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Marsh & McLennan (MMC) Down 1.1% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Marsh & McLennan (MMC). Shares have lost about 1.1% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Marsh & McLennan due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Marsh & McLennan Q2 Earnings & Revenues Beat Estimates

Marsh & McLennan delivered second-quarter 2019 adjusted earnings per share of $1.18, surpassing the Zacks Consensus Estimate by 4.4% on the back of higher revenues. Also, the bottom line improved 7.3% year over year.

Moreover, Marsh & McLennan’s consolidated revenues were $4.3 billion, up 16% on an underlying basis. This upside is majorly attributable to the Risk and Insurances Services plus Consulting Segments. Further, the top line slightly beat the Zacks Consensus Estimate by 0.3%.

Meanwhile, total operating expenses of $3.7 billion in the second quarter were up 20.6% year over year due to high compensation and benefits plus other operating expenses.

Quarterly Segmental Results

Risk and Insurance Services


Revenues at the Risk and Insurance Services segment were $2.6 billion, up 3% on an underlying basis. Adjusted operating income was up 21% to $641 million from the prior-year quarter’s level.

Marsh, a unit within this segment, generated revenues of $2.2 billion, up 4% on an underlying basis. In U.S./Canada, underlying revenues rose 5%. Underlying revenue growth from international operations includes 7% of the metric in Asia Pacific, flat in EMEA and 4% in Latin America.

Another unit under this segment — Guy Carpenter — displayed 3% revenue decline on an underlying basis to $392 million in the quarter under review.

Consulting

The Consulting segment's revenues rose 5% on an underlying basis. Also, adjusted operating income increased 14% year over year to $305 million.

A unit within this segment — Mercer — reported revenues of $1.3 billion, up 2% on an underlying basis. Wealth’s revenues were flat on an underlying basis.

Another unit, Oliver Wyman Group, registered revenues of $540 million, up 13% on an underlying basis.

Financial Update

Marsh & McLennan exited the quarter with cash and cash equivalents of nearly $1.3 billion, up 21.4% from the figure at 2018 end.

As of Jun 30, 2019, Marsh & McLennan’s total assets were $32.1 billion, up 49% from the tally at year-end 2018.

Total equity was $8.3 billion, up 10% from the level at year-end 2018.

Business Update

The company completed the buyout of Jardine Lloyd Thompson Group (JLT) in April 2019. As announced earlier, the company will form a new specialty business within Marsh called Marsh-JLT Specialty. This will be a combination of the specialty teams of Marsh and Jardine Lloyd Thompson Group plc (JLT). The purchase is likely to strengthen the company’s initiative to emerge as a distinguished global firm in areas of risk, people and strategies. Annual cost synergies of around $250 million are expected to be realized from this transaction over the next three years. This apart, the deal is estimated to be immediately accretive to the acquiring company’s adjusted cash EPS and also produce a double-digit internal rate of return.

Share Repurchase and Dividend Update

The company bought back shares worth $100 million in the second quarter. In May, its board of directors also announced a 10% quarterly dividend hike effective the third quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

Currently, Marsh & McLennan has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Marsh & McLennan has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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