Wednesday, April 18, 2007

TD Ameritrade Q2 2007 Earnings

Financial Post, Duncan Mavin, 18 April 2007

TD Ameritrade Holding Corp. chief Joe Moglia said market volatility and lower activity rates are behind the company’s decision to slash its full year earnings guidance by 11%.

But that explanation is “less than straightforward,” according to Robert Ellis, an analyst with Boston-based research and consulting firm Celent LLC.

“In fact, greater volatility increases trading volume and revenue for online brokerage firms,” Mr. Ellis said.

A bigger factor affecting TD Ameritrade’s earning potential is lower commission rates from competitors, including Just2Trade, SogoInvest and Zecco, he said.

“If these firms catch on, TD Ameritrade may find itself in a perpetual spiral of lowering commission rates, even though it offers superior trading tools,” said the Celent analyst.

Earlier, TD Ameritrdade, a unit of Toronto-Dominion Bank, announced an 18% drop in quarterly earnings compared to the same period last year.

Earnings of US$141.1-million for the quarter ended March 31 were down from $172.8-million in 2006.

Mr. Moglia said the firm will lower its full-year 2007 guidance range to US92¢ to US$1.08 from US$1.01 to US$1.19.
Bloomberg, Bradley Keoun, 17 April 2007

TD Ameritrade Holding Corp., the third-largest online brokerage, reported an 18 percent decline in fiscal second-quarter profit and cut its forecast for earnings this year amid falling trading revenue.

Net income fell to $141.1 million, or 23 cents a share, from January through March, from $172.8 million, or 30 cents, a year earlier, Omaha, Nebraska-based TD Ameritrade said today in a statement. The company was expected to earn 28 cents, the average of 14 analyst estimates compiled by Bloomberg.

Chief Executive Officer Joseph Moglia said in the statement that ``recent market volatility and lower activity rates'' had prompted the company to cut the upper end of its forecast for this year's earnings per share by 11 percent. Competition has forced the company to lower trading fees, and the stock market's tumble in February made investors wary of placing new bets.

``Trading volumes were lackluster for the quarter,'' said Peter Kovalski, a financial-services analyst at Alpine Woods Investments in Purchase, New York, who helps manage $3.5 billion. ``It started off strong at the beginning of the quarter and got a little slow'' after the market's retreat in February.

The company's new forecast for fiscal 2007 earnings per share is 92 cents to $1.08, compared with an October prediction of 98 cents to $1.22.

TD Ameritrade shares fell $1.56, or 9.3 percent, to $15.31 at 4 p.m. in Nasdaq Stock Market trading. It was the biggest drop since last October. Shares of Charles Schwab Corp., the biggest online broker, fell 46 cents to $19.05 after the company said its earnings increased 12 percent, in line with analysts' estimates. Rising money management fees helped Schwab offset the decline in trading commission revenue.

TD Ameritrade plans to increase investments in new products and services by about $100 million a year ``to position us for more growth in 2008,'' Moglia said in the statement. Some of the investments may cater to clients who have recently retired or are approaching retirement, he said on a conference call today with analysts and investors.

``We haven't been able to provide them with a comprehensive solution to their retirement needs,'' Moglia said.

Results in the year-earlier period were bolstered by $78.8 million of gains on the sale of investments, TD Ameritrade said.

Revenue grew 5.5 percent to $524.8 million, aided by the company's purchase of rival brokerage TD Waterhouse USA in January 2006.

TD Waterhouse, which was bought from Toronto-Dominion Bank in exchange for a stake in TD Ameritrade, more than tripled TD Ameritrade's client assets and gave it a network of about 140 branches.

Moglia had said he wanted to boost earnings per share by about 16 percent in the current fiscal year, in part by closing offices, eliminating jobs and combining the merged companies' trade-processing systems. The midpoint of the new guidance range, $1, would be about 5.3 percent higher than last year's earnings.

The company twice has delayed its plan to convert TD Waterhouse's trade-processing, currently handled through a contract with Automatic Data Processing Inc., onto its internal system. The conversion was supposed to happen by December 2006, then in March, and now in May.

``They need to finally get that done so they can devote their energy to growing the client base,'' Kovalski said. ``It's been a little bit of a distraction for them, and also a bit of a black eye.''

Last month, Moglia announced the retirement of Chief Operating Officer Randy MacDonald, who was overseeing the conversion. Asiff Hirji, who oversaw the company's client businesses, left at the beginning of this month to join the private-equity firm Texas Pacific Group.

TD Ameritrade's customers placed an average 253,631 trades per day, flat compared with the prior year's period, while average fees per trade declined 11 percent to $12.49.

On the conference call, Moglia said individuals are ``less enthusiastic'' about the stock market than they were last year.
Financial Post, 17 April 2007

An earnings miss on falling trading revenue at TD Ameritrade Holding Corp. may have only caused a minor downward blip for Toronto-Dominion Bank on Tuesday, but AMTD shares were down more than 7% in New York at around 1 p.m. ET.

TD Bank expected AMTD’s March quarter would contribute $63-million to its second quarter financials, according to Desjardins Securities analyst Michael Goldberg.

He continues to rate TD Bank a “top pick” and has a $78.50 price target on the stock, representing upside of almost $10.

AMTD also lowered its full-year 2007 guidance range to US92¢ to US$1.08 from US$1.01 to US$1.19.