UPDATE 2-CME Group Q2 profit beats Street view on lower tax bill
* CME core Q2 EPS 89 cents/shr; Wall St expected 82 cents
* Analysts say lower tax rate driving results
* CME pressured to restore confidence after MF Global, PFG
(Adds details, background, comment, byline)
By Ann Saphir
July 26 (Reuters) - CME Group Inc (CME.O), the biggest U.S. futures exchange operator, reported a better-than-expected second-quarter profit on Thursday, driven by a lower tax bill.
Net income per share at the Chicago-based company rose to 89 cents, up a penny from a year earlier, after adjusting for a one-time tax bill related to its joint venture with McGraw Hill. Total net income was $244.9 million versus $293.7 million a year ago.
Analysts expected 82 cents a share at the company, which runs the Chicago Board of Trade, the Chicago Mercantile Exchange and the New York Mercantile Exchange.
"It's a little better than expected, but not nearly as much as that 89-cent headline number would imply," said Ed Ditmire, an analyst for Macquarie Securities in New York. "The vast majority of the beat seems to be on lower-than-expected taxes."
The lower tax rate added 6 cents more than expected to per-share profit, UBS analyst Alex Kramm said, with the remaining penny from lower compensation. The company cut employees last quarter, it said on Thursday, but details were not immediately available.
"Solid cost control stands out, but we do not expect that to move the stock in a meaningful way today," Kramm said.
The failures of futures brokerages MF Global last October and of smaller Peregrine Financial Group this month have shaken investor confidence in the industry, ratcheting up the pressure on CME, which is already struggling to attract trading amid a sluggish and uncertain economic recovery.
"It has been a challenging year for the financial industry," CME Group Executive Chairman and President Terry Duffy said in a statement. Duffy has blamed both bankruptcies and the loss of as much as $1.8 billion in customer funds on management misdeeds at the failed firms.
Trading at CME Group's three exchanges fell 9 percent in the quarter, led by a 40 percent drop in interest-rate futures trading. Fees from trading are the exchange operator's biggest source of revenue.
Quarterly revenue fell to $796 million, in line with expectations, from $838.3 million.
The effective tax rate fell to 36.4 percent from 37.5 percent, after adjustments. CME won a tax break from Illinois late last year, after threatening to leave its home state of more than 150 years if legislators did not deliver.
Adjusted expenses fell to $306 million from an adjusted $629.1 million a year earlier. The adjusted expenses last quarter excluded a tax charge for establishing deferred tax liabilities connected to the closing of its acquisition of its joint venture with McGraw-Hill for contracts based on stock indexes.
The year-ago figure is adjusted for a 5-to-1 stock split that took effect on Friday after market closed.
(Reporting by Ann Saphir in Chicago; editing by Jeffrey Benkoe and Maureen Bavdek)
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