Online brokerage TD Ameritrade Holding Corp. said Monday that strong trading activity and asset growth boosted its profit almost 6 percent in its fiscal second quarter.
The results topped Wall Street estimates, but Ameritrade's stock declined in morning trading along with most other stocks after Standard & Poor's lowered its outlook on U.S government debt quality to negative.
Ameritrade said its net income rose to $171.7 million, or 30 cents per share, for the quarter ended March 31, up from $162.6 million, or 27 cents per share, a year ago.
The Omaha, Neb.-based brokerage's revenue grew 13 percent to $718.2 million from last year's $635.4 million.
Analysts surveyed by FactSet expected Ameritrade to report earnings per share of 28 cents on $700.1 million revenue on average.
Credit Suisse analyst Howard Chen praised Ameritrade's results, but he stopped short of recommending the stock at current prices.
"Despite the strong results, we believe the positive results are reflected in current valuations," Chen said in a research note.
Ameritrade's stock declined 60 cents, or 2.7 percent, to $21.51 in midday trading.
Ameritrade CEO Fred Tomczyk said he remains optimistic the overall economy will continue to recover, but he's more cautious now because of the tsunami damage in Japan, rising oil prices and political uncertainty in the Middle East.
"While the economy is improving, there is still a fair amount of uncertainty out there," Tomczyk said.
That uncertainty is part of why Ameritrade had $751 million in liquid assets on hand at the end of the quarter.
Ameritrade generates revenue from commissions it charges investors on trades and from asset-based fees and interest it gets on the assets it holds.
Ameritrade said its net new assets grew 13 percent to $11.5 billion in the quarter. That helped the company increase its asset-based revenue more than 16 percent to $349.5 million during the quarter even though interest rates remain low.
The number of stock trades Ameritrade handled during the quarter jumped 16 percent over last year to an average of 439,158 trades per day. That drove transaction-based revenue up 12 percent to $338.3 million.
Ameritrade said it spent about $43 million to repurchase 2 million shares of its own stock during the quarter at an average price of $21.03.
The current record-low interest rates limit how much Ameritrade can earn on its clients' deposit accounts and other investment products, but company officials said the net yields on its insured deposit accounts has turned positive for the first time in three years because the interest rate gap between short-term and long-term bonds, known as the yield curve, continued to improve.
"This bodes well for future earnings growth as we are no longer fighting the headwinds of near zero interest rates," Tomczyk said.
TD Ameritrade Holding Corp.: http://www.amtd.com