April 24 (Bloomberg) -- The Chicago Mercantile Exchange, one of two bidders for the Chicago Board of Trade, said profit climbed 42 percent to a record in the first quarter, driven by a surge in trading of its interest rate and stock index futures contracts.

Net income rose to $130 million, or $3.69 a share, from $91.4 million, or $2.61 a share, a year earlier, the exchange said today in a statement. Revenue rose 32 percent to $332.3 million. The average fee per contract fell to 64 cents from 65 cents.

Soaring profit and increased computer-based trading has fueled consolidation in the industry. The Merc's $8.7 billion bid for the Board of Trade is competing with a $9.9 billion unsolicited March 15 offer by Intercontinental Exchange Inc. Chief Executive Officer Craig Donohue, 45, has refused to raise his bid, saying it's superior to the Intercontinental offer.

``It was a very strong quarter,'' said Richard Herr, an analyst at Keefe Bruyette & Woods Inc. in New York. The report ``improves their chances in consummating their deal with the Board of Trade.'' Herr expected the company to earn $3.62 a share, rates the exchange ``outperform'' and doesn't own any shares.

The company was expected to earn $3.56 a share, the average estimate of 14 analysts surveyed by Bloomberg.

April Trading

Average daily volume so far this month is about 4.9 million contracts, James Parisi, The Merc's chief financial officer, said on a conference call with investors today.

The figure is down 8 percent from an average 5.3 million contracts in April 2006, said Edward Ditmire, an analyst with Fox-Pitt Kelton Inc. in New York.

``Relatively soft April volumes'' pulled the stock lower today, Ditmire said. The volumes were ``well below what we had modeled,'' he said. Ditmire rates the exchange ``underperform'' and doesn't own the stock.

The shares of Chicago Mercantile Exchange Holdings Inc., the parent of the exchange, fell $16.10, or 2.9 percent, to close at $531.30 at 4:16 p.m. in composite trading on the New York Stock Exchange. The stock has climbed 7.7 percent in the past year.

Trading in interest rate futures, the largest revenue generator, rose to a record 3.6 million contracts a day, on average, up 25 percent from a year earlier, the exchange said.

Earnings from transaction and clearing fees increased 29 percent to $258 million. The rise was fueled in particular by increased trading of half-size equity contracts, known as e- minis, which rose by 40 percent.

Daily Trading Average

Average daily volume at the exchange, the world's biggest futures market, totaled a record 6.5 million contracts for the quarter, a 30 percent increase from the year-earlier period, the company said earlier this month. About 75 percent of the trading occurred on the exchange's Globex electronic platform.

``It's going to be record numbers for the futures exchanges'' in the quarter, Richard Repetto, an analyst at Sandler O'Neill & Partners in New York, said in an interview yesterday. Repetto, who rates the Chicago Merc ``buy'' and doesn't own the stock, expects record volume, revenue, earnings and margins for almost every exchange in the industry.

Board of Trade shareholders are scheduled to vote on the Chicago Merc's merger offer on July 9. Assuming the Department of Justice approves the Merc's proposal, Repetto said he was favoring that bid over the one made by the Intercontinental Exchange.

``The Department of Justice process continues,'' Donohue said on the conference call today.

Board of Trade

Transaction and fee figures at the Chicago Merc exclude trading in nontraditional futures geared toward individual investors, known as TRAKRS. The exchange doesn't count these contracts when publishing figures because they generate just 1 cent for each trade.

The Merc has benefited from record trading at the Board of Trade, home to Treasury futures, because the Chicago Merc guarantees every contract bought or sold at the smaller exchange. The Board of Trade handled a record 3.9 million contracts a day last quarter.

About 75 percent of trading at the Board of Trade is conducted electronically, for which it charges more than for face-to-face trades on the floor of the exchange.

Cash on Hand

The Mercantile Exchange's operating margin, which is revenue minus expenses as a percentage of total revenue, rose to 60 percent, up from 55 percent a year earlier. The Merc had $1.1 billion in cash on hand at the end of the quarter, up $970 million from the fourth quarter.

Partnerships with rival markets such as the New York Mercantile Exchange are helping increase revenue for the company. Nymex has offered electronic trading of its energy and metals futures contracts on Globex since last year. About 675,000 Nymex energy and metals futures changed hands each day on Globex.

The company's revenue from such processing services rose 92 percent to $35 million.

Expenses increased 17 percent to $132 million, driven by costs for increased compensation and technology and marketing services. Growth-initiative costs, such as the proposed Board of Trade merger and other programs, totaled $5.7 million, the company said.

To contact the reporter on this story: Matthew Leising in New York at mleising@bloomberg.net.

Last Updated: April 24, 2007 16:31 EDT