MMC Marsh and McLennan Companies Inc

Marsh & McLennan Cos. Inc. (MMC) reported its fourth-quarter 2012 operating earnings of 52 cents per share, in line with the Zacks Consensus Estimate. However, the results were modestly higher than the year-ago quarter’s earnings of 46 cents per share.

Operating net income, which excludes one-time items in both the periods, increased 12.5% year over year to $287 million. On a reported basis, Marsh & McLennan recorded net income of $260 million or 47 cents per share in the reported quarter, up from $239 million or 44 cents per share in the prior-year quarter.

Marsh & McLennan posted improved results on account of modest underlying revenue growth and new business development across its businesses, which also drove the operating margin. The lower-than-expected operating and tax expense growth also supported the bottom line.

Consolidated revenues were $3.0 billion, climbing 3.2% year over year and 3% on an underlying basis. However, it fell short of the Zacks Consensus Estimate of $3.02 billion.

Further, total operating expenses grew 3.1% year over year to $2.6 billion as compensation and benefits rose 2.0% to $1.8 billion, while other expenses climbed 5.9% to $794 million. Additionally, tax expenses escalated to $105 million against $100 million in the year-ago quarter. Nevertheless, adjusted operating margin improved to 15.0% from 14.1% in the year-ago period.

Segment Results

Revenues for the Risk and Insurance Services segment were $1.6 billion, up 3% on a year-over-year basis. Moreover, adjusted operating income was up 8% year over year reaching $312 million, reflecting improved performance at Marsh and Guy Carpenter.

Marsh's revenues came in at $1.4 billion, up 4% year over year and 3% on an underlying basis, driven by strong new businesses and growth across geography in the quarter. Underlying revenue grew in international operations reflecting 13% growth in Latin America and 3% in both EMEA and Asia Pacific. Meanwhile, underlying revenue was flat in the U.S.-Canada region.

Guy Carpenter's revenues during the reported quarter were $198 million, up 3% on both year-over-year and underlying basis.

The Consulting segment's revenues moved up 3% on both year-over-year and underlying basis to $1.4 billion. Additionally, adjusted operating income grew 8% year over year to $179 million.

Mercer's revenues stood at $1.0 billion, up 7% year over year and 6% on an underlying basis. Mercer's retirement operations generated revenues of $269 million, up 3% on a year-over-year basis.Additionally, Health & Benefits’ revenue grew 9% to $247 million, whereas revenues from Talent, Rewards & Communications were flat year over year at $168 million, and that of Outsourcing increased 8% to $187 million. Revenue from Investments increased 10% to $133 million, on underlying basis.

However, Oliver Wyman’s revenues dipped 3% on an underlying basis to $378 million in the reported quarter.

Full-Year 2012 Highlights

For full-year 2012, Marsh & McLennan’s operating earnings per share stood at $2.15, a penny lower than the Zacks Consensus Estimate. However, earnings were noticeably higher than $1.77 a share recorded in 2011.

Operating net income escalated 22.1% year over year to $1.19 billion. On a reported basis, net income grew to $1.18 billion or $2.13 per share in 2012, up from $954 million or $1.73 per share in 2011.

Consolidated revenues were $11.92 billion, climbed 3.5% year over year and 4% on an underlying basis. However, it slightly lagged the Zacks Consensus Estimate of $11.94 billion. Total operating expenses inched up 2.1% year over year to $10.1 billion, while adjusted operating margin improved to 15.6% in 2012 from 14.4% in 2011.

Financial Update

During the reported quarter, Marsh & McLennan’s total investment loss, including mark-to-market gains in private equity investments, grew to $4 million against a loss of $4 million in the year-ago quarter. Meanwhile, capital expenditure escalated 14.3% year over year to $320 million in 2012, although it dipped 5.3% to $71 million during the reported quarter.

Marsh & McLennan exited 2012 with cash and cash equivalents of more than $2.3 billion, down from $2.1 billion in 2011. Long-term debt marginally declined to $2.66 billion from $2.67 billion at the end of 2011.

As of December 31, 2012, Marsh & McLennan’s total assets appreciated to $16.31 billion, while total shareholders’ equity increased to $6.61 billion from 2011-end.

Additionally, the company bought back 1.4 million shares for $50 million during the reported quarter, while $323 million worth of stock remains available for repurchases under the current authorization.

Dividend Update

On January 16, 2013, the board of Marsh & McLennan announced a quarterly common stock dividend of 23 cents a share, which is payable on February 15, 2013 to the shareholders of record as on January 28, 2013.

On November 15, 2012, Marsh & McLennan paid a quarterly common stock dividend of 23 cents a share to the shareholders of record as on October 11, 2012.

Others

Marsh & McLennan carries a Zacks Rank #3 (Hold). Other strong performers in the insurance sector include White Mountains Insurance Group (WTM), First American Financial Corp. (FAF) and RLI Corp. (RLI), all of which carry a Zacks Rank #1 (Strong Buy).

 
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