Will Rising Expenses Play Spoilsport for AON's Q3 Earnings?
Aon plc AON is set to report its third-quarter 2023 results on Oct 27, before the opening bell. A strong Commercial Risk Solutions performance is expected in the quarter under review, along with increasing costs.
What Do the Estimates Say?
The Zacks Consensus Estimate for third-quarter earnings per share of $2.23 suggests a 10.4% increase from the prior-year figure of $2.02. The consensus mark remained stable over the past week. The consensus estimate for third-quarter revenues of $2.9 billion indicates a 6.7% increase from the year-ago reported figure.
AON beat the consensus estimate for earnings in two of the trailing four quarters and missed on the other two occasions, with the average surprise being 0.5%. This is depicted in the graph below:
Aon plc Price and EPS Surprise
Aon plc price-eps-surprise | Aon plc Quote
Before we get into what to expect for the to-be-reported quarter in detail, it’s worth taking a look at AON’s previous-quarter performance first.
Q2 Earnings Rewind
In the last reported quarter, the leading global risk management services provider’s adjusted earnings per share of $2.76 missed the Zacks Consensus Estimate by 2.1%, primarily due to increased operating expenses. However, the negatives were partially offset by strong P&C business retention, business generation and solid performance in Commercial Risk Solutions’ Asia and Pacific region operations.
Now, let’s see how things have shaped up before the third-quarter earnings announcement.
Q3 Factors to Note
Commercial Risk Solutions’ performance in the third quarter is likely to have gained from new business generation, robust retention and skillful management of the renewal book portfolio. Strong performances in various geographical regions, including Asia and the Pacific, are expected to have had a positive impact on their performance.
The Zacks Consensus Estimate for the Commercial Risk Solutions line’s revenues indicates 5.8% growth from $1,482 million a year ago, whereas our model predicts a 5.1% increase. We expect the unit to witness 5% organic revenue growth in the quarter under discussion, along with a 2% favorable impact from fiduciary investment income.
The consensus mark for the Health Solutions line’s third-quarter revenues suggests more than 7% growth from the year-ago level, while our projection anticipates a 6% increase. The segment's growth is likely to have been supported by an increase in core health and benefits brokerage. Additionally, the growth in the Talent business, driven by data and advisory solutions, is expected to positively impact the unit's results for the third quarter.
The Zacks Consensus Estimate for Reinsurance Solutions' revenues indicates growth of over 10% compared to the $396 million from a year ago, while our model forecasts approximately a 9% increase. It is expected to have witnessed growth in the to-be-reported quarter on the back of sustained new business generation, strong retention and investment banking growth. Additionally, improvements in the Strategy and Technology Group are likely to have had a positive impact on the unit's performance in the third quarter.
The consensus estimate for third-quarter revenues in the Wealth Solutions segment suggests a 3.9% increase from the previous year, whereas our model foresees a 3% rise. The unit is likely to have been supported by heightened demand for advisory services, project-related activities and retirement growth during the quarter under review.
All the factors stated above are likely to have positioned the company for overall year-over-year growth. However, escalating expenses due to substantial investments in the priority areas for long-term growth and an increase in certain discretionary and other expenses are likely to have partially offset the upside, making an earnings beat uncertain.
Our model suggests the total operating costs in the third quarter to have increased more than 4%, primarily attributed to increased expenses related to information technology, as well as higher compensation and benefits. Specifically, the estimate for information technology expenses is set at approximately $138 million, while compensation and benefits cost is pegged at more than $1.6 billion.
Earnings Whispers
Our proven model does not conclusively predict an earnings beat for AON this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. That is not the case here, as you will see below.
Earnings ESP: The company has an Earnings ESP of -0.18%. This is because the Most Accurate Estimate currently stands lower than the Zacks Consensus Estimate of $2.23 per share.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: AON currently carries a Zacks Rank #2.
Stocks to Consider
While an earnings beat looks uncertain for AON, here are some companies from the broader Finance space that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:
Welltower Inc. WELL has an Earnings ESP of +0.45% and is a Zacks #2 Ranked player. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Welltower’s bottom line for the to-be-reported quarter is pegged at 89 cents per share, indicating 6% year-over-year growth. It has remained stable over the past week. The consensus estimate for WELL’s revenues is pegged at $1.6 billion, suggesting a 10.8% increase from a year ago.
Cboe Global Markets, Inc. CBOE has an Earnings ESP of +0.71% and a Zacks Rank of 2.
The Zacks Consensus Estimate for Cboe Global’s bottom line for the to-be-reported quarter is pegged at $1.84 per share, indicating 5.8% growth from a year ago. The consensus estimate for revenues is pegged at $478.9 million, indicating an 8.2% increase from a year ago. CBOE beat earnings estimates in each of the past four quarters, with an average surprise of 3.1%.
KKR & Co. Inc. KKR has an Earnings ESP of +2.24% and a Zacks Rank of 3.
The Zacks Consensus Estimate for KKR’s bottom line for the to-be-reported quarter is pegged at 80 cents per share, which increased by 2 cents in the past month. KKR beat earnings estimates in all the past four quarters, with an average surprise of 7.5%.
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