Brown & Brown Inc. (BRO) reported operating EPS of 47 cents for the third-quarter 2014, matching the Zacks Consensus Estimate and up 20.5% from the same period last year on higher revenues.
Including adjustments for Wright Insurance Group, net income came in at 47 cents per share.
Behind the Headlines
Total revenue increased 17.3% to $421.3 million year over year, driven by rise in commissions and fees as well as investment income. However, the results missed the Zacks Consensus Estimate of $425 million. Organic growth was 2.9% in the reported quarter.
Organic growth in commissions and fees increased 17.4% year over year to $420.6 million, aided by Profit-Sharing Contingent Commissions of $15 million and Guaranteed Supplemental Commissions worth $2.6 million.
Among the four business divisions of the company, Wholesale Brokerage witnessed a high organic revenue growth rate of 7.7%. Meanwhile, Retail Divisions and Services recorded a 2.1% increase, while National Programs’ organic growth climbed 2.0%, all on a year-over-year basis.
Investment income for the reported quarter was $0.2 million versus $0.1 million in the year-ago quarter.
Total expense increased 16.9% year over year to $308.7 million. This resulted from a rise of 12.5%, 29.3% and 78% in employee compensation and benefits expense, operating expenses as well as interest expense, respectively.
Pretax income increased 18.2% year over year to $112.6 million due to rise in total revenue.
Net income before interest, income taxes, depreciation, amortization and the change in estimated acquisition earn-out payables EBITDAC-proforma margins increased year over year by 140 basis points (bps) to 35.1%.
Financial Update
Brown & Brown exited third-quarter 2014 with cash and investments of $657.9 million, improving 45.2% from 2013-end.
During the said quarter, Standard & Poor's and Moody's rated Brown & Brown’s newly issued 4.20% senior notes worth $500 million for a period of 10 years at an investment grade of BBB- and Baa3, respectively.
The company intends to use the proceeds from the notes to repay the remaining balance on the revolving loan facility of $475 million.
Long-term debt of the company was $1159.7 million at the quarter-end, up significantly from $380 million as of 2013-end level.
Share Repurchase Update
The company’s board of directors initiated another $50 million share repurchase program in the third quarter, which was part of the $200 million stock buyback plan approved in Jul 2014. This $50 million share repurchase program was completed in Oct 2014.
Dividend Update
Brown & Brown’s board of directors increased the quarterly cash dividend rate to 11 cents per share from the current rate of 10 cents, marking the twenty-first consecutive year of dividend increase. The first dividend payment with the new rate will be paid on Nov 12, 2014 to shareholders of record on Oct 31, 2014.
Zacks Rank
Brown & Brown presently carries a Zacks Rank #3 (Hold).
Performance of Other Stocks in Insurance Space
Platinum Underwriters Holdings Ltd. (PTP) posted third-quarter 2014 operating earnings of $1.03 per share, which missed the Zacks Consensus Estimate by 3.7%. Earnings also declined 23.7% year over year on lower premiums.
Progressive Corp.’s (PGR) operating earnings for the third quarter of 2014 came in at 46 cents per share, surpassing the Zacks Consensus Estimate by 3 cents. Earnings improved about 28% year over year.
RLI Corp. (RLI) reported third-quarter 2014 operating earnings 68 cents per share, surpassing the Zacks Consensus Estimate by 13.3%. However, operating earnings fell 2.9% from the year-ago quarter.
(We are reissuing this article to correct a mistake. The original article, issued earlier today, Oct. 21, 2014, should no longer be relied upon.)
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