Volumes Drive CME Q3 Earnings, Costs Up

Zacks

CME Group Inc. (CME) reported third-quarter 2013 operating earnings per share of 75 cents. Results comfortably surpassed the Zacks Consensus Estimate of 73 cents and the year-ago quarter figure of 66 cents.

Consequently, operating net income increased 14.8% year over year to $250.3 million. Including extraordinary items, GAAP net income stood at $236.7 million or 71 cents a share in the reported quarter. However, no such items were recorded in comparable the year-ago period.

CME Group’s total revenues climbed 4.6% year over year to $714.6 million and were almost in line with the Zacks Consensus Estimate of $714 million. The year-over-year growth resulted primarily from an accretion in clearing and transaction fees due to incremental volumes within interest rate, equity, energy, metal commodity and option products. However, lower average rate per contract as well as deteriorated revenues from market data and information services along with access and communication fees partially offset the upside.

CME Group’s average daily volume jumped 11% year over year to 12.0 million contracts in the reported quarter, primarily driven by growth across the Asian, U.S, European and Latin American markets. Particularly, a surge of 31% and 29% was witnessed from options and interest rate product volumes, respectively. However, total average rate per contract reduced 7.3% from the year-ago quarter to 74.8 cents. Nonetheless, the volumes constitute mostly of lower-priced products across asset-class that require higher volume discounts.

CME Group’s clearing and transaction fees rose 6.4% year over year to $597.9 million, accounting for about 84% of the total revenues. However, revenues from market data and information services decreased 5.1% year over year to $78.6 million. Additionally, revenues from access and communication fee decelerated 12.5% year over year to $20.3 million, while other revenues surged 18.7% year over year to $23.6 million.

Meanwhile, total operating expenses inflated 9.4% year over year to $314.1 million. Consequently, operating income inched up a mere 1.1% year over year to $400.5 million, deteriorating operating margin to 56% from 58% in the year-ago quarter.

Meanwhile, CME Group recorded non-operating expenses of $1.6 million against $0.2 million in the year-ago quarter, primarily owing to higher interest and borrowing costs in the reported quarter.

Financial Update

As of Sep 30, 2013, CME Group had $2.13 billion of cash and marketable securities, higher than $1.66 billion at 2012-end, while long-term debt stood at $2.1 billion, at par with the 2012-end level.

As of Sep 30, 2013, CME Group had total assets of $49.0 billion (up from $38.86 billion as of Dec 31, 2012), while total equity stood at $22.0 billion (up from $21.42 billion as of Dec 31, 2012). The company did not repurchase shares during the reported quarter.

Dividend Update

On Aug 7, 2013, the board of CME Group had declared a regular dividend of 45 cents per share for the third quarter, which was paid on Sep 25, 2013 to shareholders of record as on Sep 10, 2013.

Other Stocks to Consider

While CME Group carries a Zacks Rank #3 (Hold), outperformers in the financial sector include PartnerRe Ltd. (PRE) and Fleetcor Tech Inc. (FLT), both of which carry a Zacks Rank #1 (Strong Buy). MarketAxess Holdings Inc. (MKTX) is also well-placed in the exchange industry with a favorable Zacks Rank #2 (Buy).

Read the Full Research Report on CME
Read the Full Research Report on PRE
Read the Full Research Report on MKTX
Read the Full Research Report on FLT


Zacks Investment Research

View Comments (0)