UPDATE 1-CBOE to cut expenses as earnings drop on weak volumes

Fri Aug 1, 2014 10:31am EDT

(Updates with comments from conference call, analyst, share price)

By Tom Polansek

CHICAGO Aug 1 (Reuters) - CBOE Holdings Inc on Friday became the second exchange operator this week to say it will cut expenses in the face of declining trading volumes that are eating into profits.

Shares slid 1.2 percent after the owner of the Chicago Board Options Exchange reported a drop in second-quarter earnings and revenue.

Chicago-based CBOE, which runs the largest U.S. stock-options market, reduced its outlook for core operating expenses in 2014 to a range of $186 million to $190 million, from a previous range of $191 million to $196 million.

"We are in the process of scrutinizing all expenses," Chief Financial Officer Alan Dean told analysts on a conference call to discuss earnings. Potential areas for cuts include travel and costs for consultants, he said.

A day earlier, CME Group Inc, the world's largest futures market operator, said it would reduce hiring and travel expenses to compensate for weak trading volumes.

Average daily volume at CBOE dropped 2.5 percent in the second quarter from a year earlier because of "low market volatility and investor complacency," Chief Executive Ed Tilly said on the call.

Transaction fees slid 7.7 percent to $97.9 million, the result of weak volumes and a decrease in average revenue per contract.

"Transaction revenues missed our forecast with lower-than-expected pricing across all options classes," UBS analyst Alex Kramm said.

Net income declined to $42.6 million, or 50 cents per share, from $45.5 million, or 52 cents, a year earlier. Adjusted earnings were also 50 cents per share, meeting analysts' estimates, according to Thomson Reuters I/B/E/S.

Operating revenue was $143.9 million, down 4.6 percent from a year earlier but slightly above estimates of $143.7 million.

Shares dropped 1.2 percent to $47.90 in early morning trade on Friday and are off 8.4 percent so far this year. CME's stock was down 0.4 percent at $73.67 and is off 6.1 percent this year. (Reporting by Tom Polansek; Editing by Bernadette Baum and Steve Orlofsky)