Intercontinental Exchange Inc. (ICE:US), the second-largest U.S. futures market, reported third-quarter profit that beat analyst estimates as a lower tax rate helped the company keep more of its revenue.
Net income declined to $131 million, or $1.79 a share, from $132.6 million, or $1.80, a year earlier, the Atlanta-based company said in a statement. That exceeded the average analyst estimates of $1.73 per share, according to a survey (ICE:US) conducted by Bloomberg. Revenue fell 5.2 percent to $323 million in the quarter from $341 million.
“The beat is almost entirely from a lower-than-expected tax rate,” Edward Ditmire, an analyst at Macquarie Group Ltd. in New York who estimated a 29.5 percent tax rate, said in a note to clients today. Intercontinental said it had a tax rate of 27 percent.
Trading during the quarter at the company’s ICE Futures U.S. and ICE Futures Canada markets dropped 23.5 percent and 13.9 percent, respectively, the company said last month. That led to an overall 3.7 percent drop in trading volume at its three exchanges in the quarter compared with the year-earlier period. ICE Futures Europe, the London exchange that offers crude oil, natural gas and other energy contracts, saw trading jump 5.3 percent in the quarter.
Intercontinental shares rose (ICE:US) 2.7 percent to $133.28 in New York, the biggest gain in three months, according to data compiled by Bloomberg. The stock has advanced (ICE:US) 6.9 percent in the past year.
The company also earns money by processing over-the-counter derivatives trades with its clearinghouse. Transaction and clearing revenue for these trades dropped 16 percent to $123 million in the quarter compared to the year-ago total, Intercontinental said.
Part of that OTC revenue comes from clearing credit-default swaps. Intercontinental said last month that it obtained the right to link futures contracts to credit-swap indexes owned by Markit Group Ltd., the largest creator of the derivative instruments in the $25 trillion market.
The gauges, to reference London-based Markit’s North American and European corporate credit swap measures, are expected to be available in the first quarter, Intercontinental said in an Oct. 16 statement.
The company is also requesting permission from the U.S. Securities and Exchange Commission to back credit swaps based on the sovereign debt of five European countries, the first time those contracts would be backed by a clearinghouse.
The sovereign debt of Ireland, Italy, Greece, Portugal and Spain would be processed by the company’s ICE Clear Europe unit for the first time, rather than the contracts being held between banks and their customers, in a move that’s meant to reduce systemic risk in the financial industry, according to a regulatory filing released Nov. 2.
Intercontinental already backs credit swaps on the sovereign debt of Brazil, Mexico, Argentina and Venezuela as well as the Markit CDX Emerging Markets Index of 15 sovereign nations.
The U.K.’s Financial Services Authority has approved the plan, Scott Hill, Intercontinental’s chief financial officer, said on an earnings conference call today. The company still needs SEC approval to offer the sovereign trades for clearing, Hill said.
Intercontinental’s competitor CME Group Inc. (CME:US), the world’s largest futures exchange, last month said third-quarter profit fell 31 percent as trading in interest-rate contracts, its largest asset class, declined the same amount. Excluding a $16 million income tax provision related to the company’s joint- venture with S&P Dow Jones Indices, CME Group profit was 70 cents per share, exceeding the average estimate of 69 cents in a Bloomberg survey of analysts.
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