Willis Group Holdings Plc (WSH) reported first-quarter 2013 adjusted net income of $1.46 per share, surpassing the Zacks Consensus Estimate of $1.31 per share. Results also exceeded the year-ago net income by 10.6%.
Including 22 cents charge on account of expense reduction initiative, Willis Group reported net income of $1.24 per share, down 3.1% year over year.
Quarterly Operational Update
Total revenue in the quarter was $1.1 billion, up 3.8% year over year due to higher commissions and fees (up 4.1% year over year). Results were in line with the Zacks Consensus Estimate.
Investment income declined 20% year over year to $4 million in the reported quarter.
Total expense shot up 9.8% year over year to $764 million mainly due to higher salaries and benefits (up 12.3% year over year), and depreciation expense (up 36.8% year over year).
In the quarter under review, adjusted operating income was $333 million, up 0.9% year over year. Operating margin declined 90 basis points to 31.7% in the first quarter of 2013.
Quarterly Segment Update
Global: Organic growth in commissions and fees was 4.1% in the quarter, while reported growth was 3.5%.
Growth was driven by better results in Willis Re, which resulted in high-single digit growth in the quarter.
Operating margin was 44.5% in the quarter compared to 48.1% in the year-ago quarter.
North America: Commissions and fees, on an organic basis grew 4.3%, while on a reported basis grew 4.9%.
The improvement came on the back of better performances across most of Willis North America's geographic regions, particularly the Human Capital Business.
Operating margin was 24.4% in the first quarter compared to 23.5% in the year-ago quarter.
International: Commissions and fees increased 3.8% both on an organic basis as well as reported basis. Results were driven by mid-single digit growth in Eastern Europe and Australasia, low single-digit growth in U.K., double-digit growth in Latin America and Asia.
Operating margin was 28.5% in the quarter compared to 27.7% in the year-ago quarter.
Cost Savings Initiative
Willis Group recorded a $46 million pretax charge during the reported quarter related to the previously announced assessment of the company’s organizational design.
Management eliminated 207 positions. Another action taken by Willis Group was the rationalization of property and systems.
Willis Group expects to realize cost savings through the above actions, of approximately $20 million in 2013, effective the second quarter of 2013. The company is also expected to realize an annual cost savings of $25–$30 million.
In Apr 2013, the board approved quarterly cash dividend of 28 cents per share, representing a year-over-year hike of 3.7%. Willis will pay the dividend on Jul 15, 2013 to shareholders of record as on Jun 28, 2013. The annualized dividend comes to $1.12 per share.
Willis exited the quarter with cash and cash equivalents of $531 million, up 6.2% from 2012 end level.
Total debt increased 2.1% from to $2.39 billion at Mar 31, 2013 from $2.34 billion at Dec 31, 2012.
Debt-to-capital ratio of the company improved 180 basis points to 55.9% in the quarter.
Performance of Other Insurance Brokers
Aon Plc (AON) reported first quarter 2013 adjusted operating earnings of $1.11 per share in line with the Zacks Consensus Estimate. Results exceeded the year-ago earnings of 98 cents by 13%.
Marsh & McLennan Cos. Inc. (MMC) reported its first-quarter 2013 operating earnings of 73 cents per share, comfortably surpassing the Zacks Consensus Estimate of 70 cents and the year-ago quarter earnings of 63 cents per share.
Brown & Brown Inc. (BRO) reported first quarter 2013 earnings of 41 cents per share exceeding the Zacks Consensus Estimate of 39 cents per share and year-ago earnings of 34 cents per share.
Willis Group currently carries a Zacks Rank #3 (Hold).
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