Reporting a 34% increase in operating revenues for the second quarter year over year, but only a 9% bump up in net income, executives with Nymex Holdings, parent of the New York Mercantile Exchange, said they had a major cost-cutting effort currently under way and expected to make “a significant reduction in costs” in the current quarter.
Part of the cost-cutting could include decreasing the size of the exchange floor since so much of the trading has moved from open outcry to electronic trading. While there are no plans to close floor trading completely, “we believe there can be more consolidation in exchange space,” Richard Schaeffer, Nymex chairman, said on an earnings conference call Tuesday.
Dodging questions on rumors that Nymex could be acquired by the New York Stock Exchange, Schaeffer said he was “very cognizant the industry is consolidating; we will look at all opportunities.” Nymex President James Newsome gave the same type of noncommittal response to a CNBC broadcast questioner Tuesday. “We believe Nymex is in a very positive and flexible position. We’re going to make decisions based on what we think is best for our shareholders.” That could include its own acquisitions. Nymex is looking to expand into “nonenergy, nonmetals.”
Total operating revenues for Nymex Holdings in the second quarter were $163.6 million, 34% above the revenue of $122.5 million for the second quarter 2006. Net income for the second quarter 2007 increased 9% to $41.7 million compared to $38.1 million for the second quarter 2006, including a one-time, pretax charge of $26.0 million related to an impairment of the Nymex investment in energy derivatives broker Optionable, Inc. Diluted earnings per share for the second quarter 2007 were 44 cents, based on 94.8 million shares outstanding, compared to 44 cents, based on 81.6 million shares outstanding for the second quarter 2006.
The exchange has continued to achieve volume and open interest records in a number of its benchmark futures and options contracts, Schaeffer said, including crude oil, RBOB gasoline, heating oil and gold.
For the six months ended June 30, 2007, Nymex reported record total operating revenues of $327.8 million, a 40% increase from $234.2 million for the first half of 2006. Net income rose 37% to $98.0 million, versus $71.8 million in the first half of 2006. Diluted earnings per share for the 2007 first half was $1.03 versus $0.88 per diluted share in the 2006 period, based on 94.8 million and 78.4 million shares outstanding, respectively. Excluding the one-time charge, net income increased 57% to $112.6 million and diluted earnings per share were $1.19 for the 2007 six-month period.
Responding to questions, Schaeffer said he expected to see Congress pass legislation this fall to address transparency within the [exempt commercial markets (ECM)], “most specifically [IntercontinentalExchange]. When you have an ECM marketplace that operates like an exchange type market there should be some type of accountability, some type of self-regulatory oversight. We believe the majority of Congress agrees with that approach and we expect it to be put in place this fall.” This would level the playing field for the two exchanges, he said.
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