UPDATE 2-ICE profit tops expectations on taxes, expenses

Mon Nov 5, 2012 9:39am EST

* ICE reports EPS of $1.79, vs expectations of $1.72

* Revenue declines 5 percent to $323.2 million

* Expenses drop 6 percent to $129 million

Nov 5 (Reuters) - IntercontinentalExchange Inc reported a dip in third-quarter profit as over-the-counter (OTC) North American natural gas and power contracts declined, but the results topped analyst expectations, helped by a lower tax rate and a drop in expenses.

Net income attributable to the Atlanta-based commodities exchange was $131.1 million, or $1.79 a share, in the third quarter, down from $132.6 million, or $1.80 a diluted share, a year earlier.

Analysts on average had expected earnings of $1.72 a share, according to Thomson Reuters I/B/E/S.

The outperformance was "the result of financial discipline, a lean operating model, and the ability to concurrently execute on multiple strategic growth opportunities", Scott Hill, ICE's chief financial officer, said in a release.

In the past few months, ICE announced it would expand into European natural gas markets and develop credit default swap futures, while transitioning the exchange's energy swaps to futures and launching a new swap data repository, Hill added.

ICE, established in 2000 by a group of banks and energy companies, switched all of its OTC energy products to fully regulated futures contracts on Oct. 15, ahead of regulatory reforms expected to make trading swaps more expensive and complicated.

Revenue fell 5 percent to $323.2 million, compared with analysts' expectations of $325.1 million. The revenue miss was largely due to softer market data revenues than expected, UBS analyst Alex Kramm said.

Market data revenues rose 12 percent to $36 million.

Operating expenses fell 6 percent to $129 million. The decline in expenses, along with a lower tax rate, at 27 percent versus 30 percent, was responsible for ICE's better-than-expected profits, Kramm said.

ICE said it expects consolidated operating expenses for the full year to be flat, to up 2 percent, compared to 2011.

With year-to-date cost growth running at about 4 percent, fourth-quarter costs would have to be in the $114 million to $124 million range, said Ed Ditmire, an analyst at Macquarie Capital. That would be "a number so low it hasn't been seen in years", he said in a note to clients.

Consolidated transaction and clearing revenues were down 7 percent to $279 million, mainly due to lower OTC North American natural gas and power contracts, and a decline in credit default swaps transactions, ICE said.

Transaction and clearing revenues in ICE's global OTC segment were down 16 percent at $123 million, with average daily commissions in ICE's OTC energy business down 9 percent at $1.4 million.

Transaction and clearing revenues in ICE's futures segment rose 1 percent to $156 million.

ICE's diluted share count for the fourth quarter of 2012 is expected to be in the range of 73.0 million to 74.0 million weighted average shares outstanding, and the diluted share count for fiscal year 2012 in the range of 72.9 million to 73.9 million weighted average shares outstanding.

ICE said it increased its share repurchase authorization to $500 million in the quarter, and has $487 million of remaining capacity in the program.

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