By RICK A. RICHARDS
Indiana Correspondent

CHICAGO, Ill. — CME Group, Inc., parent company for the Chicago Mercantile Exchange, posted record second-quarter revenue of $838 million. Net income was $294 million, up 8 percent from the same reporting period in 2010.

“CME Group delivered record revenue during the second quarter, driven by strong performance across interest rates, metals and agricultural commodities,” said Terry Duffy, executive chair. “Volume accelerated during the period and we reached record open interest of more than 100 million contracts in June.”
Richard Repetto, a principal of equity research at the New York investment banking firm of Sandler O’Neill + Partners, follows CME for the firm. In his report on the performance of CME, Repetto pointed out its bottom line outperformed Sandler O’Neill’s forecast.
Earnings per share were $4.38, above Repetto’s forecast of $4.16. “We are increasing our 2011 and 2012 earnings per-share estimates to $168.87 and $19.01 from $16.80 and $18.68, respectively,” he said.

That increase is designed to reflect CME’s better-than-expected earnings per share for the second quarter. In doing so, Repetto is recommending to his clients that they buy CME shares.
He said CME, which owns the Chicago Board of Trade (CBOT) and the New York Mercantile Exchange (NYMEX), has benefitted from continued demand for grains and meat in growing Asian economies, as well as a rising U.S. demand for energy commodities.

Agricultural products such as wheat and cattle are negotiated at the CBOT, while crude oil is traded on the NYMEX.
Meanwhile, Craig Donohue, CEO of CME Group, said, “We are extremely pleased with both our top- and bottom-line results, which highlight the operating leverage inherent in our business model. We plan to build on these results with a heightened focus on expenses, and we are reducing our second-half 2011 operating and capital expense guidance.

“Going forward, we intend to continue to successfully execute our global growth strategy by ensuring that we have the products, technology, clearing capabilities and global distribution systems to benefit from the opportunities created by changing market dynamics. We remain confident about our growth prospects and our ability to deliver shareholder value.”

Repetto said he is recommending a buy for CME stock because “the company’s stayed true to its disciplined strategy and continues to invest in global expansion.” He said CME’s stock price rebounded in April from an 8 percent decline in mid-March and it fell again in May, although it sold for just under $300. He said CME stock would be a good buy for up to $355 a share.

Donohue said during the second quarter, the average daily volume by CME Group was 1.35 million contracts, which translated into $688 million in clearing and transactions fees. Operating expenses in the quarter were $304 million, down $4 million from the first quarter.

At the end of the second quarter on June 30, CME Group had $749 million in cash and marketable securities and $2.1 billion in debt. At the same time, it declared a third-quarter dividend of $1.40 per share. The dividend will be payable on Sept. 26 to shareholders of record on Sept. 9.

CME also announced it is evaluating whether it should maintain its headquarters in Chicago (see related article on page 1 for details). Donohue said the exchange’s tax situation “was untenable” and explained it is taxed more heavily in Illinois than any other exchange in the world.

He said while CME doesn’t plan to close its trading operations in Chicago, it is looking at moving other operations to more tax-friendly states such as Texas, Florida or Tennessee. CME has been in Chicago since the CBOT opened in 1848.