Arthur J. Gallagher (AJG) Q3 Earnings & Revenues Top, Up Y/Y

Arthur J. Gallagher & Co. AJG reported third-quarter 2021 adjusted net earnings of $1.33 per share, beating the Zacks Consensus Estimate by 9.9%. The bottom line also increased about 23.1% on a year-over-year basis.

The company’s performance was driven by higher adjusted revenues across Brokerage and Risk Management segments, offset by higher expenses.

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

Operational Update

Total revenues were $2.1 billion, up 16.5% year over year, primarily due to higher commissions, fees, supplemental revenues and contingent revenues, and revenues from clean coal activities. The top line beat the Zacks Consensus Estimate by 5.5%.

Arthur J. Gallagher’s total expense increased 16.3% year over year to $1.9 billion, attributable to higher compensation, operating cost, cost of revenues from clean coal activities, and interest and depreciation expenses.

Adjusted earnings before interest, tax, depreciation and amortization and change in estimated acquisition earnout payables (EBITDAC) grew 13.9% from the prior-year quarter to $500.2 million.

Segment Results

Brokerage: Adjusted revenues of $1.5 billion increased 14.2% year over year on higher commissions, fees, supplemental revenues and contingent revenues.

Expenses increased 14.4% to $1.2 billion due to higher compensation, operating, depreciation and change in estimated acquisition earnout payables.

Adjusted EBITDAC climbed 12.6% to $492.4 million while margin contracted 50 basis points (bps) to 32.9%.

Risk Management: Adjusted revenues were up 21.8% year over year to $248 million, primarily due to higher fees.

Expenses increased 14.6% to $251.1 million due to higher compensation and operating cost.

Adjusted EBITDAC increased 22.6% year over year to $48.3 million while margin expanded 10 bps to 19.5%.

Corporate: EBITDAC was negative $40.5 million compared with negative $37.8 million in the year-ago quarter.

Financial Update

As of Sep 30, 2021, total assets were $26.9 billion, up 20.5% from the 2020-end level.

Cash and cash equivalents at quarter-end increased four-fold from the 2020 level to $2.7 billion.

Shareholders’ equity increased 35.9% from the level as of Dec 31, 2020 to $8.5 billion as of Sep 30, 2021.

Dividend Update

The board of directors approved a quarterly cash dividend of 48 cents per share. The dividend will be paid out on Dec 17, 2021 to shareholders of record as of Dec 3.

Acquisition Update

In the quarter, the company closed five acquisitions with estimated annualized revenues of about $16.1 million.

Business Update

On Aug 13, 2021, Arthur J. Gallagher agreed to acquire Willis Towers Watson treaty reinsurance brokerage operations for an initial gross consideration of $3.25 billion and potential additional consideration of $750 million subject to certain third-year revenue targets. It intends to finance the transaction using cash on hand, including the $1.4 billion of net cash raised via the May 17, 2021 follow-on common stock offering and the $850 million of net cash borrowed via the May 20, 2021 30-year senior note issuance and short-term borrowings. Pending regulatory approvals, the deal is expected to close in the fourth quarter of 2021.

Zacks Rank

Currently, Arthur J. Gallagher 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 Insurance Brokers

Of the insurance brokers, which have reported third-quarter results so far, earnings of Brown and Brown BRO, Marsh McLennan Companies MMC and Willis Towers Watson Public Limited Company WLTW beat the respective Zacks Consensus Estimate.

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