CME Earnings In-Line, Lag YoY

Zacks

CME Group Inc. (CME) reported first-quarter 2013 operating earnings per share of 73 cents. The result was in line with the Zacks Consensus Estimate of 73 cents but lagged the year-ago quarter’s earnings of 80 cents.

Operating net income dipped 8.3% year over year to $244.4 million. This excluded the after-tax effect of foreign exchange transaction losses of $8.6 million during the reported quarter. Including these adjustments, the quarterly GAAP net income was $235.8 million or 71 cents per share as compared with $266.6 million or 80 cents per share in the year-ago period.

CME Group’s total revenue for the reported quarter declined 7.2% year over year to $718.6 million. However, it topped the Zacks Consensus Estimate of $714 million.

The year-over-year drop was primarily due to a decline in clearing and transaction fees as a result of poor volumes in the energy and agriculture commodity products along with decreased average rate per contract. Even revenue from market data and information services witnessed deterioration. These were marginally offset by marginal improvement in average daily volumes.

CME Group’s average daily volume inched up 1% year over year to 12.5 million contracts in the reported quarter, rebounding since the third quarter of 2011. The improvement was driven by interest rate, foreign exchange and equity products. However, total average rate per contract dipped 3% from the year-ago quarter to 78.5 cents. The volumes constitute mostly of lower-priced products across asset-class that require higher volume discounts.

CME Group’s clearing and transaction fees decreased 4.5% year over year to $593.2 million, while accounting for about 83% of the total revenue. Additionally, revenue from market data and information services decelerated 29.2% year over year to $80.9 million. However, revenue from access and communication fee increased 9.1% year over year to $215 million, whereas other revenue surged 17.3% year over year to $23.0 million.

However, total operating expenses declined 3.2% year over year to $313.1 million. Operating income fell 10.1% year over year to $405.5 million, whereas operating margin deteriorated to 56.4% from 58.2% in the year-ago quarter.

Meanwhile, CME Group recorded a non-operating expense of $17.9 million against $17.8 million in the year-ago quarter, primarily owing to higher interest and borrowing costs.

Financial Update

As of Mar 31, 2013, CME Group had $1.9 billion of cash and marketable securities, higher than $1.66 billion at 2012-end, while long-term debt stood at $1.36 billion, lower than the $2.11 billion at 2012-end.

As of Mar 31, 2013, CME Group had total assets of $42.42 billion (up from $38.86 billion as of Dec 31, 2012), while total shareholders’ equity stood at $21.55 billion (up from $21.42 billion as of Dec 31, 2012). The company did not repurchase shares during the reported quarter.

Dividend Update

On Jan 30, 2013, the board of CME Group declared a regular first-quarter dividend of 45 cents per share, which was paid on Mar 25, 2013 to shareholders of record Mar 8, 2013.

Others

CME Group carries a Zacks Rank #3 (Hold). Other performers in the financial sector include CBOE Holding Inc. (CBOE), MetLife Inc. (MET) and Fiserv Inc. (FISV), all of which carry a Zacks Rank #2 (Buy).

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