CBOE Holdings, Inc. Earnings Can't Overcome Light Trading Volumes

Thanks to an industrywide drop in trading volume, CBOE Holdings (CBOE -1.81%) today posted lower revenue for its fiscal first quarter. Nevertheless, the options and volatility trading giant managed to beat Wall Street estimates on both the top and bottom lines.

Here's a look at how the headline results stacked up against analyst targets:

Source: Yahoo! Finance and CBOE Holdings financial filing.

Trading volume declines
Sales slipped 10% to $140 million, which was slightly better than the 12% drop that Wall Street was targeting. A 15% trading volume dip across CBOE's options and futures products was to blame. That drop focused mainly on index options as volume in that business dove by 20% from the prior quarter. 

But the lower trading activity was partially offset by a rise in revenue per contract. CBOE's customers purchased more high-margin products like its multiply listed options, leading to a 3% gain in revenue per contract.

Reining in spending
Expenses stayed flat against the prior year period. However, since they were spread across a smaller revenue base CBOE suffered a significant drop in profitability. Operating margin fell from last year's record high 52% to 48.7% this quarter. 

In response, management plans to cut costs over the next three quarters. Expenses are now expected to fall slightly from last year, as compared to prior guidance that had costs rising between 3% and 5% in 2015. "We have successfully adjusted to low volume periods in the past by making short-term cost reductions, while continuing to invest in our business to drive future growth," Chief Financial Officer Alan Dean explained in a press release accompanying the results.

Bulking up the product portfolio
In the meantime, management is focused on bulking up its suite of index and futures trading options so that the company can maintain its dominant market share even as trading volume slips. To that end, CBOE rolled out a handful of new products and continued expanding its trading reach this quarter. For example, trading hours for both the S&P 500 Index and VIX Volatility Index were boosted by 6 per day beginning in March. And in late April the company added options for the MSCI Emerging Markets Index and the MSCI EAFE Index.

And while the trading environment makes it unlikely that 2015 will be CBOE's fifth straight year of record results, CEO Ed Tilly said that its bigger product portfolio is laying the groundwork for long-term sales and profit gains. "We are confident that our growing suite of premium index products, supported by ongoing educational and customer outreach efforts, will enable CBOE to continue to provide value to our shareholders as well as to customers in 2015 and beyond," he said.