UPDATE 2-CME Group earnings miss estimates due to weak volumes

Thu Jul 31, 2014 11:22am EDT

(Recasts with comments from conference call)

By Tom Polansek

CHICAGO, July 31 (Reuters) - CME Group Inc will cut costs by reducing hiring and employee travel to help compensate for weak trading volumes, the chief financial officer said on Thursday after the world's largest futures market operator posted lower-than-expected earnings.

Shares fell 2.7 percent after CME Group said trading volumes, along with clearing and transaction fees, dropped 12 percent in the second quarter as volatility levels slumped while expenses were up 3.7 percent.

"We have refocused our teams on wringing out discretionary expenses where possible for the remainder of the year," CFO Jamie Parisi told analysts on a conference call to discuss earnings.

Net profits for the owner of the Chicago Board of Trade and Chicago Mercantile Exchange fell to $263.8 million, or 79 cents a share, from $311.2 million, or 93 cents a share, a year earlier.

Excluding a $14.5 million settlement of CME's claim against bankrupt brokerage MF Global and other special items, earnings were 77 cents a share. That was below analysts' expectations of 79 cents, according to Thomson Reuters I/B/E/S.

Revenue dropped 10 percent to $731.6 million

"The miss was driven by lower revenues as well as higher expenses," said Richard Repetto, a principal for Sandler O'Neill.

The average rate per contract was 74.9 cents, up slightly from a year earlier. Repetto said he had expected 75.9 cents.

Geopolitical uncertainty from conflicts in Israel, Ukraine and other hot spots has kept energy traders on the sidelines, Executive Chairman Terry Duffy told analysts on the conference call.

"I think these are all confusing signals to any energy trader, and I would be afraid a little bit right now to trade it also," Duffy said.

Energy volumes were down 19 percent in the quarter.

CME has looked overseas to boost business. The Chicago-based company plans to launch European natural gas futures this year and make a bid to administer the global price benchmark for gold.

"We have confirmed our intention to tender for the London gold benchmark," Chief Executive Phupinder Gill said on the call.

CME previously said it would be happy to administer, with Thomson Reuters Corp, the gold price benchmark, known as the "fix". The companies this month won a battle to administer the silver benchmark.

European expansion has been a focus for CME after the delayed launch of its first overseas exchange in London in April.

On Wednesday, the Chicago-based company said it will pay about $655 million for two units of derivatives broker GFI Group Inc in an attempt to expand its reach in the European energy and global foreign exchange markets.

CME's stock was down 2.7 percent at 73.75 by 10 a.m. CDT and is off 6 percent this year. Shares of rival IntercontinentalExchange are down 13 percent this year. (Editing by Lisa Von Ahn, Nick Zieminski and David Gregorio)

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

Find your dream retirement town

Florida? Hawaii? Reuters has teamed up with Zillow to give you the power to customize a list of your best places to retire.  Video | Full Article