CME Group third-quarter profit rises on trading strength

By Laura Matthews and Pritam Biswas

(Reuters) -CME Group reported a rise in third-quarter profit on Wednesday as traders used the company’s products to hedge against volatility in markets roiled by economic and geopolitical uncertainty.

CME shares, which are up 27% year to date, fell in morning trading after LSEG data showed quarterly revenue was $4 million shy of the analyst estimate of $1.34 billion. But shares recovered and were down just slightly by late morning.

Storm clouds over the economy have kept demand steady for the derivatives exchange’s hedging products steady, even as hopes are growing for a soft landing.

“We are operating in an environment that unquestionably requires risk management with so much uncertainty in the world we live in,” said CME Group Chief Executive Terry Duffy on an analyst call.

“This is particularly true in the interest-rate markets today. We see divergent market views around inflation, unemployment, monetary policy and ongoing geopolitical tensions all impacting future interest rate expectations.”

Those diverse views helped CME’s interest-rate volume in the third quarter to rise 6% from a year ago, driven in part by an 18% increase in Treasury futures average daily volume.

Average daily volume for CME’s commodities products rose 15% from a year ago while energy products volume jumped 16%.

“Regardless of whether rates rise, fall or hold steady, the shape of the yield curve and interest-rate views continue to shift, and our customers need to manage that risk,” said Duffy.

The exchange’s non-U.S. average daily volume hit 6.5 million contracts, up 7% from a year ago, as traders globally sought to mitigate risk.

The company, known mainly for its futures products tied to commodities trading, registered revenue growth of 9% to $1.34 billion from last year.

Clearing and transaction revenue rose 8.7% to $1.09 billion, while revenue for market data and information services climbed 8.6% to $167.6 million.

Higher demand for hedging has allowed CME to register three consecutive years of revenue growth.

CME shares fell nearly 3% premarket after the company missed analyst estimate of $1.34 billion by $4 million, according to LSEG data. They were still down 1.3% at $211 after the earnings call.

CME Group’s average daily volume was steady at 22.3 million in the quarter, slightly below 22.4 million last year.

Last week, Duffy told Reuters that CME is in a strong position to make acquisitions, armed with low debt and robust earnings.

On an adjusted basis, the company’s net income rose to $807.8 million, or $2.25 per share, for the quarter ended September 30, from $710.0 million, or $1.98 per share, a year earlier. It is CME’s ninth consecutive quarter of double-digit growth in adjusted EPS.

As of September 30, CME had approximately $2.5 billion in cash and $3.4 billion of debt.

(Reporting by Laura Matthews in New York and Pritam Biswas in Bengaluru; Editing by Shounak Dasgupta, Maju Samuel and David Gregorio)