CME's earnings climb as it becomes more digital, global

Business, Winter 2015

CME’s earnings climb as it becomes more digital, global

February 6, 2015

By Yasufumi Saito

CME Group Inc., the world’s largest futures-exchange operator, reported late Thursday a 59 percent growth in fourth-quarter earnings as trading volume grew internationally. The shares climbed more than 3 percent Friday.

For the quarter ended Dec. 31, the bottom line increased to $306.5 million, or 91 cents per diluted share, from $193.1 million, or 58 cents per diluted share, in the year-ago period.

Omitting one-time items such as reorganization costs, net income was $318.9 million, or 95 cents per diluted share, beating an estimate of 92.9 cents per share as compiled by Bloomberg L.P.

Revenue jumped 22 percent to $841.1 million from $687 million in the year earlier quarter, reaching the company’s second highest quarterly revenue.

Average daily volume for the quarter was 14.8 million, up 31 percent from 11.3 million in the year-ago period. Interest rate contracts, which account for the largest proportion of the trading volume, increased 41 percent to 7.4 million from 5.2 million in the year-earlier period.

CME ADV — Average Daily Volume of CME Group Inc. (Yasufumi Saito/Medill)

As electronic trading became more popular, the Chicago-based company attracted more foreign clients, in particular from Europe. CME traded 3 million contracts per day from out side of the U.S., which accounted for 24 percent of the daily volume, its highest level ever.

“We have been investing organically in a very targeted way to broaden our global reach and to drive more core volume growth as trading conditions improve,” said CEO Phupinder Gill in a conference call.

Chief Financial Officer John Pietrowicz said in the teleconference that the company will save $10 million annually by closing open-outcry futures trading pits. The cost to run the trading floor is about $50 million annually.

“We believe the CME is highly incentivized to automate all options and remove the remaining $40 million in annual pit expenses,” said Richard Repetto, principal at Sandler O’Neill & Partners L.P., in a note.

For the full year 2014, earnings increased 15 percent to $1.12 billion, or $3.35 per diluted share, from $0.97 billion, or $2.92 per diluted share, in 2013. Sales grew 6 percent to $3.11 billion from $2.93 billion.

CME shares closed Friday at $94.21, up $3.37, or 3.7 percent.

Photo at top: Chicago Board of Trade is owned by CME Group Inc. (Ken Lund/Creative Commons)