Intercontinental Exchange Delivers Solid Q3 Gains

Intercontinental Exchange (ICE -0.57%), or ICE, continued its steady growth during the third quarter, notching its 22nd straight quarter of year-over-year revenue growth. That rising top line, when combined with Washington's corporate tax cuts and the company's own efforts to keep a lid on costs, helped drive a double-digit percentage increase in earnings.

While the company, which operates the New York Stock Exchange, among other major exchanges, does see some market headwinds ahead due to regulatory and political uncertainty, it aims to control what it can so that it can continue growing shareholder value.

Intercontinental Exchange results: The raw numbers

Data source: Intercontinental Exchange.

What happened this quarter? 

The trading and clearing segment once again drove results:

• Trading and clearing revenue rose 7% from Q3 2017 to $558 million. Energy futures and options revenue was flat at $223 million, while financials futures and options revenue declined 6% to $77 million. Offsetting those weaker areas, ags and metals revenue was up 17% to $58 million, over-the-counter and other transaction revenue surged 40% to $67 million -- thanks in part to the acquisitions of BondPoint and TMC Bonds -- and its "other revenue" category notched a 13% increase to $61 million.
• Revenue from ICE's data and listings segment rose 3% to $642 million. While desktops and connectivity revenue slumped 13%, listings revenue jumped 7%, pricing and analytics was up 9%, and exchange data rose 7%.
• The revenue growth, when combined with an improvement in the company's margins as well as lower taxes, helped drive the double-digit surge in earnings.
• Meanwhile, EPS expanded at an even faster pace due to the company's share-repurchase program. Through Q3, the company has repurchased nearly $1.1 billion in stock this year, which resulted in the retirement of 2.4% of its outstanding shares in the past year. The company has $141 million remaining on its current $1.2 billion authorization, which it expects to exhaust by year's end. That led the board to authorize a new $2 billion repurchase program starting in 2019.

Image source: Getty Images.

What management had to say 

"Our third quarter performance reflected strength across our futures, cash equities, listings and data services businesses, marking the 22nd consecutive quarter of year-over-year revenue growth, said CEO Jeffrey Sprecher. "Against an uncertain regulatory and political backdrop, we are focused on driving innovation, delivering growth, and helping to serve our customers' risk management needs."

One of those initiatives is a new oil price contract that will track crude produced out of the fast-growing Permian Basin. The contract will allow oil shippers to better price the crude that will flow from that region to Houston, where it will have access to both local refining and global export markets. ICE designed the contract to provide price discovery, settlement, and delivery at Magellan Midstream Partners' (MMP) terminal in East Houston. That facility will become an increasingly important oil hub because it's a delivery point for a new pipeline under development by Magellan Midstream and several other partners. Innovative financial tools like this new contract could help boost ICE's revenue streams in the future.

Looking forward 

"As we approach the end of 2018, we remain focused on our growth initiatives and value creation," said CFO Scott Hill in the earnings press release. One way the company intends to create value for investors is by continuing to send them more cash. The company generated $1.7 billion in operating cash flow through the third quarter -- up 23% year over year -- and has returned nearly $1.5 billion of that money to investors through share repurchases and dividends, an increase of 38% compared to the first nine months of 2017. That trend should continue in the coming year, given that the company has already authorized a new stock buyback program.