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Arthur J. Gallagher (AJG) Q2 Earnings Beat, Revenues Miss

Zacks Equity Research

Arthur J. Gallagher & Co. AJG reported second-quarter 2019 adjusted net earnings of 65 cents per share, which beat the Zacks Consensus Estimate by 6.6%. Moreover, the bottom line increased 4.8% on a year-over-year basis.

The company’s performance was driven by solid organic growth, sturdy performance across all segments and strong margin expansion.

Operational Update

Total revenues were nearly $1.6 billion, flat year over year. However, the top line missed the Zacks Consensus Estimate by 8.3%.

Arthur J. Gallagher’s total expense decreased 1.3% year over year to $1.6 million in the reported quarter. Lower cost of revenues from clean coal activities attributed to the downside.

Adjusted earnings before interest, tax, depreciation and amortization and change in estimated acquisition earnout payables (EBITDAC) grew 14%.

Arthur J. Gallagher & Co. Price, Consensus and EPS Surprise

Arthur J. Gallagher & Co. Price, Consensus and EPS Surprise

Arthur J. Gallagher & Co. price-consensus-eps-surprise-chart | Arthur J. Gallagher & Co. Quote

Segment Results

Brokerage: Adjusted revenues of $1.1 billion increased 15% year over year on higher fees and commission.

Expenses increased 14.4% to $948.9 million.

Adjusted EBITDAC climbed 18% to $298 million while margin expanded 48 basis points (bps).

Risk Management: Adjusted revenues were up 5% year over year to $290.1 million, mainly owing to higher fees.

Expenses increased 3.6% to $221.1 million.

Adjusted EBITDAC increased 4% year over year to $36.6 million while margin contracted 12 bps.

Corporate: EBITDAC was negative $45.9 million compared with $50.1 million in the year- ago quarter.

Financial Update

As of Jun 30, 2019, total assets were $19.2 billion, up 17.8% from 2018.

Cash and cash equivalents at quarter end increased 13.8% from 2018 level to $2.5 billion.

Shareholders’ equity increased 8.3% from the level as of Dec 31, 2018 to $4.9 billion as of Jun 30, 2019.

Acquisition Update

In the quarter, the company closed 13 acquisitions with estimated annualized revenues of about $194.5 million.

Zacks Rank

Currently, Arthur J. Gallagher carries a Zacks Rank #4 (Sell).

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

Performance of Other Insurers

Of the insurance industry players that have reported second-quarter results so far, Brown and Brown Inc. BRO, The Progressive Corporation PGR and RLI Corp. RLI beat the respective Zacks Consensus Estimate for earnings.

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