It has been about a month since the last earnings report for Willis Towers Watson (WLTW). Shares have lost about 0.5% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Willis Towers Watson 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 catalysts.
Willis Towers Q1 Earnings and Revenues Miss Estimates
Willis Towers Watson Public Limited Company delivered first-quarter 2019 adjusted earnings of $2.98 per share, missing the Zacks Consensus Estimate of $2.99. However, the bottom line improved about 10% year over year.
The quarter witnessed strong organic revenue growth, reflecting solid demand for solutions and services across all core businesses and margin expansion.
Willis Towers Watson posted adjusted consolidated revenues of $2.31 billion, up 1% year over year, on a reported basis. The metric grew 5% on an organic basis. The top line however missed the Zacks Consensus Estimate of $2.37 billion.
Total cost of providing services decreased 3.9% year over year to $1.95 billion.
Adjusted operating income was $492 million. Margin increased 200 basis points (bps) to 21.3% driven by better margin at the Human Capital and Benefits (HCB) segment, the Corporate Risk and Broking (CRB) segment, and the Benefits Delivery and Administration (BDA) segment, partially offset by a decrease in Investment Risk and Reinsurance (IRR) segment.
Adjusted EBITDA was $601 million, up 7.9% year over year. Adjusted EBITDA margin was 26%, up 170 bps.
Quarterly Segment Update
Human Capital & Benefits: Total revenues of $829 million were up 3% year over year both on constant currency and organic basis. Operating margin was 25%, reflecting an increase of 200 bps.
Corporate Risk & Broking: Total revenues of $728 million improved 3% year over year on a constant basis and 4% on an organic basis. Operating margin was 17.4% in the quarter under review, up 60 bps.
Investment, Risk & Reinsurance: Total revenues of $589 million increased 6% from the prior-year quarter on constant basis and 5% on an organic basis. Operating margin was 43%, down 200 bps.
Benefits Delivery & Administration: Total revenues of $135 million improved 10% both on constant and organic basis. Operating margin was negative 15% compared with negative 26% in the year-ago quarter.
Cash and cash equivalents decreased nearly 4% from the 2018-end level to about $992 million.
Long-term debt increased 2.9% from 2018 end to nearly $4.5 billion at quarter-end.
Shareholders’ equity increased 2.4% from the level on Dec 31, 2018 to $10.1 billion as of Mar 31, 2019.
Cash outflow from operations was $47 million against cash inflow of $18 million in the year-ago quarter. Free cash outflow was $104 million, wider than outflow of $47 million the year-ago quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
Currently, Willis Towers Watson has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, 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.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Willis Towers Watson has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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