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Marsh & McLennan Q2 Earnings Shine

Zacks Equity Research

Marsh & McLennan Cos. Inc. (MMC) reported second-quarter 2013 operating earnings of 72 cents per share. The results exceededthe Zacks Consensus Estimate of 68 cents and the year-ago quarter earnings of 60 cents per share.

Operating net income, which excludes one-time items in both the periods, increased 19.6% year over year to $403 million. On a reported basis, Marsh & McLennan recorded net income of $388 million or 69 cents per share in the reported quarter, up from $329 million or 59 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 weakness in the Oliver Wyman segment and higher tax expense.

Consolidated revenues were $3.09 billion, up 2% year over year and 3% on an underlying basis. However, it fell short of the Zacks Consensus Estimate of $3.15 billion.

Meanwhile, total operating expenses edged up 0.1% year over year to $2.51 billion as other operating expenses marginally rose 0.2% to $745 million, while compensation and benefits decreased 0.6% to $1.77 billion. Additionally, adjusted operating margin improved to 19.2% from 17.3% in the year-ago period. Nevertheless, tax expenses escalated to $164 million against $144 million in the year-ago quarter.

Segment Results

Revenues for the Risk and Insurance Services segment were $1.7 billion, up 3% on both year-over-year and underlying basis. Moreover, adjusted operating income was up 10% year over year reaching $432 million, reflecting improved performance at Marsh and Guy Carpenter.

Marsh's revenues came in at $1.4 billion, up 3% on both year-over-year and underlying basis, driven by strong new businesses and growth across geography in the quarter. Underlying revenue grew 3% in international operations reflecting 10% growth in Latin America, 5% in Asia Pacific and 1% in EMEA. Meanwhile, underlying revenue growth in the U.S.-Canada region was 2%.

Guy Carpenter's revenues during the reported quarter were $285 million, up 4% on year-over-year and 5% on an underlying basis.

The Consulting segment's revenues inched up 1% on year over year and 2% on an underlying basis at $1.4 billion. Additionally, adjusted operating income grew 10% year over year to $205 million.

Mercer's revenues stood at $1.0 billion, up 3% year over year and 4% on underlying basis. Mercer's retirement operations generated revenues of $338 million, up 2% on an underlying basis.Additionally, Health revenue grew 6% to $376 million, while revenues from Talent decreased 2% to $133 million. Revenue from Investments increased 9% to $197 million, on an underlying basis.

Moreover, Oliver Wyman’s revenues decreased 4% both on year over year and underlying basis to $366 million in the reported quarter.

Financial Update

During the reported quarter, Marsh & McLennan total investment income, including private equity investments, surged to $23 million against $4 million in the year-ago quarter. Meanwhile, capital expenditure climbed to $104 million from $98 million in the year-ago period.

Marsh & McLennan exited the reported quarter with cash and cash equivalents of $1.23 billion, down from $2.3 billion in 2012. Long-term debt increased to $2.70 billion from $2.66 billion at the end of 2012.

As of Jun 30, 2013, Marsh & McLennan’s total assets depreciated to $15.84 billion, while total equity increased to $6.85 billion from 2012-end.

Share Repurchase Update

Concurrently, the board sanctioned the expansion of the share buyback program to $1.0 billion.

Meanwhile, the company bought back 3.7 million shares for $150 million during the reported quarter.

Dividend Update

Additionally, Marsh & McLennan hiked the quarterly common stock dividend by 9% to 25 cents per share from the prior 23 cents. The raised dividend will be payable on Aug 15, 2013.

On May 15, 2013, the company paid a quarterly dividend of 23 cents a share, to the shareholders of record as on Apr 10, 2013.


Marsh & McLennan carries a Zacks Rank #4 (Sell). Other strong performers in the insurance sector include Chubb Corp. (CB), Hilltop Holdings Inc. (HTH) and Everest Re Ltd. (RE), all of which carry a Zacks Rank #2 (Buy).

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