CME Group Misses Top, Bottom Line

The exchange operator cited heavy trading volume, but shares slipped as profit and revenue, excluding items, were lighter than expected.
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Updated from 9:35 a.m. EDT

Exchange operator

CME Group

(CME) - Get Report

missed Wall Street's expectations Tuesday, despite achieving record trading volume in a hot commodities market.

CME, which operates both the Chicago Mercantile Exchange and the Chicago Board of Trade, reported first-quarter earnings per diluted of $5.25, an increase of 42% vs. the year-ago quarter's $3.62. But excluding a tax benefit from the state of Illinois, pro forma diluted earnings were $4.67 per share. The consensus analyst estimate was $4.80 a share, according to Thomson Financial.

Net income jumped to $284 million, an increase of 118% and total revenues were $625 million, 88% over last year's $332 million. Analysts expected revenue of $629.3 million.

The stock was shedding 9.5% to $473.84 in recent trading. Still, the company highlighted the positive.

"During what was a challenging environment for many financial services companies, CME Group achieved volume growth of 32% in the first quarter, reflecting strength from all product areas," Executive Chairman Terry Duffy said in a company statement.

The surging commodities trading market drove first-quarter trading volume up 32% on a record 13.7 million contracts per day, compared to last year's first quarter. However, the average rate per contract was 63 cents, down 2% from last year's 64 cents per contract.

Goldman Sachs analyst Daniel Harris said volume, however, was underwhelming and looked to continue the trend.

"Early

second-quarter volume trends are also trending lower than our current estimates (April volumes 18% below estimates)," he wrote in a note to clients. Harris said Goldman's estimates are under review and the firm did not have a rating or price target on the stock.

The results included $8.7 million related to the CBOT merger and $8.4 million in transaction costs associated with an agreement with the Brazilian Mercantile & Futures Exchange. This transaction also hit CME's first-quarter operating income due to the impact of a foreign currency hedge.

On the Tuesday morning conference call, CME said that it was proceeding with its anti-trust review process over its acquisition of the

New York Mercantile Exchange

(NMX)

. It expects to the transaction to be completed by the end of 2008 and conceded that deal will eat into its cash balance.

CME also warned on the call that its screen charge revenue may be impacted going forward as Wall Street layoffs take effect and firms cut back on quote screens. But the company noted that the deleveraging taking place in the market was not negatively impacting CME. In fact, it said it was seeing healthy activity from hedge funds and benefiting from banks adjusting their balance sheets. CME plans to add employees in several areas.

Rival futures broker

Intercontinental Exchange

(ICE) - Get Report

is expected to report its earnings on May 2 and

NYSE Euronext

(NYX)

, which is acquiring its smaller rival, the

American Stock Exchange

, will announce its earnings on May 6.