Arthur J Gallagher Beats on Q1 Earnings, Revs - Analyst Blog


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Arthur J Gallagher & Co. ( AJG ) reported first-quarter 2014 operating net earnings of 39 cents a share that outperformed the Zacks Consensus Estimate by 52%. However, the result increased from the prior-year quarter number by 22%.

The improvement was driven by top-line growth at Arthur J Gallagher & Co.  

Operational Update

Total revenue amounted to $915 million, significantly surpassing the Zacks Consensus Estimate by 15.8%. Results also jumped 36% year over year. Top-line growth primarily resulted from better results in both its Risk Management and Brokerage segments.

Total commissions and fees earned improved 18% year over year to $668.7 million in the quarter.

Arthur J Gallagher & Co.'s total expense also increased 38% year over year to $868.7 million during the quarter. The rise in expenses was mainly attributable to increased compensation cost, operating expenses as well as significantly higher cost of revenues from clean coal activities.

Segment Results

Brokerage Segment

This segment of Arthur J Gallagher & Co. reported total revenue of $567.6 million that increased 24% year over year. This was driven by a 3.3% improvement in base organic commissions and fees during the reported quarter.

Total expense escalated 25% year over year.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) improved 34% year over year to $110.7 million.

Risk Management Segment

Total revenue in this segment amounted to $160 million increasing 7% year over year. Also, organic fees rose 6% year over year during the same time period.

Total expense during the first quarter increased 6.7% year over year.

Adjusted EBITDA increased 8% year over year to $26.0 million.

Corporate Segment

This segment reported total revenue of $186.4 million that increased nearly three times year over year.

Expenses more than doubled to $209.5 million in the quarter.

Loss before interest, tax, depreciation and amortization was $6.0 million, wider than the loss of $8.5 million incurred in the year-ago quarter.

Financial Update

Total assets as of first-quarter end stood at $7.28 billion increasing 6.1% from the 2013-end level of $6.86 billion.

Cash and cash equivalents improved 25% to $739.2 million at first-quarter end from $298.1 million at the end of 2013.

Recently, the company announced an underwritten public offering of 19 million common shares with an intention to grant a 30-day option to purchase another 2.85 million common shares.

Arthur J Gallagher & Co. intends to deploy the net proceeds to finance a portion of its recent Wesfarmers insurance brokerage operations acquisition.

Acquisition Update

The company announced ten mergers with annualized revenues of approximately $153.6 million.

Of late, the company also inked a deal to acquire the Wesfarmers Insurance Brokerage operations.  The transaction includes the OAMPS businesses in Australia and the United Kingdom, Crombie Lockwood in New Zealand and the associated premium funding operations. Pending regulatory approvals, the transaction is expected to culminate in the second or third quarter of 2014. The acquisition will help it fortify its presence in Australia and New Zealand.

Zacks Rank

Arthur J Gallagher & Co. presently carries a Zacks Rank #3 (Hold). Other better-ranked insurance stocks worth reckoning include Erie Indemnity Co. ( ERIE ), Marsh & McLennan ( MMC ) and Alleghany Corp. ( Y ). While Alleghany Corp. sports a Zacks Rank #1 (Strong Buy), Erie Indemnity and Marsh & McLennan carry a Zacks Rank #2 (Buy).

GALLAGHER ARTHU (AJG): Free Stock Analysis Report

ERIE INDEMNITY (ERIE): Free Stock Analysis Report

MARSH &MCLENNAN (MMC): Free Stock Analysis Report

ALLEGHANY CORP (Y): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
More Headlines for: AJG , ERIE , MMC , Y

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