10-QPeriod: Q1 FY2017

CME GROUP INC. Quarterly Report for Q1 Ended Mar 31, 2017

Filed May 4, 2017For Securities:CME

Summary

CME Group Inc. reported solid financial performance for the first quarter of 2017, with net income increasing by 9% to $399.8 million, or $1.18 per diluted share. Total revenues saw a slight decrease of 1% to $929.3 million, primarily due to a 1% dip in clearing and transaction fees, despite a 3% increase in overall contract volume. This revenue decline was offset by a significant 9% reduction in total expenses, leading to an improved operating margin of 64.7% compared to 61.4% in the prior year quarter. The company benefited from strong non-operating income, which surged to $105.8 million from $4.6 million, largely driven by the sale of its remaining stake in BM&FBOVESPA and increased investment income from reinvested performance bond collateral. Despite a higher effective tax rate of 43.5% in the current quarter, the overall operational and investment gains contributed to a robust increase in profitability.

Financial Highlights

44 data points
Beta

Revenue

$929.30M

Net Income

$399.80M

43.0% Net Margin

EPS (Diluted)

$1.18

Total Assets

$75.48B

Cash & Equivalents

$1.29B

Free Cash Flow

$499.40M

Financial Statements
Beta
Revenue$929.30M
Operating Expenses$328.40M
Operating Income$600.90M
Net Income$399.80M
EPS (Basic)$1.18
EPS (Diluted)$1.18
Shares Outstanding (Basic)338.34M
Shares Outstanding (Diluted)339.95M

Key Highlights

  • 1Net income rose 9% to $399.8 million, with diluted EPS increasing to $1.18 from $1.09 year-over-year.
  • 2Total revenues decreased slightly by 1% to $929.3 million, while total expenses fell significantly by 9% to $328.1 million.
  • 3Operating margin improved to 64.7% from 61.4% in the prior year's first quarter.
  • 4Clearing and transaction fees were down 1% to $792.0 million, despite a 3% increase in total contract volume to 1,060.1 million contracts.
  • 5Interest rate product volumes increased significantly (11% average daily volume), driven by uncertainty in Federal Reserve interest rate policy and geopolitical events.
  • 6Equity product volumes saw a notable decrease of 22% in average daily volume, attributed to lower market volatility.
  • 7The company realized a gain of $86.5 million from the sale of its remaining shares in BM&FBOVESPA, contributing to a substantial increase in non-operating income.

Frequently Asked Questions

The increase in net income was primarily driven by a significant 9% reduction in total operating expenses and a substantial surge in non-operating income. The sale of the BM&FBOVESPA stake and increased investment income from reinvested collateral contributed to this boost, more than compensating for the modest dip in revenues.

Total contract volume increased by 3% to 1,060.1 million contracts. However, the average rate per contract decreased by 3% to $0.731. The increase in volume contributed positively by an estimated $20.0 million, but the decrease in the average rate per contract resulted in an estimated $26.4 million decrease, leading to a net $6.4 million decrease in clearing and transaction fees.

Interest rate products saw increased volume due to Federal Reserve policy uncertainty and geopolitical events. Conversely, equity product volumes decreased due to lower market volatility. Foreign exchange volumes declined due to lower volatility, though British pound volumes saw an increase driven by Bank of England policy. Agricultural and energy product volumes remained relatively stable or saw modest changes, while metals volumes increased as investors sought safe-haven assets.

The company is involved in a CFTC lawsuit against NYMEX concerning the disclosure of confidential customer information. While the company believes it has strong defenses, the outcome is uncertain. Management believes that the ultimate resolution of all legal and regulatory matters will not have a material impact on its financial position or results of operations, though they cannot predict the specific outcome or timing.