Stonex Group Posts Record Quarter on RJ O’Brien Deal

Stonex Group Inc. ((SNEX)) has held its Q2 earnings call. Read on for the main highlights of the call.

Stonex Group Inc. delivered a broadly upbeat earnings call, highlighting record profitability and strong momentum across nearly all business lines. Management stressed that the transformative acquisition of RJ O’Brien is already paying off, boosting revenue, interest income and client activity, even as they acknowledged rising costs, credit risk and some early signs of moderating volumes in select markets.

Record Net Income, EPS and Returns

Stonex posted record second‑quarter net income of $174.3 million, up 143% from a year earlier, with diluted EPS climbing 120% to $2.07. Returns followed suit, with quarterly return on equity reaching 26.5% and return on tangible equity hitting 37%, while trailing twelve‑month ROE stood at a robust 19.8%.

Strong Top-Line Growth

Operating revenues surged to about $1.6 billion, a 64% jump versus the prior year and a 9% gain sequentially, reflecting broad‑based strength. Net operating revenues rose even faster, up 70% year‑over‑year and 14% from the prior quarter, underscoring both organic growth and the impact of recent acquisitions.

Client Assets and Trading Volumes Expanded

Average client equity and FDIC sweep balances climbed to $15.2 billion, up 91% year‑on‑year and 4% quarter‑on‑quarter, bolstering balance‑sheet scale and fee income. Trading activity kept pace, with listed derivatives nearing 100 million contracts, OTC derivatives topping 1.5 million contracts and securities daily volume exceeding $12 billion.

Product-Level Strength Across Derivatives, Physicals, Securities

Listed‑derivative operating revenues jumped 148% year‑over‑year, adding $189.4 million, with RJ O’Brien contributing the bulk of that lift. OTC derivatives revenues nearly doubled, physical‑contract revenues soared 162% on strong precious‑metals performance, and securities revenues rose 38% as volumes increased 35%.

Payments and FX Momentum

Payments posted their second‑highest average daily volume ever at $92 million, up 19% from a year earlier, driving a 14% rise in payment revenues despite some pricing pressure. FX and CFD activity also edged higher, with volumes up 3% and revenue capture improving 6% to $103 per million, signaling better economics per trade.

Interest Income Expansion and Hedging Progress

Interest and fee income on client float rose $54.8 million, up 54% year‑over‑year, with RJ O’Brien supplying most of the incremental contribution. The company further de‑risked its rate exposure by adding $600 million of fixed‑rate SOFR swaps, bringing total swap protection to $1.8 billion and quantifying that a 100‑basis‑point rate shift could move annualized net income by about $47.6 million.

RJ O’Brien and Acquisition Contribution

The RJ O’Brien deal is already accretive, contributing roughly $35 million of pre‑tax net income in the quarter, excluding intangible amortization and a negative mark‑to‑market on its investment portfolio. Beyond earnings, the acquisition materially boosted operating revenues and interest income, reinforcing Stonex’s scale in listed derivatives and client balances.

Progress on Integration Synergies

Management reported that integration synergies are tracking ahead of schedule, with second‑quarter synergies translating to an exit run‑rate of just over $8 million per month. They reiterated plans to reach about $45 million of annualized synergies by fiscal year‑end and around $50 million once fully realized, supporting margin expansion over time.

Resolution of Major Litigation

Stonex closed a series of long‑running legal matters, including arbitrations and a patent case tied to a prior acquisition, with only immaterial net payments. The resolution removes a significant legal overhang, reduces the risk of surprise charges and should help lower legal expenses and management distraction going forward.

Technology and AI Initiatives

The company is leaning into technology, accelerating adoption of AI across payments, client support and back‑office automation to improve efficiency. Management cited a live example where an AI‑assisted development project cut delivery time by two‑ to four‑fold, hinting at future productivity gains and faster product rollout.

Rising Operating Expenses and Compensation

Operating costs are rising alongside growth, with total fixed compensation and other expenses up 44% year‑over‑year, including $56.9 million linked to acquisitions. Fixed compensation and benefits climbed 32%, driven by higher benefits, severance and retention tied to integration, raising the bar for future cost discipline.

Higher Bad Debt Expense

Bad debt expense rose by $12.3 million, largely within the Commercial segment, reflecting heightened credit vigilance in more volatile markets. While actual credit losses remain limited so far, management emphasized that elevated volatility inherently increases the risk of counterparties getting into trouble.

Rate Compression in Some Products

Not all trends were favorable, as pricing pressure emerged in key areas despite volume growth. Securities saw a 3% decline in rate per million and payments experienced a 7% drop, partially offsetting gains from higher throughput and underscoring the competitive nature of these businesses.

Sequential Weakness in Select Segments

The Institutional and Payments segments showed modest sequential slippage, with net operating revenues down 3% and 3% respectively and segment income falling more. Management also noted some moderation in activity entering April, particularly in metals, signaling that recent peak conditions may be normalizing.

Mark-to-Market and Investment Volatility

Interest and fee income net of interest paid dipped $7.8 million sequentially, mainly due to an $11.7 million negative mark‑to‑market on the investment portfolio. RJ O’Brien also recorded a $7.7 million mark‑to‑market hit, highlighting how investment volatility can mask otherwise solid underlying trends from core operations.

Ongoing Integration and Near-Term Costs

Integration remains a multi‑quarter undertaking, with severance, retention and a formal U.K. redundancy program lifting near‑term expenses. Some synergy benefits are now expected to extend into 2027, suggesting that investors should anticipate a continued mix of one‑time costs and incremental efficiencies as the platform is streamlined.

Exposure to Macro and Geopolitical Volatility

Stonex continues to benefit from volatile markets through higher trading and hedging activity, but management stressed that turbulence is a double‑edged sword. Sustained volatility can amplify credit and operational risks, putting pressure on risk management, client support and systems resilience even as it boosts volumes.

Forward-Looking Guidance and Strategic Outlook

Looking ahead, management reiterated that the RJ O’Brien integration is on track to be largely completed this fiscal year with no change to synergy targets. They plan to actively manage interest‑rate risk via swaps and potential floors, while continuing to scale volumes globally, deepen market‑making and exploit AI‑driven productivity gains under a disciplined risk framework.

Stonex’s latest earnings call painted the picture of a firm successfully leveraging acquisitions, client asset growth and technology to deliver record results. While higher costs, credit vigilance and some rate and volume normalization temper the outlook, management’s confidence in integration synergies, risk controls and global expansion suggests the growth story still has room to run.