With its first-quarter 2014 operating earnings of $1.28 per
share exceeding the Zacks Consensus Estimate of $1.17 per share,
) delivered four straight quarters of positive earnings
surprises. The result also outpaced the year-ago quarter's
earnings by 15%.
The upside was buoyed by strong operating performance by the Risk
Solutions business and efficient capital management.
Net income of $1.06 per share compared favorably with 82 cents
per share in the year-ago period.
Total revenue of Aon went up 1% year over year to $2.9 billion on
higher organic revenues (up 2% year over year), partly offset by
an unfavorable impact from foreign currency translation. However,
results lagged the Zacks Consensus Estimate of $3 billion.
Total operating expenses at Aon were $2.5 billion, down 1% year
over year. Results were aided by higher savings associated with
the restructuring programs, lower restructuring costs, a decline
in acquisition related expenses, lower intangible asset
amortization and a favorable impact from foreign currency
Total revenue came in at $2.0 billion, up 1% year over year.
Organic growth of 3% in commissions and fees was partially offset
by a 1% decline in acquisition-related commissions and fees and a
1% unfavorable impact from foreign currency translation.
Adjusted operating earnings increased 6% year over year while
operating margin surged 110 basis points to 23.6% during the
quarter. The improvement was induced by strong organic revenue
growth, cost containment measures and savings from the
Organic revenues at the
segment increased 3% year over year. This was driven by higher
organic revenues from the Americas business (up 4%), triggered
mainly by new business generation in US Retail and prudent
management of the renewal book portfolio across Latin America and
Canada. Growth in International organic revenues (up 3%) also
contributed to the improvement.
Organic revenues at the
segment rose 3% mainly on higher facultative placements and
capital market transactions, and an improved advisory business.
Moreover, an increase in new business in treaty placements also
aided the improvement.
Total revenue of $965 million reflected a 1% year-over-year rise
on a 1% organic growth in commissions and fees. Adjusted
operating earnings decreased 6% year over year while operating
margin declined 100 basis points to 13.3%.
Organic revenues at
improved 1% year over year owing to higher investment and
compensation consulting, mitigated by an expected unfavorable
impact from timing in compensation consulting.
Organic revenues at
increased 1%, driven by enhanced benefits administration and HR
Share Repurchase Update
During the quarter under review, Aon repurchased 7.2 million
Class A Ordinary shares for nearly $600 million.
On April 11, 2014, Aon increased its annual dividend by a
significant 43%. In keeping with this annual hike, management
declared a quarterly cash dividend of 25 cents per share, higher
than 18 cents paid on Feb 17, 2014 to shareholders of record as
of Feb 3, 2014. The increased quarterly dividend will be paid on
May 15, 2014, to shareholders of record as of May 1, 2014.
As of March 31, 2014, cash and cash equivalents of Aon was $338
million, down 29.1% from $477 million as of Dec 31, 2013. Total
assets of Aon as of March 31, 2014 were $30.1 billion, down from
$30.3 billion at end-2013.
Net operating cash outflow stood at $11 million in the quarter,
compared with net operating cash inflow of $54 million in the
year-ago period. This was attributable to organic growth and $64
million associated with some incentive compensation and interest
Capital expenditures during the quarter declined 8.3% year
over year to $55 million. Free cash outflow in the reported
quarter was $66 million, compared with $6 million in the first
quarter of 2013. The deterioration stemmed from a decline in cash
flow from operations.
AON PLC (AON): Free Stock Analysis Report
CAPITAL ONE FIN (COF): Free Stock Analysis
TREE.COM INC (TREE): Free Stock Analysis
WORLD ACCEPTANC (WRLD): Free Stock Analysis
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Long-term debt decreased to $3.67 billion as of March 31, 2014
from $3.69 billion as of Dec 31, 2013. However, the
debt-to-capital ratio increased 230 basis points from 2013-end to
37.2% as of March 31, 2014.
Although Aon's revenues did not match our expectation, earnings
surpassed the Zacks Consensus Estimate and also improved on a
year-over-year basis, primarily on strong Risk Solutions business
and capital management initiatives.
Further, the recently announced dividend hike is slated to help
Aon retain investor confidence. On the business strengthening
front, Aon has allied with a financial guidance software company,
HelloWallet, to help employers assist the financial security of
their workers. With an expectation that 76% of the U.S. companies
would expand wellness benefits beyond retirement in 2014, we
expect this alliance to help Aon gain more clients and pave the
way for more revenues.
Aon currently carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
Some better-ranked stocks in the financial services space include
Capital One Financial Corp.
World Acceptance Corp.
). All three stocks carry a Zacks Rank #2 (Buy).