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Aon (AON) Stock's Earnings Beat Estimates in Q4, Fall Y/Y

Zacks Equity Research

Aon plc’s AON fourth-quarter operating earnings of $2.16 per share beat the Zacks Consensus Estimate of $2.13 by 1.4%, primarily backed by the company’s strategic actions and strong segmental performances. However, the metric declined 8.8% year over year.

Total revenues increased 3% to $2.8 billion including 6% organic revenue growth. However, the metric’s uptick was partially offset by a 2% unfavorable impact from adverse foreign currency translation along with 1% dip associated with divestitures, net of acquisitions.

Adjusted operating margin  expanded 280 basis points to 25.8%.

Total operating expenses declined 2% to $2.3 billion, primarily owing to lower amount of compensation and benefits plus other expenses.

The adjusted effective tax rate on a comparable basis for the fourth quarter of 2018 was 16.5% compared with 14.7% in the prior-year quarter. This upside was primarily driven by changes in geographical distribution of income and a net unfavorable impact from discrete items.
Organic Revenue Catalysts    

Aon plc Price and EPS Surprise

Aon plc Price and EPS Surprise | Aon plc Quote

Commercial Risk Solutions: Organic revenues rose 4% on the back of strong growth across every major geography, which reflects solid global new business generation in the United States and strength in Latin America, EMEA and the Asia Pacific region. The segment witnessed 4% decline in total revenues  year over year to $1.2 billion.

Reinsurance Solutions: Organic revenues improved 8%, driven by constant net new business generation in treaty, especially in the United States along with robust growth in facultative placements. Moreover, market impact was modestly favorable to fourth-quarter results. However, total revenues for the segment tumbled 55% year over year to $162 million.

Retirement Solutions: Organic revenues rose 4% year over year, aided by solid growth in core actuarial retirement and growth in talent and rewards practice for compensation benchmarking and consulting services. Total revenues for the segment climbed 4% year over year to $509 million.

Health Solutions: Organic revenues were up 8% year over year, led by solid international growth in health and benefits brokerage, especially boosted by a robust uptrend in the United States market coupled with new business generation and double-digit growth in voluntary benefits along with a double-digit rise in Asia and EMEA. The results even reflect a laudable progress across the healthcare exchanges backed by client addition. Total revenues for the segment rose 4% to $558 million.

Data & Analytic Services: Organic revenues for this segment grew 9% year over year owing to prosperity in Affinity business, particularly in the United States across both business and consumer solutions. However, total revenues of the segment declined 9% to $271 million.

Financial Position

The company’s cash flow from operations soared 152% to $1.7 billion and free cash flow skyrocketed 198% to $1.4 billion.

The company exited the fourth quarter with total assets of $14.4 billion, up 5.1% from the level on Dec 31, 2017.

As of Dec 31, 2018, long-term debt of the company stands at $5.9 bllion, up 5.8% year over year.

Share Repurchase and Dividend Update

The company bought back 1.2 million Class A Ordinary shares for nearly $200 million in the quarter under review. As of Dec 31, 2018, the company had stock worth $4 billion left under its share repurchase program.

Full-Year Highlights

For 2018, the company’s adjusted EPS jumped 26% to $8.16. Also, total revenues increased 8% to $10.8 billion including 5% organic revenue growth.

Zacks Rank

Aon plc 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

Within the insurance industry, the players that have delivered fourth-quarter earnings so far, The Travelers Companies, Inc. TRV, Arthur J. Gallagher & Co. AJG and RLI Corp.’s RLI bottom line beat the respective Zacks Consensus Estimate.

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