Aon plc AON reported first-quarter 2023 operating earnings of $5.17 per share, which missed the Zacks Consensus Estimate of $5.29. However, the bottom line climbed 7% year over year.
Total revenues of $3,871 million were up 5% from a year ago and beat the consensus mark by 1.3% and our estimate of $3,748.3 million. The top line comprised organic revenue growth of 7% and a 1% favorable impact from fiduciary investment income, which were partially offset by a 3% unfavorable impact from foreign currency translation.
Weaker-than-expected first-quarter earnings were caused by increased operating expenses. However, the negatives were partially offset by strong retention, business generation, growth in core P&C, and solid performance in Commercial Risk Solutions’ Latin America, EMEA and Pacific region operations.
Aon plc Price, Consensus and EPS Surprise
Total operating expenses increased 4% year over year to $2,398 million due to 13% and 20% increases in information technology and other general expenses, respectively. The metric was marginally lower than our estimate of $2,399.5 million.
Adjusted operating income jumped 7% year over year to $1,498 million. The adjusted operating margin expanded 70 bps to 38.7%.
Commercial Risk Solutions: Organic revenues improved 6% year over year on the back of strong performances in different geographical locations, robust retention, business generation and managing the renewal book portfolio.
Double-digit growth in the Latin America, EMEA and Pacific regions in the first quarter reflects a strong retail brokerage. Results also reflected solid growth in core P&C, and an average positive global exposure and pricing. The segment reported a year-over-year increase of 3% in total revenues to $1,778 million, which beat the Zacks Consensus Estimate by 2.1% and our estimate of $1,719 million.
Reinsurance Solutions: Organic revenues improved 9% year over year, courtesy of double-digit growths in Strategy and Technology Group and facultative placements. Solid retention and business generation aided the segment. Total revenues climbed 10% year over year to $1,077 million, beating the Zacks Consensus Estimate by 1.9% and our estimate of $1,043.4 million.
Health Solutions: Organic revenues improved 8% year over year, driven by growth in core health and benefits brokerage, owing to solid retention, business generation and managing its renewal book portfolio. Other factors contributing to the upside include double-digit growth in human capital on the back of data and advisory solutions. Total revenues of the segment increased 5% year over year to $671 million, beating the Zacks Consensus Estimate by 2.2% and our estimate of $650.8 million.
Wealth Solutions: Organic revenues increased 6% year over year, driven by retirement growth. Increased advisory demand and project-related work supported the upside. The positives were partially offset by lower AUM-based delegated investment management revenues. Total revenues of the segment increased 1% year over year to $350 million, beating the Zacks Consensus Estimate and our estimate by 3.5%.
AON exited the first quarter with cash and cash equivalents of $1,119 million, which increased from $690 million in 2022 end. As of Mar 31, 2023, Aon had total assets worth $34.3 billion, up from $32.7 billion on Dec 31, 2022.
At the first-quarter end, the long-term debt was $10,577 million, which jumped from $9,825 million at the 2022 end. Short-term debt and the current portion of the long-term debt amounted to $775 million at the first-quarter end.
Cash flow from operations was down 4% year over year to $443 million in the first quarter. Free cash flows (FCF) decreased 17% year over year to $367 million. Capital expenditure was $76 million, up 230% year over year.
AON bought back 1.8 million Class A Ordinary shares for around $550 million in the quarter under review. Aon had $5.5 billion of authorization left under its share repurchase program as of Mar 31, 2023.
Aon expects to achieve double-digit free cash flow growth in 2023 and in the long run. Revenues are expected to witness mid-single-digit or more organic growth for 2023 and beyond.
At current foreign currency rates, AON expects to incur a 14-cent unfavorable impact per share in 2023. Also, in the June-end quarter, Aon is expected to bear $122 million in interest expenses.
Zacks Rank and Key Picks
AON currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader finance space are Euronet Worldwide, Inc. EEFT, Conifer Holdings, Inc. CNFR and Owl Rock Capital Corporation ORCC, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Euronet Worldwide’s 2023 earnings predicts 15.5% year-over-year growth. Over the past 30 days, EEFT has witnessed one upward estimate revision against none in the opposite direction.
The consensus mark for Conifer’s 2023 earnings indicates a 103.3% year-over-year improvement. The consensus estimate for CNFR’s bottom line has witnessed one upward revision in the past 60 days against none in the opposite direction.
The Zacks Consensus Estimate for Owl Rock Capital’s 2023 earnings suggests 24.8% year-over-year growth. Also, the consensus mark for ORCC’s revenues in 2023 suggests 19.6% year-over-year growth.
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