CME Group Net Income Drops, Says CEO Switch Accelerates

CME Group Inc., the world’s largest futures market, reported a 42 percent drop in profit from a year earlier and said its new chief executive officer could take over formal duties next month.

Net income fell to $266.6 million, or $4.02 a share, from $456.6 million, or $6.81 a share, a year earlier, Chicago-based CME said today in a statement. The year-ago earnings included a $164.4 million tax adjustment. The first-quarter per-share profit beat the average estimate of $4 per share in a Bloomberg survey of analysts. Daily futures and options volume in the quarter dropped 11 percent to average 12.3 million contracts, the company said earlier this month.

Trading slowed in the first quarter across all financial asset classes as European banks sought less risk, hedge funds scaled back their investments, and interest rates held near zero, Jillian Miller, an analyst with BMO Capital Markets Corp., wrote in an April 12 note to clients. Futures contracts at CME Group tied to equity indexes and interest rates, two of its largest product groups, fell 18 percent and 13 percent, respectively, during the quarter, CME said April 3.

‘We See Risk’

“We believe the stock could under-perform today as we see risk to near-term and forward estimates,” Niamh Alexander, an analyst at KBW Inc., wrote in a report after the earnings were released. The exchange’s average daily volume in the current quarter of 10.6 million contracts is down 15 percent from the same period a year ago, she said. “Though April is typically the weakest month of the quarter with potential for higher volume as the quarter progresses, we still see downside risk” to earnings estimates of $4.41 a share, she said.

CME Group shares rose 0.3 percent to $274 in New York. The company has fallen 11.8 percent over the past year.

Chief Executive Officer Craig Donohue, 50, said today that the transition to promote President Phupinder Gill to chief executive is going faster than planned, with a formal hand-off possible by the May 23 annual shareholder meeting. Donohue, CEO for the past eight years, announced last month his plan to retire in December when his contract expires.

“This is my last earnings call,” Donohue said on a conference call with analysts and investors today to discuss the company’s performance.

Revenue Declines

Revenue dropped 6.9 percent to $775 million last quarter, from $832 million a year ago, the company said.

“CME’s core trading markets have been struggling for the past few months given its exposure to financial products, particularly rates,” Miller said in the April 12 note. She said she expected CME Group to earn $4.03 per share on an adjusted basis.

The company’s ClearPort service, which guarantees swap contracts with its clearinghouse, reported an 11 percent increase in volumes in the quarter. ClearPort generates the highest fees per contract at CME Group.

The exchange earned about $2 million in revenue in the first quarter from guaranteeing interest-rate and credit-default swaps with its clearinghouse, said Jamie Parisi, CME Group’s chief financial officer. The exchange charges $5 to $6 per million of notional value to clear rate swaps and between $7 to $8 per million for credit swaps, he said.


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