CME Group Inc. (CME) reported second-quarter 2014 operating earnings per share of 77 cents. Results fell short of the Zacks Consensus Estimate of 80 cents and plunged from the year-ago quarter figure of 93 cents. With this result, the company’s average four-quarter beat stands at 0.5%.

Consequently, operating net income declined 17.1% year over year to $257.9 million. Including extraordinary items, GAAP net income stood at $263.8 million or 79 cents a share in the reported quarter against $311.2 million or 93 cents per share in the year-ago period.

CME Group’s total revenue plummeted 10.4% year over year to $731.6 million, which also missed the Zacks Consensus Estimate of $741 million. The downside was primarily led by deteriorated revenues from clearing and transaction fees and lower average rate per contract. Moreover, incremental revenues from market data and information services, along with flattish growth in revenues from access and communication fees were unable to boost results.

The company’s average daily volume decreased 12% year over year to 12.6 million contracts in the reported quarter, primarily due to a historically low level of volatility witnessed across asset-class. The volumes constitute mostly lower-priced products, particularly interest contracts, which require higher volume discounts. However, total average rate per contract remained almost unchanged from the year-ago quarter at 74.9 cents but came lower than 76.7 cents in the prior quarter.

CME Group’s clearing and transaction fees declined 12% year over year to $609.3 million, accounting for about 83% of the total revenue. Conversely, revenues from market data and information services increased 12.8% to $89.6 million. However, revenues from access and communication fee dipped 1% to $20.4 million, whereas other revenues decelerated 47.9% to $12.3 million.

Meanwhile, total operating expenses rose 3.7% year over year to $319.6 million. Consequently, operating income plunged 18.9% to $412 million, and the operating margin deteriorated to 56.3% from 62.2% in the year-ago quarter.

CME Group recorded non-operating income of $10.1 million against expense of $0.3 million in the year-ago quarter, reflecting lower investment income and lower borrowing costs in the reported quarter.

Financial Update

As of Jun 30, 2014, CME Group had $1.1 billion of cash and marketable securities, lower than $2.54 billion at 2013-end, while long-term debt was $2.1 billion, at par with the 2013-end level.

As of Jun 30, 2014, CME Group had total assets of $51.61 billion (down from $54.28 billion as of Dec 31, 2013), while total equity came in at $21.47 billion (up from $21.16 billion as of Dec 31, 2013). The company did not repurchase any shares during the reported quarter.

Dividend Update

On May 20, 2014, the board of CME Group announced its quarterly dividend of 47 cents per share, which was paid on Jun 25, 2014 to shareholders of record as on Jun 10.

In Feb 2014, the company had hiked its quarterly dividend by 4% to 47 cents per share from the prior payout of 45 cents.

Other Stocks to Consider

Currently, CME Group carries a Zacks Rank #4 (Sell). However, better-ranked financial stocks like Moody’s Corp. (MCO), American Express Co. (AXP) and Ladder Capital Corp. (LADR), all bearing a Zacks Rank #2 (Buy), are worth reckoning.

Read the Full Research Report on CME
Read the Full Research Report on LADR
Read the Full Research Report on AXP
Read the Full Research Report on MCO


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