Chicago Mercantile Exchange Holdings Inc. reported record revenues and profits, with a 44 percent increase in net income for second-quarter 2005 compared with second-quarter 2004.
These results were driven by significantly increased trading volume in each of CME’s major product lines. Net revenues climbed 28 percent to a record $239 million, income before income taxes was up 41 percent to $136 million, and net income rose 44 percent to $82 million. Diluted earnings per share rose 42 percent to $2.36 from $1.66. Yesterday, the company declared a third-quarter dividend of 46 cents per share, payable on September 26, 2005 to shareholders of record on September 9, 2005.
Average daily volume was 4.4 million contracts for second-quarter 2005, a 33 percent increase from second-quarter 2004. Trading on the CME Globex electronic trading platform grew 82 percent to 3.1 million contracts per day in second-quarter 2005 from 1.7 million per day in second-quarter 2004. Electronic volume represented 71 percent of total CME volume in the quarter, compared with 66 percent in first-quarter 2005 and 52 percent in second- quarter 2004.
“CME’s broad-based volume growth led to record top-line and bottom-line results in the second quarter,” said CME Chairman Terry Duffy. “Total volume grew to a record 4.4 million contracts per day on average from 3.3 million in last year’s second quarter. CME foreign exchange products nearly doubled in volume from a year earlier, while interest rate and equity products grew substantially. Due to the inherent leverage of our financial model and scalability of our infrastructure, we generated record quarterly net income and significant free cash flow.”
“Our outstanding performance illustrates that our strategy, which includes broadening our electronic product offerings and expanding global access to our exchange, is working,” said CME Chief Executive Officer Craig Donohue. “Electronic volume on CME Globex was up more than 80 percent in the second quarter to 3.1 million contracts per day, compared with second-quarter 2004, driven primarily by CME Eurodollar futures and foreign exchange. Volume traded through our European and Asian programs was up more than 55 percent from first-quarter 2005 as we saw increased activity from proprietary trading firms. We anticipate further electronic growth as we continue to improve the functionality of our CME Globex platform and the flexibility of our product offerings. These enhancements enable our customers to use more sophisticated trading strategies and increase trading in new electronic options products.”
Clearing and transaction fee revenue from CME products increased 28 percent to $183 million, up from $143 million for second-quarter 2004. Revenue from clearing and transaction processing services rose 32 percent to $19 million and quotation data fees were up 20 percent to $18 million. While net revenues increased 28 percent, expenses increased 13 percent to $103 million, primarily driven by technology spending.
Second-quarter income before income taxes was $136 million, an increase of 41 percent from $96 million for the year-ago period. The company’s operating margin, defined as income before income taxes expressed as a percentage of net revenues, was 57 percent, compared with 51 percent for the same period last year.
Capital expenditures, including capitalized software development costs, were $27 million in second-quarter 2005.
CME’s working capital increased by approximately $70 million during the second quarter, to $809 million at June 30, 2005.