CME Group Inc. reports strong third-quarter Financial Results driven by record revenues and operating margin

CME Group Inc. reports strong third-quarter Financial Results driven by record revenues and operating margin

01/11/2011

CME Group Inc. (NASDAQ: CME) today reported that third-quarter revenues increased 19 percent to a record $874 million and operating income increased 29 percent to $572 million compared with third-quarter 2010.  Third-quarter 2011 operating margin was 65 percent, the highest quarterly GAAP operating margin to date, and up from 60 percent in the third quarter of 2010.  Operating margin is defined as operating income as a percentage of total revenues.

Third-quarter net income attributable to CME Group was $316 million, up 29 percent compared with the third quarter of 2010.  Diluted earnings per share were $4.74, up 30 percent compared with the same period last year.  

"CME Group's core business continued to perform very well, and during the quarter we delivered significant growth in revenue, operating income and earnings per share," said CME Group Executive Chairman Terry Duffy. "On the regulatory front, we were pleased to see the CFTC rulemaking on position limits establish equivalent limits for physically and cash-settled contracts, other than natural gas.  We will continue to work closely with regulators and market participants during this important rulemaking process."  

"Strong performance across our diverse product portfolio, coupled with strong expense discipline, allowed us to deliver record results," said CME Group Chief Executive Officer Craig Donohue. "Heightened expense focus contributed to our success, and is reflected in today's results along with our commitment to maintain expense growth below five percent in 2012 and beyond.  We have seen an acceleration in our OTC swaps business.  Interest rate swaps and credit default swaps cleared at CME totaled $44 billion during the third quarter, while cleared activity in October exceeded $35 billion."  

Third-quarter 2011 average daily volume was 14.7 million contracts, up 27 percent compared with the third quarter of 2010.  Clearing and transaction fee revenue of $733 million was up 22 percent from$599 million in third-quarter 2010.  Market data and information services revenue was $107 million, up 6 percent from $101 million in the same quarter last year, primarily due to CME Group Index Servicesbusiness revenue growth.

Third-quarter total average rate per contract was 77.9 cents, down 4 percent from third-quarter 2010, and down 3 percent from second-quarter 2011.  The sequential variance can be attributed primarily to a higher proportion of lower-priced financial products volume relative to the second quarter of 2011, as well as the impact from higher volume discounts.

Third-quarter 2011 operating expense was $302 million, up 4 percent from third-quarter 2010, but trending down from the first and second quarters of 2011 and illustrating the company's intent to manage the organization as efficiently as possible while still focusing intently on key longer-term growth initiatives.  Third-quarter 2011 non-operating expense was $26 million, driven primarily by interest expense and borrowing costs of $29 million, offset by $4 million of investment income.

As of September 30, the company had $876 million of cash and marketable securities and $2.1 billion of debt.  Since the Board authorization of a $750 million share buyback program on May 9, 2011, the company has purchased more than 800,000 shares in total.  During the third quarter, 590,000 shares were purchased, with an approximate aggregate value of $155 million.

Updated Guidance

  • The company expects 2011 operating expenses of between $1.23 billion and $1.235 billion.

 

CME Group will hold a conference call to discuss third-quarter 2011 results at 8:30 a.m. Eastern Time today.  A live audio Webcast of the call will be available on the Investor Relations section of CME Group's Web site at www.cmegroup.com.  An archived recording will be available for up to two months after the call.

 

CME Group Inc. and Subsidiaries

 

Consolidated Balance Sheets

 

(in millions)

 
         
 

September 30, 2011

 

December 31, 2010

 

ASSETS

       

Current Assets:

       

    Cash and cash equivalents

$                       829.3

 

$                      855.2

 

    Marketable securities

46.6

 

50.2

 

    Accounts receivable, net of allowance

369.5

 

297.5

 

    Other current assets (includes $40.0 and $0 in restricted cash)

168.4

 

146.1

 

    Cash performance bonds and guaranty fund contributions

7,677.5

 

4,038.5

 

Total current assets

9,091.3

 

5,387.5

 

Property, net of accumulated depreciation and amortization

813.8

 

786.8

 

Intangible assets - trading products

17,040.5

 

17,040.5

 

Intangible assets - other, net of accumulated amortization

3,345.8

 

3,453.3

 

Goodwill

7,984.4

 

7,983.6

 

Other assets (includes $20.5 and $0 in restricted cash)

611.8

 

394.4

 

Total Assets

$                  38,887.6

 

$                 35,046.1

 
         

LIABILITIES AND SHAREHOLDERS' EQUITY

       

Current Liabilities:

       

    Accounts payable

$                         40.7

 

$                        51.8

 

    Short-term debt

-

 

420.5

 

    Other current liabilities

204.1

 

270.4

 

    Cash performance bonds and guaranty fund contributions

7,677.5

 

4,038.5

 

Total current liabilities

7,922.3

 

4,781.2

 

Long-term debt

2,106.3

 

2,104.8

 

Deferred tax liabilities, net

7,735.2

 

7,840.4

 

Other liabilities

190.0

 

191.5

 

Total Liabilities

17,953.8

 

14,917.9

 

Redeemable non-controlling interest

69.5

 

68.1

 

Shareholders' equity

20,864.3

 

20,060.1

 

Total Liabilities and Shareholders' Equity

$                  38,887.6

 

$                 35,046.1

 
       

 

CME Group Inc. and Subsidiaries

 

Consolidated Statements of Income

 

(dollars in millions, except per share amounts; shares in thousands)

 
                 
 

Quarter Ended

 

Nine Months Ended

 
 

September 30,

 

September 30,

 
 

2011

 

2010

 

2011

 

2010

 

Revenues

               

    Clearing and transaction fees

$ 732.7

 

$ 598.7

 

$ 2,111.8

 

$ 1,860.9

 

    Market data and information services

107.0

 

101.4

 

321.9

 

291.0

 

    Access and communication fees

12.0

 

11.3

 

34.8

 

33.4

 

    Other

22.5

 

22.0

 

75.6

 

55.2

 

    Total Revenues

874.2

 

733.4

 

2,544.1

 

2,240.5

 
                 

Expenses

               

    Compensation and benefits

119.9

 

110.4

 

359.7

 

312.3

 

    Communications

11.0

 

9.8

 

31.7

 

30.8

 

    Technology support services

13.3

 

12.5

 

38.7

 

37.4

 

    Professional fees and outside services

29.0

 

26.1

 

90.4

 

82.5

 

    Amortization of purchased intangibles

33.0

 

32.4

 

99.2

 

95.5

 

    Depreciation and amortization

32.4

 

33.1

 

95.1

 

98.1

 

    Occupancy and building operations

18.5

 

17.0

 

56.9

 

57.7

 

    Licensing and other fee agreements

22.6

 

20.5

 

64.7

 

62.8

 

    Other

22.4

 

28.7

 

77.0

 

90.7

 

    Total Expenses

302.1

 

290.5

 

913.4

 

867.8

 
                 

Operating Income

572.1

 

442.9

 

1,630.7

 

1,372.7

 
                 

Non-Operating Income (Expense)

               

    Investment income

3.7

 

12.6

 

27.1

 

28.1

 

    Gains (losses) on derivative investments

-

 

-

 

(0.1)

 

6.0

 

    Interest and other borrowing costs

(29.0)

 

(35.9)

 

(87.8)

 

(105.2)

 

    Equity in net losses of unconsolidated subsidiaries

(0.9)

 

(3.9)

 

(3.1)

 

(6.9)

 

    Total Non-Operating

(26.2)

 

(27.2)

 

(63.9)

 

(78.0)

 
                 

Income Before Income Taxes

545.9

 

415.7

 

1,566.8

 

1,294.7

 
                 

Income tax provision

(230.9)

 

(171.4)

 

(499.1)

 

(539.0)

 

Net Income

315.0

 

244.3

 

1,067.7

 

755.7

 

Less: Net income (loss) attributable to redeemable non-controlling interest

(1.1)

 

-

 

1.3

 

0.5

 

Net Income Attributable to CME Group

$ 316.1

 

$ 244.3

 

$ 1,066.4

 

$    755.2

 
                 

Earnings per Common Share Attributable toCME Group:

               

    Basic

$   4.76

 

$   3.67

 

$    15.99

 

$    11.42

 

    Diluted

4.74

 

3.66

 

15.94

 

11.39

 
                 

Weighted Average Number of Common Shares:

               

    Basic

66,458

 

66,556

 

66,690

 

66,125

 

    Diluted

66,667

 

66,744

 

66,901

 

66,320

 
                 
               

 

Notes:

 

Year-to-date 2011 results include the Q1 2011 tax adjustment reflecting a $164 million benefit within tax expense associated with a change in our expected effective tax rate and its impact on our deferred tax expense and the release of reserves related to a foreign investment.

 

Year-to-date 2010 results include the Q2 2010 $20.5 million write down of goodwill of the company's subsidiary, Credit Market Analysis Limited (CMA).

 
 

 

CME Group Inc.

 

Quarterly Operating Statistics

 
                     
 

3Q 2010

 

4Q 2010

 

1Q 2011

 

2Q 2011

 

3Q 2011

 

Trading Days

64

 

64

 

62

 

63

 

64

 
                     

Quarterly Average Daily Volume (ADV)

 
                     

CME Group ADV (in thousands)

 
                     

Product Line

3Q 2010

 

4Q 2010

 

1Q 2011

 

2Q 2011

 

3Q 2011

 

Interest rates

5,020

 

5,566

 

6,424

 

6,449

 

6,518

 

Equities

2,809

 

2,545

 

2,906

 

2,842

 

4,040

 

Foreign exchange

866

 

887

 

961

 

918

 

988

 

Energy

1,657

 

1,581

 

1,973

 

1,757

 

1,670

 

Agricultural commodities

941

 

1,067

 

1,154

 

1,159

 

1,032

 

Metals

257

 

372

 

376

 

403

 

454

 

    Total

11,550

 

12,018

 

13,794

 

13,528

 

14,702

 
                     

Venue

                   

Electronic

9,574

 

9,978

 

11,605

 

11,454

 

12,463

 

Open outcry

1,327

 

1,418

 

1,467

 

1,393

 

1,557

 

Privately negotiated

181

 

222

 

224

 

242

 

257

 

Exchange-traded Total

11,082

 

11,618

 

13,296

 

13,090

 

14,276

 

CME ClearPort

468

 

400

 

498

 

438

 

426

 

    Total

11,550

 

12,018

 

13,794

 

13,528

 

14,702

 
                     
                     

Average Rate Per Contract (RPC)

 
                     

CME Group RPC

 
                     

Product Line

3Q 2010

 

4Q 2010

 

1Q 2011

 

2Q 2011

 

3Q 2011

 

Interest rates

$ 0.495

 

$ 0.496

 

$ 0.481

 

$ 0.486

 

$ 0.479

 

Equities

0.708

 

0.702

 

0.705

 

0.709

 

0.703

 

Foreign exchange

0.795

 

0.804

 

0.823

 

0.868

 

0.801

 

Energy

1.540

 

1.631

 

1.573

 

1.595

 

1.580

 

Agricultural commodities

1.256

 

1.219

 

1.271

 

1.303

 

1.264

 

Metals

1.791

 

1.708

 

1.732

 

1.636

 

1.649

 

    Average RPC

$ 0.810

 

$ 0.813

 

$ 0.808

 

$ 0.807

 

$ 0.779

 
                     

Venue

                   

Exchange-traded

$ 0.747

 

$ 0.748

 

$ 0.740

 

$ 0.745

 

$ 0.724

 

CME ClearPort

2.292

 

2.704

 

2.630

 

2.665

 

2.621