Willis Towers (WTW) Q3 Earnings Surpass, Revenues Rise Y/Y
Willis Towers Watson Public Limited Company WTW delivered third-quarter 2023 adjusted earnings of $2.24 per share, which beat the Zacks Consensus Estimate by 8.2%. The bottom line increased 2% year over year.
WTW witnessed the solid performance of the Health, Wealth & Career and Risk & Broking segments and higher adjusted operating income, 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 $2.16 billion, up 11% year over year on a reported basis. Revenues increased 9% on an organic basis and a constant currency basis. The top line beat the Zacks Consensus Estimate by 4.2%.
The total costs of providing services increased 11.5% year over year to $2 billion due to higher salaries and benefits, restructuring costs, transaction and transformation costs as well as other operating expenses. Our estimate was $1.8 billion.
Adjusted operating income was $351 million, which increased 24% year over year. Margin contracted 170 basis points (bps) to 16.2%.
Adjusted EBITDA was $436 million, up 6.8% year over year. Adjusted EBITDA margin was 20.1%, down 80 bps.
Quarterly Segment Update
Health, Wealth & Career: Total revenues of $1.3 billion increased 10% year over year (8% increase on a constant currency and 9% on an organic basis). The Zacks Consensus Estimate and our estimate were both pegged at $1.2 billion.
Organic growth was led by Benefits Delivery & Outsourcing, driven by new clients and increased compliance and other project activity in Outsourcing and growth from higher volumes and placements of Life and Medicare Advantage in Individual Marketplace.
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 in Investments. Organic revenue growth in Health was driven by the continued expansion of the Global Benefits Management client portfolio, new local clients, expanding consulting work for existing clients and increased brokerage income.
Career had organic revenue growth from increased compensation survey sales, executive compensation and other reward-based advisory services, including pay transparency work and change communication services.
The operating margin was 23.8%, which expanded 350 bps from the prior-year quarter, primarily from Transformation savings and higher operating leverage, with revenues outpacing expense growth and some timing between quarters.
Risk & Broking: Total revenues of $855 million increased 12% year over year (10% increase in constant currency and on an organic basis) and beat the Zacks Consensus Estimate of $814 million. Our estimate was $808.3 million.
Corporate Risk & Broking generated solid organic revenue growth, driven by strong new business, improved client retention and rate increases. Insurance Consulting and Technology had organic revenue growth from software sales and increased project revenues.
The operating margin expanded 200 bps from the prior-year quarter to 15.7%, primarily due to Transformation savings, expense management and higher operating leverage, driven by strong organic revenue growth and investments in talent who are continuing to ramp up in revenue production.
Financial Update
As of Sep 30, 2023, cash and cash equivalents were $1.2 billion, down 1.2% from 2022 end.
Long-term debt increased 2.1% to $4.5 billion at quarter-end from 2022 end.
Shareholders’ equity decreased 6% from the level on Dec 31, 2022, to $9.4 billion as of Sep 30, 2023.
Cash flow from operations was $823 million in the first nine months of 2023, up 88.3% from the prior-year period.
Free cash flow for the first nine months of 2023 doubled year over year to $707 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.
Willis Towers expects to deliver approximately $160 million of incremental run-rate savings from the Transformation program in 2023.
WTW expects approximately $112 million in non-cash pension income for 2023.
Willis Towers anticipates approximately 12% free cash flow margin for 2023.
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 Insurers
Marsh & McLennan Companies, Inc. MMC reported third-quarter 2023 adjusted earnings per share of $1.57, which surpassed the Zacks Consensus Estimate by 13.8%. The bottom line climbed 33% year over year. Its consolidated revenues amounted to $5,382 million, which improved 13% year over year in the quarter under review. The figure grew 10% on an underlying basis. Also, the top line beat the consensus mark by 3.7%.
Total operating expenses increased 10.2% year over year to $4,386 million in the third quarter due to higher compensation and benefits and other operating expenses. The reported figure also came higher than our estimate of $4,282.7 million. Total expenses in the Risk and Insurance Services segment escalated 10.4% year over year, while the same in the Consulting segment witnessed an 11.3% year-over-year increase. Total adjusted operating income of $1,059 million advanced 24% year over year and beat our estimate of $992.3 million. The adjusted operating margin improved 170 bps year over year to 21.3% in the quarter under review.
Brown & Brown, Inc.’s BRO third-quarter 2023 adjusted earnings of 71 cents per share beat the Zacks Consensus Estimate by 16.4%. The bottom line increased 42% year over year. Total revenues of $1.06 billion beat the Zacks Consensus Estimate by 3.8%. The top line improved 15.1% year over year. The upside can be primarily attributed to commission and fees, which grew 13.4% year over year to $1.04 billion. Our estimate for commission and fees growth was 8.7%.
Organic revenues improved 9.6% to $1 billion in the quarter under review. Investment income increased year over year to $16.6 million from $1.2 million in the year-ago quarter. The Zacks Consensus Estimate for the metric was pegged at $7.2 million and our estimate was $2.4 million. Adjusted EBITDAC was $370.3 million, up 27% year over year. EBITDAC margin expanded 350 bps year over year to 34.7%. Our estimate for adjusted EBITDAC was $314.5 million.
The Travelers Companies, Inc. TRV reported its third-quarter 2023 core income of $1.95 per share, which missed the Zacks Consensus Estimate by 33.4%. The bottom line decreased 11.4% year over year. Travelers’ total revenues increased 14% from the year-ago quarter to $10.6 billion, primarily driven by higher premiums. The top-line figure beat the Zacks Consensus Estimate by 1.3%.
Net written premiums increased 14% year over year to a record $10.4 billion, driven by strong growth across all three segments. The figure was higher than our estimate of $9.4 billion. Net investment income increased 30% year over year to $769 million, primarily due to strong fixed-income returns. The figure was higher than our estimate of $655 million. The Zacks Consensus Estimate was pegged at $724 million. Catastrophe losses totaled $850 million, wider than $512 million pre-tax in the prior-year quarter. TRV witnessed an underwriting gain of $868 million, up 43% year over year. The combined ratio deteriorated 280 bps year over year to 101.
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