Willis Towers (WTW) Q2 Earnings Miss, Revenues Beat Estimates
Willis Towers Watson Public Limited Company WTW delivered second-quarter 2023 adjusted earnings of $2.05 per share, which missed the Zacks Consensus Estimate by 13.9%. The bottom line decreased 12% year over year.
The solid performance of WTW’s Health, Wealth & Career and Risk & Broking segments were offset by higher expenses.
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
Operational Update
Willis Towers posted adjusted consolidated revenues of $2.15 billion, up 6% year over year on a reported basis. Revenues increased 7% on both organic basis and constant currency basis. The top line beat the Zacks Consensus Estimate by 1.5%.
The total costs of providing services increased 6.5% year over year to $2 billion due to higher salaries and benefits, transaction and transformation and other operating expenses. Our estimate was $1.9 billion.
Adjusted operating income was $315 million, which remained unchanged year over year. Margin contracted 90 basis points (bps) to 14.6%.
Adjusted EBITDA was $411 million, down 8.6% year over year. Adjusted EBITDA margin was 19%, down 320 bps.
Quarterly Segment Update
Health, Wealth & Career: Total revenues of $1.2 billion increased 5% year over year (5% increase on a constant currency and organic basis) and matched the Zacks Consensus Estimate. Our estimate was pegged at $1.1 billion.
Organic growth was led by Benefits Delivery & Outsourcing, driven by higher volumes and placements of Medicare Advantage and Life policies in Individual Marketplace and increased project activity in Outsourcing.
Wealth businesses generated organic revenue growth from higher levels of Retirement work in North America and Europe, along with new client acquisitions and higher fees related to value-added services in Investments.
Career businesses grew revenues organically through increased reward-based advisory services and higher compensation survey participation.
The operating margin was 18.3%, which contacted 40 bps from the prior-year quarter, primarily reflecting the impact of book-of-business settlement revenues in the prior year, partially offset by Transformation savings.
Risk & Broking: Total revenues of $900 million increased 6% year over year (6% increase in constant currency and 6% increase on an organic basis) and beat our estimate of $853.9 million and the Zacks Consensus Estimate $891 million.
Corporate Risk & Broking generated solid organic revenue growth across all geographies, primarily driven by new business, improved retention and strong contributions from global lines of business. Insurance Consulting and Technology had organic revenue growth from software sales and increased project revenues.
The operating margin decreased 360 bps from the prior-year quarter to 16.1%, primarily due to the run-rate impact of investments in talent who are continuing to ramp up in revenue production, higher travel and expense related items and headwinds from the impact of book-of-business settlement revenues in the prior year.
Financial Update
As of Jun 30, 2023, cash and cash equivalents was $1.6 billion, up 26.9% year over year.
Long-term debt increased 2.1% to $4.5 billion at quarter-end from 2022 end.
Shareholders’ equity decreased 2.2% from the level on Dec 31, 2022 to $9.8 billion as of Jun 30, 2023.
Cash flow from operations was $430 million in the first half of 2023, up 66.7% from the prior-year period.
Free cash flow for the first half of 2023 increased 76.7% to $350 million.
2023 Guidance
Willis Towers expects to deliver mid-single digit organic revenue growth.
The insurer projects to deliver adjusted operating margin expansion for 2023.
The company expects to deliver approximately $160 million of incremental run-rate savings from the Transformation Program in 2023, up from $100 million previously.
WTW expects approximately $112 million in non-cash pension income for 2023.
The company expects approximately 12% free cash flow margin for 2023.
2024 Outlook
Willis Towers has updated 2024 financial targets to account for an expected decline in pension income of approximately $1.65 per share. The change also accounts for an expected increase in the adjusted income tax rate and further investments in talent and other strategic initiatives to support long-term growth in Risk & Broking relative to the initial targets set in 2021.
As a result of the continued success of its Transformation Program, WTW has raised its 2024 target of total annualized run-rate savings to $380 million. The costs to achieve these savings remain unchanged from the previously-announced $900 million.
Zacks Rank
Willis Towers currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Some Other Brokerage Insurers
Marsh & McLennan Companies, Inc. MMC reported second-quarter 2023 adjusted earnings per share of $2.20, which beat the Zacks Consensus Estimate by 3.8%. The bottom line improved 16% year over year.
Consolidated revenues of MMC advanced 9% year over year to $5,876 million. The figure rose 11% on an underlying basis in the quarter under review. The top line outpaced the consensus mark by 2.5%. Total operating expenses of $4,419 million escalated 10.1% year over year in the second quarter. Total expenses increased 9.3% year over year at the Risk and Insurance Services segment, while the same in the Consulting segment witnessed a 10.9% year-over-year increase.
Adjusted operating income improved 17% year over year to $1,540 million but missed our estimate of $1,701.3 million. The adjusted operating margin of 27.7% improved 100 basis points year over year in the quarter under review but came lower than our estimate of 30.2%.
Brown & Brown, Inc.’s BRO second-quarter 2023 adjusted earnings of 68 cents per share beat the Zacks Consensus Estimate by 15.2%. The bottom line increased 33.3% year over year. Total revenues of $1.1 billion beat the Zacks Consensus Estimate by 5.1%. The top line improved 25% year over year. Our estimate for commission and fees growth was 13.7%.
Organic revenues improved 11.2% to $894.3 million in the quarter under review. Investment income increased year over year to $10.3 million from $0.4 million in the year-ago quarter. The Zacks Consensus Estimate for the metric was pegged at $6.1 million and our estimate was $4.6 million.
Adjusted EBITDAC was $358.4 million, up 30.5% year over year. EBITDAC margin expanded 150 basis points year over year to 35.7%. Our estimate for adjusted EBITDAC was $207.5 million. Total expenses increased 23.7% to $792.9 million. Our estimate was $751.3 million.
Arthur J. Gallagher & Co. AJG reported second-quarter 2023 adjusted net earnings of $1.90, which beat the Zacks Consensus Estimate by 2.1%. The bottom line increased 16.5% on a year-over-year basis. Total revenues of $2.4 billion beat the Zacks Consensus Estimate by 2.4%. The top line also improved 19.8% year over year.
Arthur J. Gallagher’s total expenses increased 26.8% year over year to $2.1 billion in the reported quarter due to higher compensation, operating, reimbursements, interest and amortization. The figure was higher than our estimate of $2 billion.
Adjusted earnings before interest, tax, depreciation and amortization and change in estimated acquisition earnout payables increased 19% from the prior-year quarter to $675.7 million. The figure was higher than our estimate of $628.9 million.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Marsh & McLennan Companies, Inc. (MMC) : Free Stock Analysis Report
Arthur J. Gallagher & Co. (AJG) : Free Stock Analysis Report
Brown & Brown, Inc. (BRO) : Free Stock Analysis Report
Willis Towers Watson Public Limited Company (WTW) : Free Stock Analysis Report
