Arthur J Gallagher & Co. (AJG) reported second-quarter 2014 operating net earnings of 70 cents per share, which missed the Zacks Consensus Estimate by a couple of cents and declined 4.1% year over year. Higher expenses affected the results.
Behind the Headlines
Total revenue of Arthur J Gallagher & Co. amounted $1.2 billion, surpassing the Zacks Consensus Estimate by 22.3% and improving 51.3% year over year. Top-line growth was driven by solid performance in both the segments of Arthur J Gallagher.
Total commissions and fees earned increased 28% year over year to $856.9 million in the reported quarter.
Revenues from clean coal activities of Arthur J Gallagher & Co. increased more than three times in the reported quarter to $262.8 million from $72.2 million in the year-ago quarter.
Arthur J Gallagher & Co.’s total expense rose 57.2% year over year to $1.1 billion in the quarter. The higher expenses was mainly owing to increase in compensation cost and operating expenses, along with a significantly higher cost of revenues from clean coal activities.
Earnings before interest, tax, depreciation, amortization and change in estimated acquisition earnout payables (EBITDAC) in the quarter improved 38% while EBITDAC margin expanded 194 basis points.
Arthur J Gallagher & Co. closed 17 acquisitions with annual revenue of $497.1 million, comparing favorably with 5 acquisitions with annual revenue of $35.9 million in the year-ago quarter.
Segment Results
Brokerage Segment: Total revenue of $742 million increased 34% year over year, driven by a 3.1% improvement in organic commissions and fees in the reported quarter.
Total expense rose 38.3% year over year due to increase in compensation, operating and amortization expense.
Total commissions and fees earned increased 3.1% year over year to $535.3 million in the quarter.
Adjusted EBITDAC improved 42.9% year over year to $213.3 million.
Risk Management Segment: Total revenue amounted to $168.1 million, increasing 9% year over year. Organic fees rose 7.6% from the year-ago quarter.
Total expense in the reported quarter increased 8.5% year over year due to higher compensation and operating expense.
Adjusted EBITDAC increased 8.5% year over year to $28.0 million.
Corporate Segment: Total revenue of $268.6 million increased more than three times from the year-earlier quarter.
Expenses more than doubled to $318.6 million in the quarter.
Financial Update
Total assets of Arthur J Gallagher & Co. at the end of second-quarter 2014 were $10 billion, increasing 46% from $6.86 billion as of the 2013-end.
Cash and cash equivalents improved to $973.5 million at the reported quarter-end from $298.1 million at the end of 2013.
Arthur J Gallagher & Co. Gallagher had $2,225.0 million of borrowings from private placements as of Jun 30, 2014, out of which $100.0 million is due in August 2014. It also had $153.0 million of short-term borrowings under credit facility at the end of the reported quarter.
On Jun 24, 2014, Arthur J Gallagher & Co. entered into a note purchase agreement for $700 million of senior unsecured notes. On June 16, 2014 the insurance broker entered into a revolving loan facility providing funding for the three acquired Australian and New Zealand premium finance subsidiaries. It comprises four tranches of approximately $210.0 million, of which $139.0 million was outstanding at June 30, 2014.
Zacks Rank
Arthur J Gallagher & Co currents has a Zacks Rank #3 (Hold).
Performance of other Insurance Brokers
Validus Holdings, Ltd. (VR) reported second-quarter 2014 net operating income of $1.39 per share, which missed the Zacks Consensus Estimate by 4.1% but improved 35% year over year.
Brown & Brown Inc. (BRO) posted an operating net income of 38 cents per share for second-quarter 2014, falling short of the Zacks Consensus Estimate by 7.3%. However, the figure marked a year-over-year increase of 8.6% based on higher revenues.
Aon plc’s (AON) second-quarter 2014 operating earnings of $1.25 per share exceeded the Zacks Consensus Estimate of $1.20 and rose 13% year over year.
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