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TMX Q1 profit falls 10% on weaker equity markets, misses Street

TMX Group (TSE:X) said Friday its first quarter profits dropped 10 percent on lower revenue from its listing business and cash markets trading, falling well below analysts’ estimates.

For the three months that ended March 31, the operator of Toronto's main stock exchange posted net income of $56.8 million, or 76 cents per share, compared with a profit of $63.1 million, or 85 cents per share, a year earlier.

Revenue was down seven percent to $162.3 million, compared to $174.7 million in the same quarter of 2011.

Analysts had forecast earnings of 88 cents per share, on revenues of $172.5 million, according to Thomson Reuters.

"Despite a somewhat challenging economic environment globally so far in 2012, we remain focused on growth," said TMX Group CEO, Thomas Kloet, in a statement.

"We continue to make very good progress on some key initiatives, including the launch of REPO clearing by CDCC, the integration of Razor Risk Technologies within our technology services operation and the development of TMX Quantum XA.

"We remain committed to investing in our existing business and other new opportunities while looking for additional ways to realize efficiencies."

Revenues from the company's issuer services fell 19 percent to $50.2 million.

TMX said that initial listing fees were lower due to a decline in the number and value of new listings on the Toronto Stock Exchange, while additional listing fees fell due to a decrease in the number and value of additional financings on the TSX, and TSX Venture Exchange.

The company also noted a decline in sustaining listing fees, due to the overall lower market capitalization of listed issuers on both exchanges at the end of 2011.

Cash market revenues fell 27 percent to $24.6 million, due to a 43 percent decrease in the volume of securities traded on the TSX-V and a 19 percent decrease in the volume of securities traded on the TSX in the first quarter.

TMX also said the decline is a result of the several changes it made to its equity trading fee schedule, effective March 1, 2011.

Energy market revenues also dropped four percent to $10.9 million, reflecting lower NGX crude oil volumes, as well as NGX deferring more revenue in the quarter, due to an increase in the number of forward contracts compared with the same period in 2011.

Revenue from derivative markets trading, however, was up 14 percent to $29.9 million, as trading on the company's Montreal Exchange (MX) increased 12 percent, and trading on its Boston Exchange (BOX) rose 23 percent.

On the TSX, the company reported decline in volume to 24.66 billion, from 30.31 billion in the same quarter of 2011, and a decline in value to $357 billion, from $418.8 billion a year earlier.

Sales from the company’s information services segment saw an increase of seven percent to $42.8 million.

The company said that during the quarter, higher compensation and benefits expenses and increased information and trading systems costs had an impact on its bottom line, partially offset by a decline in income tax expense and lower general and administration expenses.

Pre-tax costs relating to the planned acquisition by Maple Group were $0.5 million in the latest period, compared to costs of $8.3 million a year earlier due to the then-proposed merger with the London Stock Exchange, which has since been called off.

"The impact of market conditions on our equity business was somewhat offset by our diversified business model during the first quarter," said CFO Michael Ptasznik.

"While issuer services, cash markets and energy markets trading revenue declined year over year, revenue in other key areas of our business grew over the first quarter of last year."

TMX said its board declared a dividend of 40 cents on each common share outstanding, payable on June 8 to shareholders of record at the close of business on May 25, 2012.