CME Group Inc. (CME) reported fourth-quarter 2014 operating earnings per share of 95 cents, which beat the Zacks Consensus Estimate by 2 cents but surged 48.4% from the year-ago quarter figure of 64 cents. However, the company’s trailing four-quarter average beat stood at mere 0.2%.
Consequently, operating net income soared 48.8% year over year to $318.9 million. Including extraordinary items, GAAP net income stood at $306.5 million or 91 cents a share in the reported quarter against $193.1 million or 58 cents per share in the year-ago period.
CME Group’s total revenue jumped 22.4% year over year to $841.1 million, and breezed past the Zacks Consensus Estimate of $836 million. The upside was primarily attributable to robust improvement in clearing and transaction fees and trading volumes driven by growth from OTC initiatives, partially offset by lower average rate per contract. Moreover, incremental revenues from market data and information services, and from access and communication fees boosted results.
The company’s average daily volume escalated 31% year over year to 14.8 million contracts in the reported quarter. The improvement was led by higher contracts across all asset classes. Notably, international volumes grew about 50%, primarily contributing to the volumes’ accretion. However, total average rate per contract of 73.1 cents was lower than 78 cents in the year-ago quarter.
CME Group’s clearing and transaction fees spiked 23.6% year over year to $713 million, accounting for about 85% of the total revenue. Additionally, revenues from market data and information services increased 17.1% to $89.6 million. Revenues from access and communication fees nudged up 1.4% to $21.1 million, while other revenues surged 34.9% to $17.4 million.
Meanwhile, total operating expenses inched up 1.6% year over year to $369.6 million. Consequently, operating income escalated 45.9% to $471.5 million, while the operating margin improved to 56.1% from 47% in the year-ago quarter.
CME Group recorded non-operating income of $2.3 million against expenses of $16.2 million in the year-ago quarter, reflecting lower borrowing costs and higher equity earnings in the reported quarter.
Highlights of 2014
For full-year 2014, CME Group reported operating earnings of $3.39 per share, which surpassed both the Zacks Consensus Estimate of $3.35 and the 2013 equivalent of$3.05 a share. Reported net income stood at $1.13 billion or $3.35 per share in 2014 against $976.8 million or $2.92 per share recorded in 2013.
Total revenue increased 6% year over year to $3.11 billion in 2014, also beating the Zacks Consensus Estimate of $3.1 billion. Total operating expenses rose 3.4% year over year to $1.34 billion, marginally up from the management guidance of $1.3 billion.
Financial Update
As of Dec 31, 2014, CME Group had $1.44 billion of cash and marketable securities, lower than $2.54 billion at 2013-end, while long-term debt was $2.1 billion, on par with the 2013-end level.
As of Dec 31, 2014, the company had total assets of $72.24 billion (up from $54.28 billion as of Dec 31, 2013), while total equity came in at $20.92 billion (down from $21.16 billion as of Dec 31, 2013). CME Group did not repurchase any shares during the reported quarter.
Guidance
In Oct 2014, management had anticipated total core operating expenses in 2015 to be in line with 2014-level.
Dividend Update
On Feb 4, 2015, the board of CME Group hiked its regular quarterly dividend by 6.4% to 50 cents from the prior payout of 47 cents per share. The raised dividend will be paid on Mar 25, 2015, to shareholders of record as on Mar 10. Previously, the company had increased its quarterly dividend by 4% in Feb 2014.
On Dec 10, 2014, the company announced a special annual variable dividend of $2.00 per share, totaling about $673 million. This is in addition to the four regular quarterly dividend payouts. The latest annual variable dividend was paid on Jan 13, 2015 to shareholders of record as on Dec 29, 2014, and marked the third such payout in the history of CME Group.
Overall, the company returned about $1.3 billion via dividends in 2014 and about $4 billion since early 2012.
On Dec 26, 2014, CME Group paid a quarterly dividend of 47 cents per share to shareholders of record as on Dec 10.
Earlier, in Jan 2014, the company had paid an annual variable dividend of $2.60 per share. CME Group pays 50% of its prior-year earnings in four quarterly dividends each year. Excess earnings are paid as a fifth or variable dividend. In Feb 2012, the company had hiked this pay out to 50% from 35%.
Zacks Rank
Currently, CME Group carries a Zacks Rank #2 (Buy).
Peer Take
CME Group’s prime peer, Intercontinental Exchange Inc. (ICE) posted fourth-quarter 2014 operating earnings per share of $2.59 yesterday, which surpassed the Zacks Consensus Estimate of $2.54 and the year-ago quarter figure of $2.00 a share. Strong revenue growth along with controlled expenses boosted margins and cash flow as well.
Another peer, CBOE Holdings Inc. (CBOE) is slated to release its fourth-quarter earnings result before the opening bell on Feb 6, 2015. Markit Ltd. (MRKT) will likely release its fourth-quarter earnings before the opening bell on Feb 11, 2015.
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