Q3 Earnings in Line at Marsh & McLennan - Analyst Blog

By Zacks Equity Research,

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Marsh & McLennan Cos. Inc . ( MMC ) reported third-quarter 2013 operating earnings of 46 cents per share. The results were in line with the Zacks Consensus Estimate but outpaced the year-ago quarter earnings of 39 cents per share.

Operating net income, which excludes one-time items in both the periods, increased 19.9% year over year to $259 million. On a reported basis, Marsh & McLennan recorded net income of $254 million or 45 cents per share, up from $240 million or 43 cents per share in the prior-year quarter.

Marsh & McLennan posted improved results on account of modest revenue growth across its insurance and consulting businesses along with strict expense control, which also drove the operating margin. These were however, partially offset by higher tax expense.

Consolidated revenues were $2.93 billion, up 3% year over year and 4% on an underlying basis. However, it marginally missed the Zacks Consensus Estimate of $2.96 billion.

Meanwhile, total operating expenses edged up 2.5% year over year to $2.53 billion. This was on account of a marginal increase of 0.4% in other operating expenses to $704 million, and an increase of 3.6% in compensation and benefits to $1.82 billion. Additionally, adjusted operating margin improved to 14.1% from 12.6% in the year-ago period. The increase came in despite tax expenses escalating 36.7% to $123 million from $90 million in the year-ago quarter.

Segment Results

Revenues for the Risk and Insurance Services segment were $1.5 billion, up 4% year-over-year and 3% on an underlying basis. Moreover, adjusted operating income scaled up 14% year over year to $228 million, reflecting improved performance at Marsh and Guy Carpenter .

Marsh's revenues came in at $1.2 billion, up 4% year-over-year and 3% on an underlying basis, driven by strong new businesses and growth across the different geographical regions. Underlying revenues grew 6% in international operations reflecting 15% growth in Latin America, 7% in Asia Pacific and 3% in EMEA. Meanwhile, underlying revenue growth in the U.S.-Canada region was a mere 1%.

Guy Carpenter's revenues during the reported quarter were $262 million, up 5% on both year-over-year and underlying basis.

The Consulting segment's revenues inched up 2% year over year and 4% on an underlying basis at $1.4 billion. Additionally, adjusted operating income grew 13% year over year to $231 million.

Mercer 's revenues stood at $1.1 billion, up 2% year over year and 4% on underlying basis. Mercer's retirement operations generated revenues of $325 million, up 2% on an underlying basis. Additionally, Health revenue grew 5% to $378 million, while revenues from Talent rose 2% to $179 million. Revenue from Investments increased 8% to $190 million, on an underlying basis.

Moreover, Oliver Wyman's revenues increased 4% year over year and 2% on an underlying basis to $365 million in the reported quarter.

Financial Update

During the reported quarter, Marsh & McLennan's total investment income, including private equity investments, surged to $14 million rebounding from a loss of $4 million incurred in the year-ago quarter. Meanwhile, capital expenditure dipped to $96 million from $100 million in the year-ago period.

Marsh & McLennan exited the reported quarter with cash and cash equivalents of $2.17 billion, down from $2.3 billion at 2012-end level. Long-term debt dipped to $2.62 billion from $2.66 billion at the end of 2012.

As of Sep 30, 2013, Marsh & McLennan's total assets appreciated to $16.98 billion, while total equity increased to $7.12 billion from 2012-end.

Notes Update

On Sep 27, 2013, Marsh & McLennan raised $500 million by vending senior unsecured notes, in a two- part offering. The proceeds are expected to be utilized for enhancing business operations and to redeem $250 million of long-term notes that are due for maturity in 2015.

Accordingly, one part of the long-term notes are worth $250 million and are dated to mature in 2018. These five-year fixed rate notes bear an interest of 2.55%. The remaining tranche of $250 million notes are slated to mature in 2023. These ten-year fixed rate senior notes carry an interest of 4.05%.

Share Repurchase Update

In Aug 2013, the board sanctioned the expansion of the share buyback program to $1.0 billion.

Meanwhile, the company bought back 3.6 million shares for $150 million during the reported quarter.

Dividend Update

On Sep 18, 2013, the board of Marsh & McLennan declared a quarterly dividend of 25 cents a share, payable on Nov 15, 2013, to shareholders of record as on Oct 11, 2013.

In Aug 2013, Marsh & McLennan hiked the quarterly common stock dividend by 9% to 25 cents per share from the prior 23 cents. The raised dividend was paid on Aug 15, 2013.


Along with Marsh & McLennan, strong performers in the insurance sector include Chubb Corp . ( CB ), Hilltop Holdings Inc . ( HTH ) and Everest Re Ltd . ( RE ), each carrying a Zacks Rank #2 (Buy).

CHUBB CORP (CB): Free Stock Analysis Report

HILLTOP HLDGS (HTH): Free Stock Analysis Report

MARSH &MCLENNAN (MMC): Free Stock Analysis Report

EVEREST RE LTD (RE): 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
Referenced Stocks: CB , HTH , MMC , RE

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