CME CME Group Inc

CME Group Inc. (CME) reported its third quarter 2011 earnings per share of $4.74, modestly ahead of the Zacks Consensus Estimate of $4.64 but substantially higher than $3.66 reported in the year-ago quarter. Net income surged 29.4% to $316.1 million from the prior-year earnings of $244.3 million. The uptick was primarily attributable to moderate volume growth and strong expense management.

CME Group’s total revenue for the reported quarter spiked 19.2% year over year to $874.2 million. However, it slightly lagged the Zacks Consensus Estimate of $876 million. The year-over-year increase was primarily due to a surge in the average daily volumes across all asset classes, partially offset by lower average rate per contract.

CME Group’s average daily volume surged 27% year over year to 14.7 million contracts in the reported quarter. However, total average rate per contract declined 4% from the year-ago quarter to 77.9 cents.

Although volumes constituted mostly of lower-priced financial products that require higher volume discounts, the relative stability came from a favourable product and venue mix with growth coming from energy, metals and agricultural products in exchange-traded venue.

CME Group’s clearing and transaction fees increased 22.4% to $732.7 million, driven by higher interest rate volume and revenue growth across agricultural commodities, energy and metals product lines.

In addition, revenue earned from market data and information services increased 5.5% year over year to $107.0 million due to growth of CME Group Index Services business. Besides, revenue from access and communication fee increased 6.2% year over year to $12.0 million while other revenues edged up 2.3% year over year to $22.5 million.

Nevertheless, total expenses also climbed up 4.0% year over year to $302.1 million. As a result, operating margin climbed to 65% from 60% in the year-ago quarter.

CME Group’s non-operating expense reduced 3.7% year over year to $26.2 million, primarily owing to interest expense and borrowing costs of $29.0 million and equity losses of $0.9 million, partially offset by $3.7 million of investment income.

Financial Update

As of September 30, 2011, CME Group had $875.9 million of cash and marketable securities, slightly down from $905.4 million as of December 31, 2010. The company had $2.106 billion in long-term debt, marginally higher from $2.105 billion at the end of December 31, 2010.

As of September 30, 2011, CME Group had total assets of $38.89 billion (up from $35.05 billion as of December 31, 2010) while total shareholders equity stood at $20.86 billion (up from $20.06 billion as of December 31, 2010).

Stock Repurchase Update

During the reported quarter, CME Group bought back 5.9 million of shares for $155 million.

On May 9, 2011, the board of CME Group had announced the approval and authorization of a new share repurchase program worth $750 million of common stock, expected to be held in the next 12 months. Following the sanction, the company bought back more than 8.0 million shares so far in 2011.

Guidance

Concurrent with the earnings release, management provided a revised expenses outlook for 2011. Accordingly, total operating expense is estimated to be between $1.23 billion and $1.235 billion, putting a lower end to the previous projection of $1.235 billion.

Previously, capital expenditure was projected to be $165 million in 2011, while the effective tax rate was guided at approximately 42.5% for the second half of 2011.

Furthermore, the company aims to maintain expense growth below 5% in 2012 and beyond.

Dividend Update

On September 26, 2011, the board of CME group paid its quarterly dividend of $1.40 per share to shareholders of record as on September 9, 2011.

Peer Take

Yesterday, NASDAQ OMX Group Inc. (NDAQ) reported its third quarter operating earnings per share of 67 cents, which came in line with the Zacks Consensus Estimate but modestly ahead of 50 cents in the prior-year quarter. Meanwhile, another prime peer, NYSE Euronext Inc. (NYX) is scheduled to release its results before the market opens on November 3, 2011.

 
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