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AON Q1 Earnings & Sales Lag Estimates, Commercial Risk Betters

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Aon plc AON reported first-quarter 2022 operating earnings of $4.83 per share, which missed the Zacks Consensus Estimate of $4.86. However, the bottom line climbed 13% year over year.

Total revenues improved 4% year over year to $3,670 million, which comprised organic revenue growth of 8%, partially offset by a 1% unfavorable impact from divestitures and a 3% unfavorable impact from foreign currency translation. The top line missed the consensus mark of $3,747 million.

The weaker-than-expected first-quarter results were due to a frail performance in Health Solutions and Wealth Solutions. Also, higher expenses from compensation and benefits, and information technology hindered growth. However, the negatives were partially offset by solid contributions from Reinsurance Solutions and Commercial Risk Solutions. Increased activities in catastrophe bond and related insurance-linked securities aided Aon’s March-quarter results.

Aon plc Price, Consensus and EPS Surprise

Aon plc Price, Consensus and EPS Surprise
Aon plc Price, Consensus and EPS Surprise

Aon plc price-consensus-eps-surprise-chart | Aon plc Quote

Operations

Total operating expenses inched up 1% year over year to $2,303 million due to 3% and 8% increases in compensation and benefits, and information technology, respectively. This was partially offset by lower amortizations, depreciations and Premises costs.

Adjusted operating income jumped 6% year over year to $1,395 million.

Adjusted operating margin expanded 60 bps to 38%.

Organic Revenue Catalysts

Commercial Risk Solutions: Organic revenues improved 9% year over year on the back of new business generation, robust retention and management of the renewal book portfolio.

Double-digit growth in North America, Asia and Pacific regions in the first quarter reflects a strong retail brokerage. Results also reflected solid growth in core P&C and an improvement in the construction and project-related work. Among other factors contributing to this upside, global growth in the affinity business in consumer and business solutions is integral. The segment reported a year-over-year rise of 5% in total revenues to $1,719 million.

Reinsurance Solutions: Organic revenues improved 7% year over year, courtesy of solid growth in treaty owing to a continued new business generation, globally, as well as strong retention and a hike in facultative placements and capital market transactions. Total revenues climbed 6% year over year to $976 million.

Health Solutions: Organic revenues improved 8% year over year, driven by growth in core health and benefits brokerage owing to solid retention and management of its renewal book portfolio. Other factors contributing to the upside include growth in human capital on the back of rewards and advisory solutions. Total revenues of the segment decreased 4% year over year to $638 million.

Wealth Solutions: Organic revenue growth remained in line with the year-ago period’s level, driven by modest growth in investment, consisting of new business generations. Total revenues of the segment declined 3% year over year to $345 million.

Financial Position

AON exited the first quarter with cash and cash equivalents of $595 million, which increased from $544 million at 2021 end. As of Mar 31, 2022, Aon had total assets worth $33.5 billion, down from $31.9 billion on Dec 31, 2021. At the first quarter-end, long-term debt was $9,685 million, which jumped from $8,228 million at 2021 end. Short-term debt and the current portion of the long-term debt amounted to $599 million at the first quarter-end.

Cash flow from operations was down to $463 million in the first quarter from the year-ago level of $561 million because of increased incentive compensation payments. Free cash flow decreased 17% year over year to $440 million in the quarter under review. Capital expenditure came in at $23 million, down 21% year over year.

Capital Deployment

AON bought back 2.8 million Class A Ordinary shares for around $800 million in the quarter under review. Aon had $8.4 billion of authorization under its share repurchase program as of Mar 31, 2022, while its board of directors increased its quarterly cash dividend by 10%.

Outlook

Aon expects to achieve double-digit free cash flow growth this year. Organic revenue growth is expected at more than a mid-single-digit for 2022.

At current foreign currency rates, AON expects to incur an 8-cent unfavorable impact per share in the second quarter. Also, in the June quarter, Aon is expected to bear a $100-million interest expense.

Companies Expected to Beat Estimates

While AON, which currently carries a Zacks Rank #2 (Buy), could not deliver an earnings beat, here are some other companies from the Finance space worth considering, as our model shows that these have the right combination of elements to beat on earnings this time around:

Armada Hoffler Properties, Inc. AHH has an Earnings ESP of +2.84% and a Zacks Rank of 2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Armada Hoffler’s bottom line for the to-be-reported quarter indicates a 7.7% rise from the year-ago quarter’s reported figure. AHH's earnings beat estimates in each of the last four quarters, the average being 8.1%.

American Equity Investment Life Holding Company AEL currently has an Earnings ESP of +1.06% and a Zacks Rank #3 (Hold).

The Zacks Consensus Estimate for American Equity Investment’s earnings per share for the to-be-reported quarter indicates a 120.9% rise from the prior-year period’s reading. AEL’s bottom line beat estimates twice in the last four quarters and missed the mark on the other two occasions, the average surprise being 36.6%.

Cigna Corporation CI presently has an Earnings ESP of +6.26% and is Zacks #2 Ranked.

The Zacks Consensus Estimate for Cigna’s bottom line for the to-be-reported quarter indicates an 8.5% increase from the year-earlier quarter’s actuals. CI’s earnings beat estimates in each of the last four quarters, the average being 6%.


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Cigna Corporation (CI) : Free Stock Analysis Report

Aon plc (AON) : Free Stock Analysis Report

American Equity Investment Life Holding Company (AEL) : Free Stock Analysis Report

Armada Hoffler Properties, Inc. (AHH) : Free Stock Analysis Report

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