For Immediate Release
Chicago, IL – November 3, 2010 – Zacks.com Analyst Blog features: NYSE Euronext Inc. (NYX), Nasdaq OMX Group Inc. (NDAQ), Tenet Healthcare Corporation (THC), Overseas Shipholding Group (OSG) and Expeditors International of Washington (EXPD ).
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Here are highlights from Tuesday's Analyst Blog:
NYSE Beats but EPS Falls
NYSE Euronext Inc.'s (NYX) third quarter operating earnings per share of 46 cents came in three pennies ahead of the Zacks Consensus Estimate of 43 cents. However, earnings were substantially behind the 53 cents recorded in the year-ago quarter and 64 cents recorded in the prior quarter.
Results reflect weak transaction and clearing volumes, particularly in the European cash and derivatives trading that primarily lowered the top line. Both New York Portfolio Clearing (NYPC) and NYSE Liffe U.S. are currently undergoing loss. However, the company benefited from various cost reduction programs.
These programs that helped decline the fixed expenses by 6% year over year. It aided in increasing efficiency of the new initiatives taken to launch new data centers as part of its long term strategy. Nevertheless, operating net income decreased to $121 million compared to $138 million in the year-ago quarter. NYSE reported GAAP net income of $128 million or 49 cents per share as compared with $125 million or 48 cents per share in the prior year quarter.
These include the impact of pre-tax merger expenses and exit costs of $25 million and a $21 million deferred tax benefit related to the reduction of the UK corporate tax rate in the reported quarter. The year-ago quarter includes $8 million of pre-tax merger expenses and exit costs, and a $4 million net gain from disposal activities.
Gross revenues declined by 9.5% year over year in the reported quarter of 2010. Besides, net revenues (defined as gross revenues less direct transaction costs consisting of Section 31 fees, liquidity payments and routing and clearing fees) were $599 million, down 4% from $621 million in the prior year quarter.
However, net revenues were marginally above the Zacks Consensus Estimate of $596 million. On a constant currency basis, NYSE's net revenue decreased 25% over the prior year quarter.
Outlook for 2010
Concurrent with the earnings, NYSE management revised its guidance for 2010. The company upped its fixed operating expenses projection to the range of $1.707-$1.749 billion, adjusted for currency fluctuations. The effective tax rate is projected to be 26.5% for the remainder of 2010.
Our Take
NYSE's rival company Nasdaq OMX Group Inc. (NDAQ) reported operating earnings per share of 50 cents on October 29, surpassing the Zacks Consensus Estimate of 47 cents and prior-year quarter earnings of 42 cents.
NYSE's disciplined fixed expense control and de-leveraging of the balance sheet through debt reduction is expected to give a big boost to the company's long-term strategies of developing clearinghouses in London and Paris by the end of 2012. While the NYPC is expected to be operational from first quarter of 2011, new data centers were launched in U.S. and Europe. Through these long-term strategies, NYSE is not only working vigorously to lower its business risk but also to expand and strengthen its competitive position globally. However, increased competition, weak volumes and product pricing along with government regulations continue to pose risk on the market share and the operating leverage of the company.
Tenet Ahead of Zacks Consensus
Tenet Healthcare Corporation (THC) reported its third-quarter adjusted income from continuing operations of $932 million or $1.68 per share, way ahead of the Zacks Consensus Estimate of 5 cents per share. This also compares favorably with income of $2 million in the year-ago quarter, on account of deferred tax benefits and early extinguishment of debt losses, though the soft economy continued to challenge the volume growth and exerted pressure on the operating margin.
Tenet's net income was $932.0 million or $1.68 per share in the reported quarter, as opposed to a loss of $3.0 million or 1 cent in the prior-year quarter. The results include a loss from discontinuing operations in the prior-year quarter of $5.0 million or 1 cent per share.
Outlook
Exclusive of deferred tax benefits and debt losses, Tenet projects a revised range for normalized net income attributable to its Tenet shareholders of $110 million to $140 million, with a revised range for earnings per share of 22-28 cents. Tenet forecasts net income for 2010 to range from $1.08 billion-$1.11 billion.
Tenet also raised the lower end of its 2010 guidance for adjusted EBITDA to a range of $1.050 billion to $1.100 billion, from the prior range of $1.035 billion to $1.100 billion. Tenet also forecasts the adjusted EBITDA margin in the range of 11.4%-11.8% for 2010.
Management stated that the 2010 adjusted EBITDA outlook will be impacted by the expected $64 million favorable impact from the California provider fee plan and the anticipated effect of the initiatives across a number of other fronts.
Our Recommendation
We believe that volume growth can significantly help achieve future profitability, including growth through the acquisition of hospitals and other health care facilities. We also expect appropriate reimbursement levels and cost control across the portfolio of hospitals to facilitate better cost management and business operations.
Though Tenet has been focusing on cost efficiencies, controlling labor costs in a fluctuating patient volumes environment is a tough challenge for Tenet, as inflation and technology improvements drive supply costs higher, and the efforts to control supply costs through product standardization, bulk purchases and improved utilization become difficult.
Overall, we strongly believe that volume growth can significantly help boost the earnings outlook of Tenet and its labor cost management in future.
Overseas Shipholding Beats in 3Q
Overseas Shipholding Group (OSG), a leading energy transportation company, reported better-than-expected financial results for the third quarter of 2010. Quarterly Shipping revenue was nearly $260 million, up 6.7% year over year and significantly above the Zacks Consensus Estimate of $219 million. Third quarter Time Charter Equivalent (TCE) revenue was $208.6 million, up 0.6% year over year. The TCE revenue represents Shipping revenue less Voyage expenses.
Quarterly net loss was $31.7 million or a loss of $1.06 per share compared to a net loss of $21.9 million or a loss of 73 cents per share in the prior-year quarter. However, in the reported quarter, Overseas Shipholding incurred $4.9 million of one-time special charges. Excluding this, third quarter 2010 adjusted earnings per share (EPS) were a loss of 89 cents, significantly lower than the Zacks Consensus Estimate of a loss of 95 cents.
Shipping Revenue by Segments
Quarterly Pool revenue was $81.5 million, up 4% year over year. Time and bareboat charter revenue was $71.7 million, down 9.6% year over year. Voyage charter revenue was $106.7 million, up 24.2% year over year.
TCE Revenue in Details
Quarterly TCE revenue for the crude oil segment was $95.3 million, down 5% year over year. This was mainly due to an adverse shift in the mix of spot and fixed charters. Product TCE revenue was $47.9 million, up 4% year over year. This was primarily due to an increase in 579 revenue days in MR class. Flag TCE revenue was $61.3 million, up 3% year over year.
Our Recommendation
We maintain our long-term Neutral recommendation for Overseas Shipholding. Currently it is a short-term Zacks #4 Rank (Sell) stock. We believe this is primarily due to growing competition that resulted in lower average revenue per day.
Expeditors Beats Estimates
Expeditors International of Washington's (EXPD ), a third-party logistics provider, reported its adjusted third quarter earnings of 44 cents per share, which surpassed the Zacks Consensus Estimate by 3 cents. Earnings per share shot up 63% year over year from 27 cents in the year-ago quarter driven by strong volumes.
Net income attributable to shareholders jumped 66% year over year to $96.1 million. Total revenue in the reported quarter was $1.7 billion, up 61% year over year, and was higher than the Zacks Consensus Estimate of $1.6 billion. On an annualized basis, revenues in United States, Other North America, Latin America, Asia, Europe and Africa, Middle East and India, and Australia increased 47.4%, 38.4%, 22.9%, 83%, 30.9%, 37.3% and 14.6%, respectively, in the third quarter.
Gross profit increased 32% year over year to $458.7 million resulting in gross margin (yield) of 27.5%, down from 33.4% in the year-ago quarter. Operating income climbed 66% year over year to $159.6 million and operating expenses expanded 60.2% year over year to $1.5 billion.
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