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Data from CME Group Inc.

Alexandra Harris/MEDILL

CME Group Inc.'s fourth quarter earnings tripled year-over-year and were up 15 percent from third quarter 2009.

CME profits triple, but stock plunges

by Alexandra Harris
Feb 04, 2010

CME Group Inc.’s stock price plunged nearly 8 percent Thursday, even though the exchange’s profits more than tripled year-over-year as the global financial markets recovered from the credit crisis.

One analyst, who asked not to be named, described the company’s stock plunge as a response to CME’s higher expenses for 2010, a higher tax rate and the delay of a pre-payment of some debt.

The Chicago-based company, which is the world’s largest futures exchange, reported its net income rose to $202.6 million, or diluted earnings per share of $3.04, for the quarter ended Dec. 31 from $62.1 million, or diluted earnings per share of 93 cents, in the year-earlier period.  

However, CME narrowly missed Wall Street analysts’ expectations compiled by Bloomberg LP. Analysts estimated CME would earn $3.43 per diluted share but the exchange earned $3.37.

Chairman Terry Duffy said the exchange performed well, “despite lingering market stress and a cyclical year-end slowdown.”

Fourth-quarter 2009 was the strongest quarterly performance of the year as the exchange rebounded from the financial crisis. It posted $667.5 million in total revenue, a 4 percent decline from $691.8 million in the year-earlier period.

CME’s net income for 2009 was $825.8 million, or $12.41 per diluted share, up 15 percent from $715.5 million, or $12.13 per diluted share, in 2008.

As the markets recovered, average daily volume for CME’s interest rate products, which includes futures on the U.S. Treasury yield curve, increased 19 percent, even though total average daily volume for 2009 slightly declined.

“The upcoming announced exit of the Fed from its mortgage-backed securities purchase program and its winding down of several temporary liquidity facilities are both a vote of confidence in the metrics that indicate a recovery is underway and a welcome step from markets that are eager to function based on fundamentals,” CME Group CEO Craig Donohue said in a conference call. “It is difficult to predict timing, but these and other improving factors contribute to a more activist interest rate environment.”

Looking ahead, CME is in talks to buy the Dow Jones index division, which would reduce CME’s licensing fees for its futures contracts based on Dow Jones index products. Regardless, the exchange anticipates a rise in licensing fees—an average of $23 million a quarter—based on continued growth in the energy and equity business.

Shares of CME closed at $269.29, down $22.82.