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Why Is Arthur J. Gallagher (AJG) Up 1.8% 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 added about 1.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Arthur J. Gallagher due for a pullback? 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 Q1 Earnings and Revenues Beat

Arthur J. Gallagher & Co. reported first-quarter 2019 adjusted net earnings of $1.63 cents per share, which beat the Zacks Consensus Estimate by 1.2%. Moreover, the bottom line increased 1.5% 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 $2 billion, up 8.3% year over year. This upside was driven by higher total revenues in Brokerage and Risk Management. Also, the top line surpassed the Zacks Consensus Estimate of $1.9 billion.

Arthur J. Gallagher’s total expense rose 4.6% year over year to $1.7 billion in the reported quarter. Expenses escalated primarily due to higher compensation costs, operating costs, interest expenses, higher depreciation as well as amortization expenses.

Adjusted earnings before interest, tax, depreciation and amortization and change in estimated acquisition earnout payables (EBITDAC) grew 15.5%.

Segment Results

Brokerage: Adjusted revenues of $1.3 billion increased 13% year over year.
Expenses increased 10.6% to $969.5 million.
Adjusted EBITDAC climbed 15% to $471.9 million while margin expanded 61 bps.

Risk Management: Adjusted revenues were up 4.1% year over year to $203.3 million, mainly owing to higher fees.

Expenses increased 2.9% to $41.4 million.

Adjusted EBITDAC increased 10% year over year to $34.5 million while margin expanded 61 bps.

Corporate: EBITDAC was negative $65.4 million, wider than $59.9 million incurred in the year- ago quarter.

Financial Update

As of Mar 31, 2019, total assets were $16.3 billion, up 14% from 2018.

Cash and cash equivalents at quarter end declined 31% from 2018 level to $1.5 billion.

Shareholders’ equity increased 8.5% from the level as of Dec 31, 2018 to $4.9 billion as of Mar 31, 2019.

Acquisition Update

In the quarter, the company closed 11 acquisitions with estimated annualized revenues of about $71.2 million.

 

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Arthur J. Gallagher has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, 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 F. 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 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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