Marsh & McLennan Companies Inc. (MMC) reported its fourth quarter operating earnings of 44 cents per share came in a penny lower than the Zacks Consensus Estimate, but modestly higher than 34 cents reported in the year-ago quarter. Operating earnings, which exclude one-time items in both the periods, surged 27.1% year over year to $244 million.
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 also supported the bottom line.
On a reported basis, Marsh & McLennan witnessed net income of $256 million or 46 cents per share in the reported quarter, decently up from $203 million or 37 cents per share in the prior year quarter.
Consolidated revenues were $2.91 billion, up 4.4% year over year and 3% on an underlying basis. This also exceeded the Zacks Consensus Estimate of $2.98 billion.
Total expenses inched up 2.3% year over year to $2.52 billion as compensation and benefits grew 4.6% to $1.77 billion, while other expenses dipped 2.6% to $750 million. Even tax expenses were down at $100 million against $105 million in the year-ago quarter. Consequently, adjusted operating margin edged up to 14.1% from 13.6% in the year-ago period.
Segment Results
Revenues for the Risk and Insurance Services segment were $1.6 billion, up 6% year over year and 4% on an underlying basis. However, operating income was significantly higher by 35% year over year reaching $304 million, reflecting improved performance at Marsh and Guy Carpenter.
Marsh’s revenues were $1.4 billion, up 6% year over year and 4% on an underlying basis, driven by strong new businesses and growth across geography in the quarter. Underlying revenue for international operations grew 6%, reflecting 8% growth in Latin America, 9% in Asia Pacific and 4% in EMEA. Besides, underlying revenue grew 2% in the U.S.-Canada region.
Guy Carpenter’s revenues during the reported quarter were $193 million, up 5% on both year over year and underlying basis.
The Consulting segment’s revenues inched up 3% year over year to $1.3 billion. The segment increased 2% on an underlying basis. Besides, adjusted operating income was flat year over year at $166 million.
Mercer‘s revenues crawled up 3% year over year to $940 million and 2% on an underlying basis. Mercer’s consulting operations generated revenues of $640 million, up 3% on an underlying basis. However, outsourcing revenues declined 4% year over year at $183 million, whereas investment consulting and management revenues increased 9% year over year to $117 million.
Oliver Wyman‘s revenues improved slightly by 2% on both year over year and on an underlying basis to $406 million in the reported quarter.
Full-Year 2011 Highlights
For full-year 2011, Marsh & McLennan recorded operating net income rose to $982 million or $1.73 per share against $585 or $1.00 per share in 2010. Earnings per share were, however, a couple of cents lower than the Zacks Consensus Estimate for 2011. Reported net income also improved to $855 million or $1.79 per share from $855 million or $1.55 per share in 2010, and included an expense of $72 million from the early extinguishment of debt in July 2011.
Consolidated revenues escalated up 9.3% year over year $11.53 billion in 2011, and 5% on an underlying basis. This also exceeded the Zacks Consensus Estimate of $11.21 billion. Total expenses edged up 2.9% $9.61 billion. Adjusted operating margin marginally improved to 14.4% from 14.0% in 2010.
Financial Update
During the reported quarter, Marsh & McLennan incurred an investment loss of $4 million as opposed to an income of $19 million in the year-ago period. Total investment income in 2011, including mark-to-market gains in private equity investments, also plunged to $9 million against $43 million in 2010.
Marsh & McLennan exited 2011 with cash and cash equivalents of $2.1 billion, up from $1.7 billion in 2010. Long-term debt declined to $2.67 billion from $3.03 billion at the end of 2010.
As of December 31, 2011, Marsh & McLennan had total assets slightly increased to $15.45 billion, while total shareholders’ equity lowered to $5.94 billion from 2010 end. No shares were repurchased during the reported quarter.
Dividend Update
On January 18, 2012, the board of Marsh & McLennan announced a quarterly dividend of 22 cents per share on its common stock, payable on February 15, 2012 to the shareholders of record as on January 30, 2012.
Previously, on November 15, 2011, Marsh & McLennan paid a quarterly dividend of 22 cents per share on its common stock to the shareholders of record as on October 11, 2011.
Our Take
The recent acquisitions are crucial for new business generation and client retention, which has been facing substantial declines due to the company’s antitrust litigation charges coupled with a soft pricing environment.
Overall, as a leading global broker, Marsh & McLennan has a history of outperforming its peers due to its size, diverse product offering, global presence and technical expertise. Despite sluggish organic growth, the company is still a dominant player in its industry, quite next to the leading Aon Corp. (AON).
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