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Why Is Arthur J. Gallagher (AJG) Down 4.2% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Arthur J. Gallagher (AJG). Shares have lost about 4.2% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Arthur J. Gallagher 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 drivers.

Arthur J. Gallagher Q2 Earnings Beat, Revenues Miss

Arthur J. Gallagher reported second-quarter 2019 adjusted net earnings of 65 cents per share, which beat the Zacks Consensus Estimate by 6.6%. Moreover, the bottom line increased 4.8% on a year-over-year basis.

The company’s performance was driven by solid organic growth, sturdy performance across all segments and strong margin expansion.

Operational Update

Total revenues were nearly $1.6 billion, flat year over year. However, the top line missed the Zacks Consensus Estimate by 8.3%.

Arthur J. Gallagher’s total expense decreased 1.3% year over year to $1.6 million in the reported quarter. Lower cost of revenues from clean coal activities attributed to the downside.

Adjusted earnings before interest, tax, depreciation and amortization and change in estimated acquisition earnout payables (EBITDAC) grew 14%.

Segment Results

Brokerage: Adjusted revenues of $1.1 billion increased 15% year over year on higher fees and commission.

Expenses increased 14.4% to $948.9 million.

Adjusted EBITDAC climbed 18% to $298 million while margin expanded 48 basis points (bps).

Risk Management: Adjusted revenues were up 5% year over year to $290.1 million, mainly owing to higher fees.

Expenses increased 3.6% to $221.1 million.

Adjusted EBITDAC increased 4% year over year to $36.6 million while margin contracted 12 bps.

Corporate: EBITDAC was negative $45.9 million compared with $50.1 million in the year- ago quarter.

Financial Update

As of Jun 30, 2019, total assets were $19.2 billion, up 17.8% from 2018.

Cash and cash equivalents at quarter end increased 13.8% from 2018 level to $2.5 billion.

Shareholders’ equity increased 8.3% from the level as of Dec 31, 2018 to $4.9 billion as of Jun 30, 2019.

Acquisition Update

In the quarter, the company closed 13 acquisitions with estimated annualized revenues of about $194.5 million.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Arthur J. Gallagher 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Arthur J. Gallagher has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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