementation of MiFID II in December and January, it brought 6 percent growth in organic annual subscription value, or ASV, for data analytic products, including Best Ex., CEP and Liquidity Indicators.

“Generally, clients of Intercontinental Exchange are trying to increase their data capabilities, or their analytic capabilities, in order to comply with either best execution on standards, or fiduciary standards that been imposed on financial institution across the globe,” said Wong.

ICE shares closed at $70.72, down $1.55 or 2.14 percent, in NASDAQ trading.

Photo at top: Intercontinental Exchange Logo. Feb.7,2018 (Intercontinental Exchange)