Willis Group Holdings Limited (WSH) reported fourth quarter earnings of 47 cents per share. Results were just a cent short of the Zacks Consensus Estimate of 48 cents. Most of the items were in line with our expectations.
However, results were up compared with the prior-year period’s earnings of 37 cents (or 36 cents on an adjusted basis), primarily reflecting the growth in organic business, the merger synergies from the Hilb Rogal & Hobbs Company acquisition and the benefits from the expense saving initiatives.
Net earnings for the reported quarter from continuing operations increased to $79 million from $61 million in the year-earlier quarter. For full year 2009, the company reported net earnings of $436 million or $2.58 per share from continuing operations, compared with $302 million or $2.04 per share in 2008.
For the reported quarter, revenues were up 4% year-over-year to $824 million. Foreign currency movements had a positive 3% impact on revenues compared with the year ago period.
Organic growth in commission and fees was 2% and reflected a 7% net new business growth, partially offset by a negative 5% from declining premium rates and other factors.
The North America segment contributed 1% organic growth in commissions and fees. The company reported growth in new business. Additionally, it achieved merger synergies and benefits from its cost-saving initiatives. However, the soft insurance markets and the continuing stressed economic conditions in the U.S. were major headwinds. Operating margin of 25.6% was up 670 basis points year-over-year.
The International segment contributed 3% organic growth in commissions and fees, driven by a growth in new business and continued benefits from growth initiatives that more than offset the soft rate environment and weakness in the U.K. and Ireland retail markets. Results were strong in Latin America and Asia. Operating margin of 31.3% was lower than 38.4% in the year-ago quarter, partially due to the impact of foreign exchange and the weakness in the UK and Ireland retail market. However, it was up from 13.4% reported in the prior quarter.
The Global segment’s organic growth in commissions and fees was 1% year-over-year, primarily driven by the Reinsurance and Global Specialties divisions, as a result of a sturdy performance in North America reinsurance, marine, aerospace and financial and executive risks specialties. Operating margin of 12.2% was up 50 basis points year-over-year.
Adjusted operating margin was 21.1%, up 430 basis points from the year-ago quarter. The improvement stemmed from organic growth in commissions and fees, merger synergies, benefits of the cost saving initiatives and favorable year-over-year foreign currency movement.
Investment income was $15 million in the quarter, down from $17 million in the year-ago quarter. Expenses were $651 million, down 1% from the prior-year quarter.
As of December 31, 2009, cash and cash equivalents totaled $191 million and total debt was $2.6 billion. As a result of the proceeds received on the completion of the Gras Savoye transaction, the company could reduce total debt by approximately $230 million in the quarter.
During the reported quarter, the Willis Group completed a leveraged transaction with Gras Savoye & Cie and private equity fund Astorg partners to reorganize Gras Savoye. Willis now owns 31.8% in the new holding company. On December 31, 2009, the Willis Group completed the change of place of incorporation of its parent company from Bermuda to Ireland.
We are encouraged to see Willis’ improved organic growth in revenues from its three segments, with strong client retention. The “Shaping Our Future” initiatives are also contributing to growth. The recent acquisition of Hilb Rogal & Hobbs Company has contributed to the company’s top line and going forward, we expect this acquisition to add to the company’s revenues in North America and bolster its leadership in attractive growth markets.
However, we believe the soft market conditions and the stressed economic environment across its North American segment’s footprints will remain a headwind and restrict any significant top line growth of the company.
Shares of Willis were up 81 cents or 2.95% to $28.23 during yesterday’s regular trading session on the New York Stock Exchange. Shares were up 1 cent in the after-market trading session.
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