CBOE's drop in profit disappoints investors

(Reuters) — CBOE Holdings Inc., which runs the Chicago Board Options Exchange, reported lower-than-expected earnings on Thursday, with quarterly profit falling 11 percent.

CBOE's Chief Financial Officer Alan Dean called the results -- the company's first since its $339 million initial public offering in June -- "solid," and pledged to keep a tight control over expenses in future quarters.

But the company projected core expenses to rise 3 percent to 5 percent annually, a factor that could weigh on the stock price today, said Ed Ditmire, a New York-based analyst for Macquarie Securities.

"The cost growth guidance, while low by industry standards, is above our projections," Ditmire told investors in a note on Thursday. Still, he said, "the pricing was better than we expected, a key touch-point on the stock."

The company took in an average of 28.1 cents per contract in the quarter, better than the 27.1 cents he said he was expecting.

Investors are also watching volume trends, which after rising 13 percent in the quarter, have slowed in the current quarter. Daily average volume in July fell 6.5 percent from June.

CBOE shares lost 7.2 percent to close at $24.80 Thursday.

The decline could put pressure on CEO William Brodsky to seek new sources of growth.

While CBOE's IPO has long been seen as opening the door to a potential takeover, Brodsky has sought to tamp down expectations for a quick deal, saying last week that he wants to focus on organic growth instead.

CBOE competes with seven other U.S. options exchanges. Later this year CBOE plans to launch a second, all-electronic exchange based in New York to lure business from high-frequency traders.

The new market is expected to offer electronic trading in CBOE's most profitable contract, options on the Standard and Poor's 500 Index. Analysts believe the shift from face-to-face trading could double volume in the contract over the next several years.

Net income dropped to $24.9 million, or 27 cents a share, from $28.1 million, or 31 cents a share, a year earlier.

Excluding one-time expenses for index options litigation and severance, earnings were 28 cents a share, short of the 29 cents expected, according to Thomson Reuters I/B/E/S.

Revenue rose to $112.6 million from $109 million, as stock-market volatility boosted trading at the biggest U.S. options market. Growth was tempered by a one-time revenue boost in the year-ago quarter, as the company booked $4.7 million in excess access fees that it had deferred pending a legal settlement.