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Low Expense Aid Marsh & McLennan Earnings

Zacks Equity Research

Marsh & McLennan Cos. Inc. (MMC) reported its first-quarter 2013 operating earnings of 73 cents per share, comfortably surpassing the Zacks Consensus Estimate of 70 cents and the year-ago quarter earnings of 63 cents per share.

Operating net income, which excludes one-time items in both the periods, increased 16.3% year over year to $406 million. On a reported basis, Marsh & McLennan recorded net income of $401 million or 72 cents per share in the reported quarter, up from $347 million or 63 cents per share in the prior-year quarter.

Marsh & McLennan posted improved results on account of modest revenue growth across its Risk and Insurance business along with strict expense control, which also drove the operating margin. These were partially offset by weak revenue growth in Consulting segment and higher tax expense.

Consolidated revenues were $3.13 billion, climbing 2.5% year over year and 2% on an underlying basis. However, it missed the Zacks Consensus Estimate of $3.2 billion.

Meanwhile, total operating expenses dipped 0.2% year over year to $2.52 billion as compensation and benefits marginally rose 0.4% to $1.8 billion, while other expenses decreased 1.6% to $716 million. Additionally, adjusted operating margin improved to 17.4% from 19.7% in the year-ago period. Nevertheless, tax expenses escalated to $176 million against $153 million in the year-ago quarter.

Segment Results

Revenues for the Risk and Insurance Services segment were $1.8 billion, up 5% on a year-over-year basis. Moreover, adjusted operating income was up 14% year over year reaching $471 million, reflecting improved performance at Marsh and Guy Carpenter.

Marsh's revenues came in at $1.4 billion, up 5% year over year and 4% on an underlying basis, driven by strong new businesses and growth across geography in the quarter. Underlying revenue grew 5% in international operations reflecting 13% growth in Latin America, 6% in Asia Pacific and 3% in EMEA. Meanwhile, underlying revenue growth in the U.S.-Canada region stood at 2%.

Guy Carpenter's revenues during the reported quarter were $375 million, up 5% on year-over-year and 4% on underlying basis.

The Consulting segment's revenues dipped 1% on year-over-year and were flat on underlying basis at $1.4 billion. Additionally, adjusted operating income grew 15% year over year to $189 million.

Mercer's revenues stood at $1.0 billion, up 3% on both year over year and underlying basis. Mercer's retirement operations generated revenues of $343 million, down 1% on an underlying basis.

Additionally, Health revenue grew 6% to $381 million, whereas revenues from Talent decreased 4% to $123 million. Revenue from Investments increased 9% to $194 million, on underlying basis.

Moreover, Oliver Wyman’s revenues decreased 9% on an underlying basis to $321 million in the reported quarter.

Financial Update

During the reported quarter, Marsh & McLennan total investment income, including private equity investments, grew to $21 million against $20 million in the year-ago quarter. Meanwhile, capital expenditure escalated to $126 million from $51 million in the year-ago period.

Marsh & McLennan exited the reported quarter with cash and cash equivalents of $1.26 billion, down from $2.3 billion in 2012. Long-term debt swelled to $2.71 billion from $2.66 billion at the end of 2012.

As of Mar 31, 2013, Marsh & McLennan’s total assets depreciated to $15.54 billion, while total shareholders’ equity increased to $6.71 billion from 2012-end.

Additionally, the company bought back 2.7 million shares for $100 million during the reported quarter, while $223 million worth of stock remains available for repurchases under the current authorization.

Dividend Update

On Mar 20, 2013, the board of Marsh & McLennan announced a quarterly common stock dividend of 23 cents a share, which is payable on May 15, 2013 to the shareholders of record as on Apr 10, 2013.

On Feb 15, 2013, Marsh & McLennan paid a quarterly common stock dividend of 23 cents a share to the shareholders of record as on Jan 28, 2013.


Marsh & McLennan carries a Zacks Rank #3 (Hold). Other strong performers in the insurance sector include Employers Holdings Inc. (EIG), Hilltop Holdings Inc. (HTH) and Navigators Group Inc. (NAVG), all of which carry a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on MMC

Read the Full Research Report on EIG

Read the Full Research Report on HTH

Read the Full Research Report on NAVG

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