Brown & Brown Inc. (BRO) reported second quarter 2013 earnings of 36 cents per share, surpassing the Zacks Consensus Estimate of 35 cents per share by 2.9%. Results also exceeded the year-ago earnings of 29 cents by 24.1%.
Quarterly Operational Update
Total revenues were $325.8 million, up 12% year over year. The improvement came on the back of higher commissions and fees (up 11.8% year over year), investment income (up 27.8% year over year) and other income (up 78.3% year over year). Results also exceeded the Zacks Consensus Estimate of $320 million.
Total expenses of the company in the second quarter of 2013 were $239.6 million, up 9% year over year due to increase in employee compensation and benefits, other operating expenses and change in estimated acquisition earn-out payables. This was partially offset by a decline in non-cash stock-based compensation expense and interest expense.
Total core commissions and fees during the quarter increased 10.4% year over year to $314.6 million.
Quarterly Segment Update
Retail: Core Commissions and Fees during the second quarter of 2013 increased 6.7% year over year to $168.6 million.
National Programs: Core Commissions and Fees increased 18.3% year over year to $62.9 million.
Wholesale Brokerage: Core Commissions and fees during the second quarter of 2013 increased 14.2% year over year to $52.9 million.
Services: Core Commissions and Fees during the second quarter of 2013 increased 10% year over year to $30.3 million.
Dividend Update
In Apr 2013, the board declared a quarterly cash dividend of 9 cents per share. This represented a 5.9% year over year increase. The dividend yield of the company currently is 1.07%, better than 1.04% of Aon Plc (AON).
Financial Position
As of Jun 30, 2013, cash and cash equivalents of the company was $596.1 million, up 55.1% from 2012 year end level.
Total assets of Brown & Brown at Jun 30, 2013 were $3.3 billion, up 6.3% from year end 2012.
Long term debt during the second quarter of 2013 stood at $450 million, flat with that of year end 2012. Debt-to-capital ratio of Brown & Brown improved 80 basis points from 19.9% at year end 2012 to 19.1% at the end of second quarter 2013.
Our Take
Brown & Brown has successfully maintained the trend of delivering positive earnings surprise. The company has delivered positive earnings surprise in both the quarters of 2013. The growth in revenues during the quarter surpassed the growth in expenses making way for margin expansion.
Brown & Brown has been undertaking acquisitions to fortify its operations and expand its global footprint. This month it culminated the acquisition of Beecher Carlson Holdings Inc. (“Beecher Carlson”) from Austin Ventures, FSPM and a group of individual employee and non-employee equity holders. The deal was announced in May 2013 and was pending regulatory approval. In Jun 2013, one of its subsidiaries, Brown & Brown of New York Inc. again acquired some assets of The Rollins Agency Inc. in order to strengthen its New York operations.
All these efforts are expected to strengthen Brown & Brown’s position going forward.
Zacks Rank
Brown & Brown currently carries a Zacks Rank #2 (Buy). Among other reinsurance providers, Validus Holdings Limited (VR) and Endurance Specialty Holdings Ltd. (ENH) share the same Zacks Rank.
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