Turning in a solid second quarter, CBOT Holdings Inc. on Thursday reported that net income more than doubled and that revenue jumped 31 percent.
The parent of the Chicago Board of Trade posted earnings of $43.5 million, or 82 cents a diluted share, 10 cents a share higher than estimates, according to Thomson Financial. A year ago, the CBOT earned $18.2 million, or 35 cents a share. Revenue climbed to $158.5 million in the most recent quarter.
Company officials attributed the strong results to higher fees, an expanding customer base and tight cost control.
But with about 78 percent of the exchange’s activity still in interest rate products, “we’re trying to grow our core products and develop our other segments to create opportunities for further diversification,” said Chief Executive Bernard W. Dan.
Trading volume in interest rate contracts rose 9 percent from a year ago, but analysts expect the CBOT’s crosstown rival, the Chicago Mercantile Exchange, to report a 26 percent gain in its interest rate offerings when it announces quarterly results next week.
The CBOT said revenue from exchange and clearing fees rose 27 percent, to $117.2 million, while market data revenue increased 44 percent, mostly because of a January price hike. The overall average rate charged per contract rose 13 percent, to 56 cents.
The good news propelled shares of the CBOT up $5.61, or nearly 5 percent, to $121.12, on the New York Stock Exchange.
One of few surprises was the 1 percent decline in operating expenses compared with the year-ago period.
“That’s a pretty big deal because it will help improve earnings over the long term,” said analyst Richard Herr, a senior vice president at Keefe Bruyette & Woods, an institutional brokerage and investment bank that participated in the CBOT’s initial public offering last fall.
One of the beauties of “the electronic exchange model is a fixed cost structure,” he said. “Even if you do more business, you don’t have to hire more people or buy more hardware.”
Agricultural contracts led the way in the quarter with a 31 percent increase in average daily trading volume, to 529,000 contracts.
Citing the CBOT’s plans to introduce electronic trading of farm products side by side with open outcry trading on Aug. 1, Herr said, “I expect the strong growth to continue because investors now see ags as an attractive asset class to trade.”
The metals and energy complex, while still small with an average daily trading volume of 54,000 contracts, was up from 3,000 contracts a day in the year-ago quarter.
In a cautionary note, Herr said the estimated 2006 price-earnings ratio of 43 for CBOT stock was higher than the 41 for the much larger Merc.
“We think investors who own CBOT stock should hold it, but we aren’t recommending investors to put in new money,” he said.
That the CBOT could raise the cost of trading and still see volume grow testifies to the “company’s pricing power and shows how good the futures exchange business is,” explained Philip Guziec, an equity analyst at Morningstar Inc. “In the long run, we expect great profitability and good growth rates.”
Ray Cahnman, chairman of Transmarket Group LLC, a proprietary trading firm, expects agricultural trading volume to double within a year after the new electronic trading policy takes effect next month.
“I expect 10 times the number of ag traders,” he said. “And I’ll be one of them, even though I have not traded ags in 20 years.”
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sdiesenhouse@tribune.com
