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What's in Store for Marsh and McLennan (MMC) in Q3 Earnings?

Marsh and McLennan Companies, Inc.MMC is scheduled to release third-quarter results on Oct 25. The results are anticipated to reflect the compounding benefits of numerous strategic actions.

In the first quarter, Marsh, a unit of the company implemented changes with the goal of simplifying the organization through reduced management layers and more common structures across regions and businesses. The initiatives being implemented are likely to result in total restructuring charges of $80-$100 million, with $55 million incurred in the second quarter. We expect part of these charges to be incurred in the third quarter.

In the second quarter, Mercer, another unit of the company, completed two acquisitions in the career line of business, which adds roughly $16 million of annualized revenue. During the same quarter, the company also completed three acquisitions in Marsh & McLennan Agency adding $15 million of annual revenue. The company's UK commercial and consumer business completed a buyout in Scotland adding approximately $15 million of revenue. The benefits of these acquisitions along with the older ones are likely to positively impact earnings in the quarter under review.

Mercer's Defined Benefit (DB) Consulting business is likely to witness a decline in earnings primarily due to softness in project-related work in the United States and U.K., and lower new business wins in the U.K. versus last year. Management had previously announced that the DB market is not an area of growth and it is on a mid-to-long term declining trend.

The company's subsidiary Oliver Wyman's underlying revenue growth for the to-be-reported quarter should be essentially flat. This will be led by growth across most lines of business, partly offset by a decline in its U.S. financial services practice. This can be attributed to reduced volume of regulatory-related work for financial institutions.

Guy Carpenter, the company's subsidiary is likely to witness growth from solid new business and strong retention in all major business lines.

Investment income should be immaterial and consequently is not likely to have a meaningful impact on earnings. The company expects foreign exchange to be a hindrance to net operating income for the remainder of the year.

Earnings Surprise History

The company boasts an attractive earnings surprise history. It beat estimates in three of the trailing four quarters, with an average positive surprise of 4.27%. This is depicted in the chart below:

Marsh & McLennan Companies, Inc. Price and EPS Surprise

Marsh & McLennan Companies, Inc. Price and EPS Surprise | Marsh & McLennan Companies, Inc. Quote

Here is what our quantitative model predicts

Our proven model does not conclusively show that Marsh and McLennan is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1, 2 or 3 for this to happen. But that is not the case here as you will see below.

Earnings ESP: Marsh & McLennan has an Earning ESP of -2.18%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Marsh and McLennan carries a Zacks Rank #4 (Sell). We caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies that you may consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Willis Towers Watson PLC WLTW has an Earnings ESP of +2.40% and a Zacks Rank #3 (Hold). The company is expected to report third-quarter earnings results on Nov 2.

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

American Financial Group Inc. AFG has an Earnings ESP of +2.46% and a Zacks Rank #3. The company is expected to report third-quarter earnings results on Oct 30.

CNA Financial Corp. CNA has an Earnings ESP of +4.19% and a Zacks Rank #2 (Buy). The company is expected to report third-quarter earnings results on Nov 5.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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