10-QPeriod: Q3 FY2016

CME GROUP INC. Quarterly Report for Q3 Ended Sep 30, 2016

Filed November 4, 2016For Securities:CME

Summary

CME Group Inc.'s (CME) third quarter 2016 results show resilience with a notable increase in net income of 31% year-over-year, reaching $472.8 million, or $1.39 per diluted share. This strong performance was driven by a 7% increase in total revenues for the nine-month period ended September 30, 2016, compared to the same period in 2015, amounting to $2.68 billion. Despite a slight 1% dip in third-quarter revenues to $841.7 million, the company effectively managed expenses, resulting in a higher operating margin of 62.4% for the quarter and a 21% increase in diluted earnings per share for the nine-month period. Key drivers of revenue growth included a significant 8% increase in clearing and transaction fees for the nine-month period, primarily fueled by an 8% rise in contract volume. While overall contract volume remained stable year-over-year for the quarter, specific product lines like energy and metals showed strong growth. The company also benefited from improved investment income and a lower effective tax rate, which contributed to the substantial net income growth. CME Group continues to demonstrate robust operational execution and financial discipline, providing a positive outlook for its stakeholders.

Financial Highlights

46 data points
Beta

Revenue

$841.70M

Net Income

$472.80M

56.2% Net Margin

EPS (Diluted)

$1.39

Total Assets

$63.25B

Cash & Equivalents

$1.42B

Free Cash Flow

$455.40M

Financial Statements
Beta
Revenue$841.70M
Operating Expenses$316.40M
Operating Income$525.30M
Net Income$472.80M
EPS (Basic)$1.40
EPS (Diluted)$1.39
Shares Outstanding (Basic)337.59M
Shares Outstanding (Diluted)339.14M

Key Highlights

  • 1Net income for the quarter ended September 30, 2016, increased by 31% to $472.8 million compared to the prior year quarter.
  • 2Diluted earnings per share grew by 31% to $1.39 for the quarter ended September 30, 2016.
  • 3Total revenues for the nine months ended September 30, 2016, increased by 7% to $2.68 billion.
  • 4Clearing and transaction fees, a primary revenue driver, rose by 8% for the nine-month period, supported by an 8% increase in total contract volume.
  • 5Energy and Metal product volumes showed significant year-over-year growth, with WTI crude oil up 25% and Gold up 24% in the quarter.
  • 6The effective tax rate decreased significantly to 13.8% for the third quarter of 2016 from 30.3% in the prior year quarter.
  • 7Operating expenses decreased by 5% in the third quarter of 2016, reflecting effective cost management, though they increased 3% for the nine-month period mainly due to a datacenter sale and leaseback charge.

Frequently Asked Questions

The primary driver of CME Group's revenue growth in the first nine months of 2016 was the increase in clearing and transaction fees, which rose by 8% year-over-year. This was largely supported by an 8% increase in total contract volume traded across CME's exchanges.

CME Group effectively managed its expenses in the third quarter of 2016, with total expenses decreasing by 5% to $316.4 million compared to the same period in 2015. This contributed to an improved operating margin of 62.4% for the quarter.

CME Group maintains a strong liquidity position with $1.4 billion in cash and cash equivalents as of September 30, 2016. The company has significant credit facilities available and maintains an investment-grade credit rating with a stable outlook from both Standard & Poor's and Moody's, indicating financial stability and access to capital.

A notable event impacting expenses was the sale and leaseback of a Chicago datacenter in March 2016, which resulted in a recognized loss of $27.1 million and related transaction fees, contributing to an overall increase in expenses for the nine-month period. However, the overall net income for the quarter saw a significant increase due to strong operational performance and other factors like investment income and lower tax rates.