Please ensure Javascript is enabled for purposes of website accessibility

Intercontinental Exchange Inc.'s Earnings Streak Continues

By Matthew DiLallo - May 4, 2016 at 11:33AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The global exchange operator announced that it's pulling out of the bidding for the London Stock Exchange.

Intercontinental Exchange (ICE 1.26%), or ICE, extended its double-digit earnings growth streak to seven after reporting a 20% year-over-year jump in adjusted earnings for the first quarter of 2016. That report, which was released before the market opened on Wednesday, also marked the best quarter in the company's history thanks to strong growth in both global markets and its data services business. Speaking of growth, it did announce that the next phase of its growth-by-acquisition strategy won't include the London Stock Exchange, with the company deciding to drop out of the bidding for the rival exchange.

A look at the numbers
For the first quarter, ICE reported $1.2 billion of consolidated revenue less transaction-based expenses. That's up 35.8% from the $850 million in revenue it pulled in during the year-ago quarter driven by $260 million in revenue from the company's most recent acquisitions of Interactive Data and Trayport. Those acquisitions were the key to driving data service revenue growth, which more than doubled to $477 million. Meanwhile, transaction and clearing revenue growth was solid, up 4% year over year to $529 million after taking into account transaction-based expenses. Finally, listing revenue set a record at $103 million, up 3% year over year.

Thanks to this strong revenue growth, as well as the company's solid expense management, adjusted net income grew to $441 million, or $3.68 per share, up 20% from the year-ago quarter. That marked not only the seventh straight quarter of double-digit adjusted earnings growth, but was the "the best quarter in the company's history," according to CEO Jeffrey Sprecher.

Operating cash flow was even stronger than earnings, with the company generating nearly $600 million in operating cash flow. The bulk of that cash was used to repay debt, with the company reducing debt by $500 million during the quarter, while the other $100 million was returned to shareholders via dividends.

A look ahead
As a result of the company's strong first-quarter showing, it is adjusting its expense guidance just a bit. It now sees full-year adjusted operating expenses in the range of $1.97 billion to $2.0 billion, which is down from its prior range of $2 billion to $2.03 billion. It also expects to realize expense synergies in the range of $85 million to $90 million in 2016 thanks to an acceleration of synergies from recent acquisitions.

Speaking of acquisitions, the company announced it will not be making a bid for the London Stock Exchange. It noted that, after doing its due diligence, it did not see enough shareholder benefits to pursue a combination with the LSE. 

It does, however, still intend to consider other potential strategic opportunities as they arise. Its near-term focus is on deleveraging by using its strong cash flow to quickly reduce the debt it incurred to acquire Interactive Data. By quickly deleveraging, the company will then have financial flexibility to increase its capital returns to investors.

Investor takeaway
ICE continued its earnings streak this quarter thanks to the benefit of recent acquisitions as well as solid expense management. That said, it still has more integration work ahead of it, with the company targeting to capture $90 million in synergies this year. Its ability to do that will be key to keeping its double-digit earnings growth streak alive.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Intercontinental Exchange, Inc. Stock Quote
Intercontinental Exchange, Inc.
ICE
$95.23 (1.26%) $1.19

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.