CME profits drop 31% in Q3, but still beat expectations

Profits and volume dropped in the third quarter of 2012, but lower-than-expected costs helped keep earnings per share above expectations

CME Group’s profits and volumes dropped significantly in the third quarter, but still managed to beat analysts’ expectations, according to an earnings report released Thursday.

The company reported revenues of $683 million and an operating income of $396 million, which is down 31 percent from the third quarter of 2011. The company also reported lower-than-anticipated expenses of $287.2 million. Without a one-time tax-related item, diluted earnings per share would have been 70¢, which beat the 69¢ that analysts had predicted.

Daily volume was 10.8 million contracts, down 26 percent from the same period last year. CME Executive Chairman and President Terry Duffy said that “this year was setting up for a disaster for volumes from day one,” which he attributed to several macro events, including the fiscal cliff and the Dodd-Frank regulations. “People have had no certainty as far as government policy issues or anything of that nature, and hence what we’ve seen is corporations hoarding cash and individuals hoarding cash at the same time.”

One notable instance of this uncertainty, Duffy said, was the Commodity Futures Trading Commission’s recent “about face” on swaps market regulations, which hurt CME’s ClearPort business earlier this month.

CME officials told investors that the company will continue to expand despite the challenging regulatory environment. “We have taken steps to strengthen our business in this environment and we will not be complacent,” said Phupinder Gill in a conference call following the release of the results. “We remain efficient and continue to generate a lot of cash while also investing in the business.”

Last month, CME announced that it had entered into a definitive agreement to acquire the Kansas City Board of Trade for $126 million in cash and a distribution of excess cash to members. On a more global scale, the company also has announced plans to open its first overseas exchange in London.

In other news, Reuters reported that the CME plans to pay $2 million to almost 200 Peregrine Financial Group (PFG) clients who traded on CME exchanges. The cash will come from a CME fund established earlier this year to protect farmers and ranchers who use the company’s markets to hedge their products. Individual claimants can receive up to $25,000, and agricultural coops stand to regain $100,000.

Read the CME’s press release here


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