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Marsh & McLennan's Earnings In Line, Up Y/Y

Zacks Equity Research

Marsh & McLennan Cos. Inc. (MMC) reported first-quarter 2014 operating earnings per share of 81 cents. The results were in line with the Zacks Consensus Estimate but outpaced the year-ago quarter earnings of 73 cents.

Operating net income, which excludes one-time items in both the comparable periods, increased 10.8% year over year to $450 million. On a reported basis, Marsh & McLennan recorded net income of $457 million or 80 cents per share, up from $412 million or 72 cents per share in the prior-year quarter.

Marsh & McLennan posted improved results led by modest revenue growth across its insurance and consulting businesses, which also drove the operating margin. These were, however, partially offset by higher operating, commissions and tax expense.

Consolidated revenues were $3.26 billion, up 4.4% year over year and 4% on an underlying basis. However, the top line marginally missed the Zacks Consensus Estimate of $3.28 billion.

Meanwhile, total operating expenses edged up 2.9% year over year to $2.59 billion. This was on account of other operating expenses, which climbed 5% to $752 million, and an increase of 2% in compensation and benefits to $1.84 billion.

Consequently, adjusted operating margin improved to 20.9% from 19.7% in the year-ago period. However, tax expenses escalated 9.1% to $192 million.

Segment Results

Revenues for the Risk and Insurance Services segment were $1.84 billion, up 4% year over year and 3% on underlying basis. Moreover, adjusted operating income scaled up 6.2% year over year to $500 million, reflecting improved performance at Marsh and Guy Carpenter.

Marsh's revenues came in at $1.45 billion, up 5% year over year and 4% on underlying basis, driven by modest growth in new businesses and across different geographical regions. Underlying revenues grew 4% in international operations reflecting 11% growth in Latin America, 9% in Asia Pacific and 2% each in both EMEA and the U.S.-Canada region.

Guy Carpenter's revenues during the reported quarter were $381 million, up 2% year over year and nil on underlying basis.

The Consulting segment's revenues rose 5% on both year-over-year and underlying basis to $1.43 billion. Additionally, adjusted operating income grew 19% year over year to $225 million.

Mercer's revenues stood at $1.06 billion, up 2% year over year and 3% on underlying basis. Mercer's retirement operations generated revenues of $354 million, with 4% growth on an underlying basis.Additionally, Health revenues grew 2% to $388 million, while revenues from Talent dipped 1% to $117 million. Revenues from Investments increased 8% to $199 million, on an underlying basis.

Moreover, Oliver Wyman’s revenues rose 16% year over year and 11% on an underlying basis to $371 million in the reported quarter.

Financial Update

During the reported quarter, Marsh & McLennan’s total investment income, including private equity investments, declined to $13 million from $21 million recorded in the year-ago quarter. Capital expenditure escalated 12.5% year over year to $99 million in the reported quarter.

Marsh & McLennan exited the quarter with cash and cash equivalents of $1.38 billion, lower than $2.3 billion at 2013-end. Long-term debt of $2.62 billion was at par with the 2013-end level.

As of Mar 31, 2014, Marsh & McLennan’s total assets marginally depreciated to $16.58 billion, while total equity increased to $8.04 billion from 2013-end.

Share Repurchase Update

Marsh & McLennan bought back 2.05 million shares for $100 million during the reported quarter.

In Aug 2013, the board sanctioned the expansion of the share buyback program to $1.0 billion, of which approximately $462 million worth of stock remains available for repurchase at the end of Mar 2014.

Dividend Update

On Mar 19, 2014, the board of Marsh & McLennan declared a quarterly dividend of 25 cents a share, payable on May 15, 2014, to shareholders of record as on Apr 10.

On Feb 18, 2014, Marsh & McLennan paid a quarterly dividend of 25 cents a share to shareholders of record as on Jan 29.


Along with Marsh & McLennan, other insurers like Aon Plc. (AON) and ACE Ltd. (ACE) carry a Zacks Rank #2 (Buy). Another top-ranked insurer, OneBeacon Insurance Group Ltd. (OB), with a Zacks Rank #1 (Strong Buy), is also worth considering.

Read the Full Research Report on ACE
Read the Full Research Report on MMC
Read the Full Research Report on AON
Read the Full Research Report on OB

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