Marsh & McLennan Companies Reports First Quarter 2013 Results

Marsh & McLennan Companies Reports First Quarter 2013 Results

Operating Income Increases 15%
Adjusted Operating Income Grows 16%
GAAP EPS Rises 17% to $.74
Adjusted EPS Increases 16% to $.73


NEW YORK--(BUSINESS WIRE)-- Marsh & McLennan Companies, Inc. (NYS: MMC) , a global professional services firm offering advice and solutions in risk, strategy, and human capital, today reported financial results for the first quarter ended March 31, 2013.

Dan Glaser, President and CEO, said: "Our quarterly results represent an excellent start to the year, continuing the strong earnings momentum the Company has achieved over the past several years. Marsh delivered underlying revenue growth across all major geographies, led by strong performance in the International division as well as sequential improvement in the U.S./Canada division. Guy Carpenter's underlying revenue growth in the quarter was driven by strong growth in its International and Global Specialty operations. The Consulting segment produced significant growth in profitability and margin expansion, led by Mercer.

"Marsh & McLennan's adjusted operating income grew 16% in the first quarter, reflecting mid-teens growth and exceptional margin expansion in both the Risk & Insurance Services and Consulting segments," concluded Mr. Glaser.

Consolidated Results

Consolidated revenue in the first quarter of 2013 was $3.1 billion, an increase of 2% on both a reported and underlying basis compared with the first quarter of 2012. Underlying revenue measures the change in revenue using consistent currency exchange rates, excluding the impact of certain items, such as acquisitions, dispositions, and transfers among businesses. Operating income rose 15% to $607 million, compared with $527 million in the prior year period. Adjusted operating income, which excludes noteworthy items as presented in the attached supplemental schedules, rose 16% in the first quarter to $615 million.

Net income attributable to the Company was $413 million, or $.74 per share in the first quarter. This compares with $347 million, or $.63 per share, in the prior year. Adjusted earnings per share grew to $.73, an increase of 16% from $.63 last year.

Risk and Insurance Services

Risk and Insurance Services revenue increased 5% to $1.8 billion in the first quarter of 2013. Operating income increased 13% to $468 million, compared with $412 million in the prior year. Adjusted operating income in the quarter increased 14% to $471 million.

Marsh's revenue in the first quarter of 2013 was $1.4 billion, an increase of 5%, or 4% on an underlying basis. International operations had underlying revenue growth of 5%, reflecting growth of 13% in Latin America; 6% in Asia Pacific; and 3% in EMEA. In the U.S./Canada division, underlying revenue grew 2%. Guy Carpenter's first quarter revenue was $375 million, an increase of 5% from the prior year, or 4% on an underlying basis.

Consulting

Consulting segment revenue was $1.4 billion in the first quarter, a decrease of 1% from the first quarter of 2012, or flat on an underlying basis. Operating income was $187 million, compared with $164 million in the prior year, and adjusted operating income was $189 million, an increase of 15%.

Mercer's revenue was $1 billion in the first quarter of 2013, an increase of 3% on both a reported and underlying basis. Health, with revenue of $381 million, grew 6% on an underlying basis; Retirement, with revenue of $343 million, declined 1%; Talent, with revenue of $123 million, declined 4%; and Investments, with revenue of $194 million, rose 9%. Oliver Wyman's revenue was $321 million in the first quarter of 2013, a decrease of 9% on an underlying basis.

Other Items

In the first quarter of 2013, the Company had investment income of $21 million related to the winding up of Trident II, a private equity fund investment which we initiated in 1999. This compared with $20 million in the prior year. At March 31, 2013, cash and cash equivalents was $1.3 billion. Net debt, which is total debt less cash and cash equivalents, was $1.5 billion at the end of the first quarter. In the first quarter of 2013, the Company repurchased 2.7 million shares of its common stock for $100 million.

As previously indicated, beginning in the first quarter of this year, Mercer has reoriented its operations around four core lines of business: Health, Retirement, Talent, and Investments. Also in the first quarter, a substantial portion of Marsh's U.S. Consumer operations was transferred to Mercer. This business represented revenue of $231 million for the full year 2012. Quarterly financial information that reflects these reclassifications for the past three years is provided in the attached supplemental schedules.

Conference Call

A conference call to discuss first quarter 2013 results will be held today at 8:30 a.m. Eastern time. To participate in the teleconference, please dial +1 888 505 4378. Callers from outside the United States should dial +1 719 785 9446. The access code for both numbers is 8686796. The live audio webcast may be accessed at www.mmc.com. A replay of the webcast will be available approximately two hours after the event.

About Marsh & McLennan Companies

MARSH & McLENNAN COMPANIES (NYS: MMC) is a global professional services firm offering clients advice and solutions in the areas of risk, strategy, and human capital. Marsh is a global leader in insurance broking and risk management; Guy Carpenter is a global leader in providing risk and reinsurance intermediary services; Mercer is a global leader in talent, health, retirement, and investment consulting; and Oliver Wyman is a global leader in management consulting. Marsh & McLennan Companies' approximately 54,000 colleagues worldwide provide analysis, advice, and transactional capabilities to clients in more than 100 countries. The Company prides itself on being a responsible corporate citizen and making a positive impact in the communities in which it operates. Visit www.mmc.com for more information.

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

This press release contains "forward-looking statements," as defined in the Private Securities Litigation Reform Act of 1995. These statements, which express management's current views concerning future events or results, use words like "anticipate," "assume," "believe," "continue," "estimate," "expect," "future," "intend," "plan," "project" and similar terms, and future or conditional tense verbs like "could," "may," "might," "should," "will" and "would." For example, we may use forward-looking statements when addressing topics such as: the outcome of contingencies; the expected impact of acquisitions and dispositions; pension obligations; market and industry conditions; the impact of foreign currency exchange rates; our effective tax rates; the impact of competition; changes in our business strategies and methods of generating revenue; the development and performance of our services and products; changes in the composition or level of our revenues; our cost structure, dividend policy, cash flow and liquidity; future actions by regulators; and the impact of changes in accounting rules.

Forward-looking statements are subject to inherent risks and uncertainties. Factors that could cause actual results to differ materially from those expressed or implied in our forward-looking statements include, among other things:

  • our exposure to potential liabilities arising from errors and omissions claims against us, particularly in our Marsh and Mercer businesses;
  • our ability to make strategic acquisitions and dispositions and to integrate, and realize expected synergies, savings or strategic benefits from the businesses we acquire;
  • the impact of any regional, national or global political, economic, regulatory or market conditions on our results of operations and financial condition;
  • changes in the funded status of our global defined benefit pension plans and the impact of any increased pension funding resulting from those changes;
  • the impact of competition, including with respect to our geographic reach, the sophistication and quality of our services, our pricing relative to competitors, our customers' option to self-insure or utilize internal resources instead of consultants, and our corporate tax rates relative to a number of our competitors;
  • the extent to which we retain existing clients and attract new business, and our ability to incentivize and retain key employees;
  • our exposure to potential criminal sanctions or civil remedies if we fail to comply with foreign and U.S. laws and regulations that are applicable to our international operations, including trade sanctions laws such as the Iran Threat Reduction and Syria Human Rights Act of 2012, anti-corruption laws such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010, local laws prohibiting corrupt payments to government officials, as well as import and export restrictions;
  • our ability to maintain adequate physical, technical and administrative safeguards to protect the security of data;
  • the impact of changes in interest rates and deterioration of counterparty credit quality on our results related to our cash balances and investment portfolios, including corporate and fiduciary funds;
  • the impact on our net income or cash flows and our effective tax rate in a particular period caused by settled tax audits and expired statutes of limitation;
  • the impact on our net income caused by fluctuations in foreign currency exchange rates;
  • the potential impact of rating agency actions on our cost of financing and ability to borrow, as well as on our operating costs and competitive position;
  • our ability to successfully recover should we experience a disaster or other business continuity problem;
  • changes in applicable tax or accounting requirements; and
  • potential income statement effects from the application of FASB's ASC Topic No. 740 ("Income Taxes") regarding accounting treatment of uncertain tax benefits and valuation allowances, including the effect of any subsequent adjustments to the estimates we use in applying this accounting standard.

The factors identified above are not exhaustive. Marsh & McLennan Companies and its subsidiaries operate in a dynamic business environment in which new risks may emerge frequently. Accordingly, we caution readers not to place undue reliance on the above forward-looking statements, which speak only as of the dates on which they are made. The Company undertakes no obligation to update or revise any forward-looking statement to reflect events or circumstances arising after the date on which it is made. Further information concerning the Company and its businesses, including information about factors that could materially affect our results of operations and financial condition, is contained in the Company's filings with the Securities and Exchange Commission, including the "Risk Factors" section of our most recently filed Annual Report on Form 10-K.

     

Marsh & McLennan Companies, Inc.
Consolidated Statements of Income
(In millions, except per share figures)
(Unaudited)

 

Three Months Ended
March 31,

2013   2012
Revenue $   3,126   $   3,051  
Expense:
Compensation and Benefits 1,803 1,796
Other Operating Expenses 716   728  
Operating Expenses 2,519   2,524  
Operating Income 607 527
Interest Income 4 6
Interest Expense (44 ) (46 )
Investment Income 21   20  
Income Before Income Taxes 588 507
Income Tax Expense 176   153  
Income from Continuing Operations 412 354
Discontinued Operations, Net of Tax 12    
Net Income Before Non-Controlling Interests $   424 $   354
Less: Net Income Attributable to Non-Controlling Interests 11   7  
Net Income Attributable to the Company $   413   $   347  
Basic Net Income Per Share
- Continuing Operations $   0.73   $   0.64  
- Net Income Attributable to the Company $   0.75   $   0.64  
Diluted Net Income Per Share
- Continuing Operations $   0.72   $   0.63  
- Net Income Attributable to the Company $   0.74   $   0.63  
Average Number of Shares Outstanding
- Basic 548   542  
- Diluted 557   551  
Shares Outstanding at 3/31 550   546  
 
           

Marsh & McLennan Companies, Inc.
Supplemental Information - Revenue Analysis
Three Months Ended
(Millions) (Unaudited)

 
Components of Revenue Change*  

Three Months Ended
March 31,

% Change
GAAP
Revenue

Currency
Impact

 

Acquisitions/
Dispositions
Impact

 

Underlying
Revenue

2013   2012
Risk and Insurance Services
Marsh $   1,388 $   1,321 5 % 2 % 4 %
Guy Carpenter 375   357   5 % 1 % 4 %
Subtotal 1,763 1,678 5 % 2 % 4 %
Fiduciary Interest Income 8   11  
Total Risk and Insurance Services 1,771   1,689   5 % 2 % 3 %
Consulting
Mercer 1,041 1,015 3 % 3 %
Oliver Wyman Group 321   356   (10 )% (2 )% (9 )%
Total Consulting 1,362   1,371   (1 )%
Corporate / Eliminations (7 ) (9 )
Total Revenue $   3,126   $   3,051   2 % 1 % 2 %
 

Revenue Details

The following table provides more detailed revenue information for certain of the components presented above:

           
Components of Revenue Change*  

Three Months Ended
March 31,

% Change
GAAP
Revenue

Currency
Impact

 

Acquisitions/
Dispositions
Impact

 

Underlying
Revenue

2013   2012
Marsh:
EMEA $   594 $   577 3 % 1 % (1 )% 3 %
Asia Pacific 147 142 4 % (2 )% 6 %
Latin America 78   74   5 % (8 )% 13 %

Total International                             

819 793 3 % (1 )% 5 %
U.S. / Canada 569   528   8 % 6 % 2 %
Total Marsh $   1,388   $   1,321   5 % 2 % 4 %
 
Mercer:
Health $ 381 $ 351 9 % 2 % 6 %
Retirement 343 360 (5 )% (3 )% (1 )%
Talent 123 125 (1 )% (1 )% 4 % (4 )%
Investments 194   179  

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