CME Earnings: Strong Trading Volume in Commodity Futures Drives Average Pricing and Revenue Higher

Wide-moat-rated CME CME group reported solid earnings that were in line with our expectations as the company benefited from strong trading volume in its commodity futures. CME’s net revenue increased 9% from last year but decreased 1.6% from a strong second quarter to $1.34 billion. Meanwhile, the company’s earnings per share increased 10.2% to $2.06. As we incorporate these results, we do not plan to materially alter our $215 fair value estimate, and we see shares as roughly fairly valued.

Trading revenue, which is the primary driver of CME’s results, rose 8.7% from last year to $1.09 billion, despite one fewer trading day in the quarter. The increase in trading revenue was due to better average pricing, as firmwide average daily volume, or ADV, was effectively flat from last year, with CME’s average rate per contract rising 12% to $0.71. CME benefited from positive mix shift as its more expensive contracts outperformed with energy and agricultural futures ADV rising 15.7% and 18.6%, respectively, to 2.1 million and 1.4 million. While these asset classes make up a smaller percentage of CME’s total volume than its equity or interest rate futures, the average price on these contracts is nearly double the company average. Additionally, while equity futures ADV was down 14.7%, the majority of this decrease came from CME’s smaller and cheaper micro equity futures contracts, which saw a 28.3% decrease to 2.17 million.

Results in 2023 are benefiting from unusually large price hikes this year. CME typically increases its prices by 1%-2% per year, assuming stable mix, while this year came in at 4%-5%. While CME’s product mix has gone through a positive shift this quarter, trading volume of individual asset classes can be volatile from quarter to quarter, meaning that this improvement cannot be reliably extrapolated. The benefit of the price hikes should prove more durable, though we do expect future price increases to be closer to the firm’s historical trend.