CME Group Inc. (CME) reported its second quarter earnings of $293.7 million or $4.38 per share, way ahead of the Zacks Consensus Estimate of $4.17. The earnings also surpassed the prior-year earnings of $270.7 million or $4.11 per share.
The improved result in the reported quarter was primarily attributable to moderate volume growth and strong expense management that also offset higher share count factor.
CME Group’s total revenue for the reported quarter slightly increased 3% year over year to $838.3 million, also exceeding the Zacks Consensus Estimate of $819 million. The increase was primarily due to a surge in the average daily volumes across all asset classes.
CME Group’s average daily volume was flat year over year at 13.5 million contracts in the reported quarter. However, total average rate per contract increased 2% from the year-ago quarter to 80.7 cents.
Although volumes constituted mostly of lower-priced interest rates ones, the relative stability in the rate per contract can be attributed to favourable product and venue mix with growth coming from energy and agricultural products in both exchange-traded and CME ClearPort venues.
Besides, CME Group’s clearing and transaction fees marginally increased 0.5% to $687.8 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 5.8% year over year to $107.9 million and revenue from access and communication fee increased 0.9% year over year to $11.3 million while other revenues increased 89.7% year over year to $31.3 million.
Nevertheless, total expenses also increased marginally by 1.7% year over year to $303.8 million. As a result, operating margin climbed to 64% from 63% in the year-ago quarter.
CME Group’s non-operating expense reduced 28.0% year over year to $25.2 million, primarily owing to interest expense and borrowing costs of $28.7 million and equity losses of $1.1 million, partially offset by $4.6 million of investment income.
Financial Update
As of June 30, 2011, CME Group had $748.6 million of cash and marketable securities, significantly 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 June 30, 2011, CME Group had total assets of $35.6 billion (up from $35.0 billion as of December 31, 2010) while total shareholders equity stood at $20.9 billion (up from $20.1 billion as of December 31, 2010).
Stock Repurchase Update
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 220,000 shares for $65 million during the reported quarter.
Guidance
Concurrent with the earnings release, management provided a revised expenses outlook for 2011. Accordingly, total operating expense is estimated at $1.235 billion, down from $1.26 billion. Besides, capital expenditure projection has been trimmed to $165 million from the prior guidance of $180 million. For the second half of 2011, the effective tax rate is now expected to be approximately 42.5%, down from 43.0%.
Dividend Update
On June 27, 2011, the board of CME group paid the second-quarter dividend of $1.40 per share to shareholders of record as on June 20, 2011.
Peer Take
Yesterday, NASDAQ OMX Group Inc. (NDAQ) reported its second quarter operating earnings per share of 62 cents, a couple higher than the Zacks Consensus Estimate of $0.60 but modestly ahead of $0.52 in the prior-year quarter. Meanwhile, another prime peer, NYSE Euronext Inc. (NYX) is scheduled to release its results before the market opens on August 2, 2011.
