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CME Beats Est., Volumes Feeble

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CME Group Inc. (CME - Free Report) reported second-quarter 2012 operating earnings per share of 89 cents, surpassing the Zacks Consensus Estimate of 82 cents and the year-ago quarter’s earnings of 88 cents. The earnings per share include the effect of a 5-for-1 common stock split on July 20, 2012.

Net operating income creeped up 0.9% year over year to $296.3 million. This excluded the effect of benefit within tax expense associated with a change in the expected effective tax rate and its impact on the deferred tax expense along with a non-operating income, compensation expenses and non-controlling interest related to the de-consolidation of CME’s business into S&P Dow Jones Indices.

Including these adjustments, the quarterly GAAP net income was $244.9 million or 74 cents per share. However, no such extraordinary items were recorded in the year-ago quarter.

CME Group’s total revenue for the reported quarter declined 5.1% year over year to $795.9 million, though it was almost at par with the Zacks Consensus Estimate of $796 million. The year-over-year dip was primarily due to a modest decline in clearing and transaction fees along with lower or poor average daily volumes across interest rates, foreign exchange, energy and metals asset classes. These were marginally offset by stable average rate per contract.

CME Group’s average daily volume plummeted 9% year over year to 12.4 million contracts in the reported quarter. However, total average rate per contract inched up 1% from the year-ago quarter to 81.2 cents. The volumes constituted mostly of lower-priced products across asset-class that require higher volume discounts.

CME Group’s clearing and transaction fees decreased 6.4% year over year to $643.6 million, while accounting for 81% of the total revenue. However, revenue earned from market data and information services improved 2.7% year over year to $110.8 million. Additionally, revenue from access and communication fee surged 100% year over year to $22.6 million, while other revenues plunged 39.6% year over year to $18.9 million.

Meanwhile, total operating expenses climbed up 7.5% year over year to $326.7 million. However, excluding non-recurring items, operating expenses climbed 0.6% year over year to $305.7 million, which is within management’s projection. Operating income plunged 12.2% year over year to $469.2 million. Subsequently, operating margin slipped to 59.0% from 63.8% in the year-ago quarter.

However, CME Group recorded a non-operating income of $41.5 million against non-operating expense of $25.2 million in the year-ago quarter, primarily owing to a non-recurring income item.

Financial Update

As of June 30, 2012, CME Group had $1.3 billion of cash and marketable securities, higher than $1.1 billion at 2011-end, while long-term debt stood at $2.107 billion, in line with 2011-end position.

As of June 30, 2012, CME Group had total assets of $38.09 billion (down from $40.76 billion as of December 31, 2011) while total shareholders’ equity stood at $21.62 billion (up from $21.55 billion as of December 31, 2011). The company did not repurchase shares during the reported quarter.


In April 2012, management had projected the effective tax rate to be 41% for the remaining quarters of 2012. Previously, CME Group had also disclosed its aim of maintaining expense growth below 5% for 2012 and beyond.

Dividend Update

On May 24, 2012, the board of CME Group declared a regular dividend of $2.23 per share, which was paid on June 25, 2012, to shareholders of record as on June 8, 2012.

In February 2012, CME Group hiked its regular quarterly dividend by 59% to $2.23 per share from $1.40 per share, thereby increasing its payout target to 50% from the prior 35%.

Peer Take

Yesterday, NASDAQ OMX Group Inc. (NDAQ - Free Report) reported its second quarter operating earnings per share of 64 cents that handily surpassed the Zacks Consensus Estimate of 60 cents and the prior-year quarter’s earnings of 62 cents a share. Meanwhile, CME Group’s another prime peer, NYSE Euronext Inc. is scheduled to release its results before the market opens on August 3, 2012.

Currently, CME carries a Zacks Rank #3, which translates into a short-term Hold rating, while the long-term recommendation remains Neutral.

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