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Willis Towers (WLTW) Beats on Q2 Earnings, Raises Guidance

Zacks Equity Research

Willis Towers Watson Public Limited Company WLTW delivered second-quarter 2019 adjusted earnings of $1.78 per share, which beat the Zacks Consensus Estimate of $1.76.  The bottom line improved 5% year over year.

The company witnessed strong organic revenue growth on the back of solid demand for solutions and services across all core businesses, and margin expansion.

Operational Update

Willis Towers Watson posted adjusted consolidated revenues of $2.048 billion, up 3% year over year on a reported basis. Revenues increased 6% on an organic basis. The top line marginally missed the Zacks Consensus Estimate of $2.052 billion.

Total cost of providing services decreased 2.9% year over year to $1.9 billion.

Adjusted operating income was $299 million, up 15.9% year over year.  Margin increased 160 basis points (bps) to 14.6% driven by higher margin at the Human Capital and Benefits (HCB) segment, the Corporate Risk and Broking (CRB) segment, the Benefits Delivery and Administration (BDA) segment and Investment Risk and Reinsurance (IRR) segment.

Adjusted EBITDA was $425 million, up 8.4% year over year. Adjusted EBITDA margin was 20.8%, up 110 basis points (bps).

Willis Towers Watson Public Limited Company Price, Consensus and EPS Surprise

Willis Towers Watson Public Limited Company Price, Consensus and EPS Surprise

Willis Towers Watson Public Limited Company price-consensus-eps-surprise-chart | Willis Towers Watson Public Limited Company Quote

Quarterly Segment Update

Human Capital & Benefits: Total revenues of $797 million were up 5% year over year both on constant currency and organic basis. Organic growth reflects increased consulting and brokerage services, growth in specialty products, and expansion of client portfolio for both local and global appointments. Operating margin was 21%, reflecting an increase of 200 bps.

Corporate Risk & Broking: Total revenues of $690 million improved 5% year over year both on constant currency and organic basis. The segment witnessed solid growth across all geographies. Operating margin was 15% in the quarter under review, up 100 bps.

Investment, Risk & Reinsurance: Total revenues of $409 million increased 9% from the prior-year quarter on a constant basis and 8% on an organic basis. All lines of business contributed to the segment’s strong performance.  Operating margin was 27%, up 400 bps.

Benefits Delivery & Administration: Total revenues of $126 million improved 6% both on constant and organic basis, driven by continued expansion of its client base and increased demand for project work in the mid-market and large-market spaces. Operating margin was negative 20% compared with negative 26% in the year-ago quarter.

Financial Update

Cash and cash equivalents decreased 21.4% from the 2018-end level to about $812 million at second-quarter 2019 end.

Long-term debt decreased 2.4% from 2018 end to nearly $4.3 billion at quarter-end.

Shareholders’ equity increased 2.4% from the level on Dec 31, 2018 to $10.1 billion as of Jun 30, 2019.

Cash flow from operations was $303 million in the first half of 2019, down 23.3% year over year. Free cash flow was $183 million, down nearly 28% year over year.

The company bought back shares worth $51 million in the first half of 2019.

Guidance Raised

Willis Towers estimates adjusted earnings per share between $10.75 and $11.10, up from the prior guidance of $10.60 and $10.85.

Willis Towers upped  the full-year earnings guidance primarily to reflect the acquisition of TRANZACT. For 2019, with TRANZACT, it expects constant currency revenue growth between 7% and 8%. On an organic constant currency basis, the company expects 4% to 5% revenue growth.

Zacks Rank

Willis Towers currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Insurers

Second-quarter earnings of Arthur J. Gallagher & Co. AJG and Brown & Brown BRO beat the Zacks Consensus Estimate while that of Aon Plc AON missed the same.

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