Marsh & McLennan's fourth-quarter earnings were on par with the Zacks Consensus Estimate but topped year-over-year. Modest performance across insurance and consulting businesses, along with disciplined expense management drove the margins too. While debt level remained high, low capital requirements and incremental cash flows aided efficient capital deployment. The strategic acquisitions and well-executed restructuring initiatives have generated new clients, triggering growth. However, increased international dependence exposed the company to currency volatility while integration risks related to acquisitions weigh on the bottom line. Nevertheless, the upcoming quarters should benefit from improved pricing, stable ratings and favorable macro factors, although pension costs could limit margin expansion, justifying our Neutral recommendation.
Founded in 1871 and headquartered in New York, Marsh & McLennan Cos. Inc. has long been the world's leading insurance broker. Currently operating under the Marsh and Guy Carpenter brands, the company is a global professional services firm providing risk and insurance services, risk consulting, and employee benefits consulting services to clients worldwide. The company is a market leader with high brand recognition in all three business segments. The company's rapid growth is mainly attributed to its aggressive mergers and acquisitions strategy.
Marsh & McLennan's organization structure and segment reporting is based on the types of services it provides through approximately 55,000 employees worldwide to clients in more than 130 countries across the U.S., Canada, the U.K. and continental Europe.
Geographically, 55% of Marsh & McLennan's revenues were generated from outside the U.S. in 2013, while the remaining 45% was generated within the U.S. The company conducts business primarily through two operating segments:
Risk and Insurance Services: Marsh & McLennan conducts business in this segment through Marsh and Guy Carpenter, representing 54% of the company's operating revenues in 2013, with Marsh contributing 46% and Guy Carpenter contributing the remaining 8%. Marsh is the world leader in insurance brokering and provides risk management and insurance broking, reinsurance broking and insurance program management services for businesses, public entities, insurance companies, associations, professional services organizations and private clients. After six acquisitions in 2011 and twelve in 2012, Marsh acquired Rehder y Asociados Group, Franco & Acra Tecniseguros, additional stakes in Insia a.s., Elsey & Associates and Cambridge Property and Casualty in 2013. Guy Carpenter is the world's leading risk and reinsurance specialist, creating and executing reinsurance and risk management solutions for clients worldwide. It acquired Smith Group in 2013.
Consulting: This segment comprises Mercer and Oliver Wyman Group, representing 46% of the company's operating revenues in 2013, with Mercer contributing 34% and Oliver Wyman Group contributing the remaining 12%. Mercer is a leading global provider of consulting, outsourcing and investment services. Mercer consultants help clients design and manage health, retirement and other benefits, and optimize human capital. Mercer acquired Yokogawa-ORC, Pensjon & Finans and REPCA in 2012, and Global Remuneration Solutions in 2013. The Oliver Wyman Group delivers advisory services to clients through three operating units, each of which is a leader in its field. Oliver Wyman is a top-tier global management consulting firm which specializes in strategy, operations, risk management, organizational transformation and leadership development. Lippincott helps clients create, develop and manage their corporate branding, identity and image. NERA Economic Consulting advises corporations, law firms and government entities on the economics of competition, regulation, public policy, finance and litigation. Oliver Wyman acquired UK-based Corven in 2013.
In Aug 2010, Marsh & McLennan completed the sale of Kroll its risk consulting and technology business for approximately $1.3 billion in order to streamline its business portfolio for more significant and profitable opportunities. Kroll proved to be a poor strategic fit for Marsh & McLennan since its purchase in 2004 for $1.9 billion. The company's Risk Consulting and Technology business that included Kroll's operations declined 3% year over year during the first quarter of 2010. As of Jun 30, 2010, the whole of Kroll was classified as discontinued operations in the consolidated balance sheet. The company recorded a deferred tax benefit of $265 million from discontinued operations during the second quarter of 2010. In the fourth quarter of 2011, Marsh reported its BPO business also as discontinued operations.
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