UPDATE: CME Group 4Q Profit Falls 3.2% On Charges; Revenue Up

CME Group Inc.'s (CME) fourth-quarter earnings fell 3.2%, falling short of analysts' estimates as the exchange company booked $59.9 million of charges, mostly related to tax rates.

The world's biggest derivatives exchange operator by contract volume also said it will boost its dividend by more than 20% as CME presses ahead with its plan to return capital to shareholders.

Buoyed by a 17% rise in trading volume over the prior-year period, CME reported a profit of $196.2 million, or $2.93 a share, down from $202.6 million, or $3.04 a share, a year earlier.

As of Wednesday's close, the stock had risen 7.9% the past year, but remains roughly half of its pre-crisis value.

Excluding items such as the tax-related charge and an expense related to paying off a term loan early, earnings totaled $3.77 a share. Revenue from CME's derivatives exchanges and trade-handling services jumped 14% to $763.2 million.

Analysts polled by Thomson Reuters forecast earnings of $3.82 a share on $757 million in revenue. Shares in premarket trading were down 1.6% at $310, after closing Thursday at $315.14.

CME, alongside rival futures market operators, last year saw investors ramp up activity across its interest-rate, energy and currency markets, with volume for the year up nearly 20%. Uncertainty around the Federal Reserve's second campaign of quantitative easing and sovereign debt turmoil in Europe helped revive hedging in CME's markets, which saw an exodus following the financial crisis of 2008.

CME reported Thursday that its operating margin in the fourth quarter edged lower to 60.1% from 60.3%, while total expenses increased 15% to $304.8 million.

The company expects operating expenses of about $1.26 billion in 2011, a $110 million increase over prior-year levels on growth in its core businesses as well as new ventures in trading technology and over-the-counter derivatives.

In documents accompanying its fourth-quarter results, CME outlined intentions to maintain a "stable to growing" quarterly dividend. At least $700 million in cash will be held alongside maintaining a high-investment grade credit rating. Returns of capital will be funded with excess cash on hand through share repurchases as well as special dividends, according to CME.

-By Nathan Becker, Dow Jones Newswires; 212-416-2855; nathan.becker@dowjones.com

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