CME Group profit falls 69 percent on special charge
NEW YORK -- Exchange operator CME Group Inc. said Tuesday its fourth-quarter profit tumbled 69 percent as it took a charge on its equity investment in Brazilian exchange operator BM&F Bovespa SA.
CME Group's profit dropped to $62.1 million, or 93 cents per share, during the quarter ended Dec. 31, compared with earnings of $201.1 million, or $3.75 per share, during the same quarter last year.
Excluding the $274.5 million pretax, non-cash charge tied to BM&F Bovespa, $17.5 million in merger-related charges and other special items, CME Group earned $417.9 million, or $3.58 per share during the fourth quarter.
Analysts polled by Thomson Reuters, on average, forecast earnings of $3.46 per share for the quarter on revenue of $686.8 million. Analysts do not always include special charges in their estimates.
The better-than-expected results sent CME Group shares higher. Shares jumped $3.26, or 1.9 percent, to close at $171.52.
CME Group's revenue climbed 31 percent to $691.8 million during the quarter, from $529.5 million during the same period a year earlier. Revenue jumped due in part to recent acquisitions, such as the purchase of the New York Mercantile Exchange, which closed in August.
Analysts widely pointed to CME Group's rate per contract for the better-than-expected fourth-quarter results and revenue.
The exchange operator's revenue was also helped by an increase in average rate per contract, which jumped to 86 cents from 75 cents in the fourth quarter of 2007 as the proportion of high-priced contracts increased.
BMO Capital Markets analyst Michael Vinciquerra wrote in a research note that contract rates were better than anticipated because fewer clients hit volume discount thresholds and declines in interest rate contracts, which carry the lowest average fees.
Revenue improved despite a drop in average daily trading volume. An average of 8.9 million contracts were traded daily during the fourth quarter, compared with 10.6 million contracts during the same quarter in 2007.
The decline was mainly due to a drop in interest rate product trading, which fell 41 percent to an average of 3.7 million contracts traded per day during the most recent quarter. The ongoing credit market crisis has sent interest rates sharply lower, which has lead to futures contracts tied to rates to fall as well.
"Although dislocations in credit and lending markets have significantly impacted our interest rate complex, our other product lines, especially equity indexes, showed solid volume growth," Craig Donohue, CME Group's chief executive, said in a statement. Excluding interest-rate contracts, CME Group's average daily contract volume jumped 21 percent to 5.2 million contracts per day during the final three months of 2008.
For the full year, CME Group earned $715.6 million, or $12.13 per share, compared with $658.5 million, or $14.93 per share, in 2007. Earnings per share fell despite an increase in profit because there were more shares outstanding in 2008 than 2007.