Willis Group Holdings plc
) reported fourth-quarter 2011 adjusted net income from continuing
operations of 46 cents per share, a penny lower than the Zacks
Consensus Estimate. Results were 19.3% below 57 cents earned in the
year-ago quarter. Adjusted net income from continuing operations
was $81 million, down 17.3% from $98 million in the prior-year
The lower numbers resulted from lower commissions and fees and
investment income coupled with higher expenses.
Adjusting for an operational review charge of $36 million or 20
cents and write-off of unamortized debt issuance costs of $6
million or 4 cents per share, the company reported earnings of $39
million or 22 cents per share, compared with $98 million or 57
cents in the prior-year quarter.
Full-year adjusted net income from continuing operations came in
at $2.75 per share, comfortably surpassing the Zacks Consensus
Estimate by 2 cents and in line with the prior-year earnings.
Adjusted net income from continuing operations increased 3% over
2010 to $484 million in 2011.
Adjusting for net gain on disposal of operations of $4 million
or 2 cents per share, 2011 operational review charge of $128
million or 73 cents per share, FSA regulatory settlement of $11
million or 6 cents and senior notes and write-off of unamortized
debt issuance costs of $131 million or 74 cents per share, the
company reported net income of $218 million or $1.24 per share in
2011, comparing unfavorably with $455 million or $2.66 per share in
Total revenue at Willis in the quarter was $825 million, down 1%
year over year. The decline was due to lower commissions and fees
and investment income. Revenue also lagged the Zacks Consensus
Estimate of $847 million.
Full-year total revenue improved 3.6% year over year to gross
$3.45 billion but fell short of the Zacks Consensus Estimate of
Commissions and fees decreased 0.9% year over year in the
quarter largely due to lower Commissions and fees at the North
America segment. Full-year commissions and fees increased 3.9% over
Investment income of Willis in the fourth quarter declined 11%
from the year-ago quarter to $8 million while full-year investment
income declined 18% over 2010.
Total expense increased 9.6% year over year to $719 million. An
increase in salaries and benefits coupled with an increase in
operating expense resulted in the overall rise. Full-year total
expense escalated 11% over 2010.
In the quarter under review, adjusted operating income was $156
million, down 12% year over year. Operating margin contracted 230
basis points largely because of lower organic commissions and fees,
continued investment in business to support growth; and higher
amortization of retention awards. Full-year adjusted operating
income increased 1% over 2010 to $778 million, with operating
margin contracting 50 basis points over 2010.
Organic growth in commissions and fees was 6% in the quarter under
review while reported growth was 5%.
Operating margin was 16.3%, expanding 160 basis points year over
year on growth in organic commissions and fees.
: Organic as well as reported decline in commissions and fees were
7% in the quarter under review.
Operating margin in the quarter contracted 480 basis points due
to the decline in organic growth in commissions and fees.
: Commissions and fees increased 22% year over year both on a
reported and organic basis. Eastern Europe grew in double digits
while Asia reported high single-digit growth. Latin America and
Continental Europe both grew in mid single digits. However, Willis'
UK and Ireland retail business suffered a double-digit decline.
Operating margin contracted 600 basis points as primarily due to
continued investments to support future growth in International and
the decline in organic commissions and fees at the UK and Ireland
The cash and cash equivalent balance of Willis at 2011 end was
$436 million, up approximately 38% from $316 million at the end of
Long-term debt increased 9.1% to $2.35 billion from 2010
Dividends and Share Buybacks
The board of directors authorized a 3.8% hike in its quarterly
dividend. The increased dividend of 27 cents ($1.08 on an
annualized basis) will be paid on April 13, 2012 to shareholders of
record at March 31, 2012.
Willis also expects to repurchase up to $100 million in shares
Update on Operational Review
Willis Group completed its operational review in 2011. The
company incurred a pre-tax charge of $50 million or 20 cents per
share in the fourth quarter and $180 million or 73 cents per share
The operational review also resulted in cost savings of $80
million in 2011.
Willis expects the operational review to result in incremental
cost savings of approximately $55 million in 2012, reaching
annualized savings of approximately $135 million, up from the prior
expectation of $115 million to $125 million.
Marsh & McLennan Companies Inc.
), which competes with Willis Group
reported fourth quarter operating earnings of 44 cents per share, a
penny lower than the Zacks Consensus Estimate, but above 34 cents
reported in the year-ago quarter.
With the steady recovery in the economic environment, Marsh
& McLennan posted improved results on account of top-line
growth in all lines of businesses that also drove the operating
margin. Even lower tax expenses and nominal expense growth
supported the bottom line.
Full-year operating net income rose to $1.73 per share against
$1.00 in 2010. Earnings per share were, however, a couple of cents
lower than the Zacks Consensus Estimate for 2011.
We retain our "Underperform" recommendation on Willis over the
long term. The quantitative Zacks #4 Rank (short-term Sell rating)
for the company indicates downward pressure on the stock over the
MARSH &MCLENNAN (
): Free Stock Analysis Report
WILLIS GP HLDGS (
): Free Stock Analysis Report
To read this article on Zacks.com click here.