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Chicago Merc Hits Bump

Net rises 29%, but the shares fall as the profit misses estimates.

Updated from 8:09 a.m. EDT


Chicago Mercantile Exchange

(CME) - Get Free Report

said Tuesday that first-quarter profits rose 29% from a year ago, reflecting record quarterly volume across all products. The results missed analysts estimates, however, as the average rate per contract fell and expenses related to technology investment increased.

In the quarter, the CME earned $91.4 million, or $2.61 a share, compared with $70.9 million, or $2.04 per share, in the same quarter last year. Total net revenue was $263.4 million, up 23% in the quarter.

Analysts, as surveyed by Thomson Financial, were looking for earnings of $2.63 a share, based on sales of $263.3 million.

The news sent the stock down $16.65, or 3.4%, to $476.85.

In the quarter, trading of the company's biggest contract, interest rates, increased 30.6% to an average daily volume of 2.9 million per day vs. 2.2 million in the first quarter last year. Total daily average volume was 5.1 million contracts per day vs. 3.98 million in the first quarter last year.

But the average rate per contract fell, from 66.8 cents per trade to 65.2 cents per trade. The decline in revenue per contract was primarily due to interest rate contracts, which went from 52.1 cents per contract to 49.3 cents.

Meanwhile, total expenses were $112.9 million for the first quarter of 2006, an 18% increase from $96.0 million in the same period last year. The expenses reflected the focus on investment in technology.

"We continue to invest in new technology that will spur further growth in electronic trading volume through increased speed and access for all users of our markets," said CME Chief Executive Officer Craig Donohue. "In March, we traded a record 3.7 million contracts per day on CME Globex, up 135% over the past two years."

One of analysts' main concern about the CME earnings was in regards to the decline in rate per contract. The company saw a greater growth in member trading on the exchange vs. the growth in non-member trading. Members' fees are slightly lower than non-member fees, which contributed in the overall decline in average rate per contract.