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Arthur J. Gallagher (AJG) Q2 Earnings Beat, Revenues Miss

Arthur J. Gallagher & Co. AJG reported second-quarter 2020 adjusted net earnings of 94 cents per share, which beat the Zacks Consensus Estimate by 30.6%. Moreover, the bottom line increased 44.6% on a year-over-year basis.

The company’s performance was driven by lower expenses, higher adjusted revenues and strong margin expansion across Brokerage segment.

Arthur J. Gallagher Co. Price, Consensus and EPS Surprise

 Arthur J. Gallagher  Co. Price, Consensus and EPS Surprise

Arthur J. Gallagher Co. price-consensus-eps-surprise-chart | Arthur J. Gallagher Co. Quote

Operational Update

Total revenues were nearly $1.6 billion, down 4.5% year over year primarily due to lower fees and revenues from clean coal activities. Moreover, the top line missed the Zacks Consensus Estimate by 5.6%.

Arthur J. Gallagher’s total expense decreased 9% year over year to $1.4 billion in the reported quarter. Lower cost of revenues from clean coal activities, reduced depreciation and operating cost resulted in the downside.

Adjusted earnings before interest, tax, depreciation and amortization and change in estimated acquisition earnout payables (EBITDAC) grew 33.9% from the prior-year quarter to $360 million.

Segment Results

Brokerage: Adjusted revenues of $1.2 billion increased 7.7% year over year on higher commissions, fees, supplemental revenues and contingent revenues.

Expenses increased 0.5% to $953.3 million due to higher compensation, amortization and change in estimated acquisition earnout payables.

Adjusted EBITDAC climbed 33.8% to $391.3 million while margin expanded 630 basis points (bps) to 32.6%.

Risk Management: Adjusted revenues were down 7.9% year over year to $190.8 million, primarily due to lower fees.

Expenses decreased 5% to $210 million due to lower compensation, operating cost and reimbursements.

Adjusted EBITDAC decreased 7.4% year over year to $33.5 million while margin contracted 10 bps to 17.6%.

Corporate: EBITDAC was negative $35 million compared with negative $45.9 million in the year-ago quarter.

Financial Update

As of Jun 30, 2020, total assets were $21.3 billion, up 8.5% from 2019-end level.

Cash and cash equivalents at quarter end decreased 42.2% from 2019 level to $349.7 million.

Shareholders’ equity increased 6.1% from the level as of Dec 31, 2019 to $5.5 billion as of Jun 30, 2020.

Acquisition Update

In the quarter, the company closed four acquisitions with estimated annualized revenues of about $13.9 million.

Zacks Rank

Currently, Arthur J. Gallagher carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Insurers

Of the insurance industry players, which have reported second-quarter results so far, earnings of Cincinnati Financial Corporation CINF, First American Financial Corporation FAF and AXIS Capital Holdings Limited AXS beat the respective Zacks Consensus Estimate.

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