Online brokerage TD Ameritrade 2Q profit climbs 23 percent, but lowers outlook for 2010

TD Ameritrade 2Q profit rises, cuts outlook

OMAHA, Neb. — TD Ameritrade Holding Corp. said Tuesday its second-quarter profit jumped 23 percent thanks to its latest acquisition. But the online brokerage lowered its outlook for the year because of low interest rates and less active trading.

CEO Fred Tomczyk said the company is positioned to deliver better profits when interest rates rise because Ameritrade will earn more on fees and interest it charges on the money clients keep with the firm.

“We’re very happy with where we’re at and feel we’re well positioned for long-term growth,” Tomczyk said.

The Omaha company said it earned $162.6 million, or 27 cents per share, in the quarter ended March 31. That’s up from $132 million, or 23 cents per share, a year ago.

Ameritrade says its most-recent results included a 4 cents per share boost from the resolution of income tax matters. Analysts surveyed by Thomson Reuters expected 24 cents a share excluding one-time items — a penny higher than the adjusted Ameritrade earnings figure.

Revenue rose 21 percent to $635.4 million from $525.5 million a year ago and beat analysts’ estimates of $631.7 million.

Ameritrade lowered its profit outlook for 2010 to between 90 cents and $1.10 per share because it expects interest rates to remain low for at least six months and intraday trading activity has been less volatile.

Ameritrade had previously predicted it would earn between $1.10 and $1.40 per share in fiscal 2010. Analysts expected earnings of $1.07 for the year.

Its shares gained 13 cents to close at $20.19 Tuesday.

FBR Capital Markets analyst Matt Snowling said in a research note Ameritrade’s effort to persuade clients to invest more of their assets with the firm appears to be working. Ameritrade reported $10.2 billion in net new assets during the quarter, which is significantly higher than last year’s $6.4 billion net new asset figure.

“We see substantial upside to TD Ameritrade’s earnings in a rising interest rate environment,” Snowling wrote.

Ameritrade’s quarterly operating expenses soared 39 percent to $408 million mostly because of last year’s acquisition of options-trading specialist thinkorswim.

The Federal Reserve’s decision to keep interest rates at record-low levels to spur economic growth restricts how much Ameritrade earns on its clients’ deposit accounts and other investment products. Economists predict the Fed will continue to hold rates near the super-low levels it established in December 2008.

The lower trading volatility Ameritrade reported makes it harder for the company to offset those lower rates. The company said it handled an average of 378,714 trades per day during the second quarter, which is about 50,000 higher than last year because of thinkorswim but almost identical to the number of trades Ameritrade handled in the first quarter.

Ameritrade had about $1.2 billion in liquid assets on hand at the end of the quarter in case it encounters any surprises or attractive acquisition targets. Tomczyk said Ameritrade’s managers are in the midst of reviewing the company’s long-term strategy and will look at possible uses for that cash, but he reiterated that any acquisition would have to make strategic and financial sense.

Plus, Tomczyk said the economy is still recovering from the Great Recession, so it would be premature to spend down Ameritrade’s cash.

“I still think it’s going to be a long, slow recovery,” he said.

On the Net:

TD Ameritrade Holding Corp.: www.amtd.com