Willis Group Holdings plc (WSH) reported fourth-quarter 2014 adjusted net income of 46 cents per share, surpassing the Zacks Consensus Estimate by a penny. The bottom line also improved 17.9% year over year on higher revenues.
The quarter benefitted from mid single-digit organic growth in commissions and fees and the impact of recent acquisitions. Costs savings from Operational Improvement Program also added to the upside.
Including a 6-cent cost related to Operational Improvement Program and a 2-cent gain from disposal, Willis Group delivered net income of 42 cents per share, up 13% year over year.
Operational Updates
Willis Group’s total revenue in the quarter was $958 million, up 4.2% year over year attributable to higher commissions and fees, and other income. The company witnessed modest growth in reinsurance. The top line comfortably outperformed the Zacks Consensus Estimate of $952 million.
Commissions and fees improved 3.1% on better performance in the International market.
Willis Group’s investment income of $4 million was flat year over year.
Total expenses at Willis Group increased 5.8% year over year to $819 million. Higher salaries and benefits, and restructuring costs resulted in the rise.
Driven by the revenue improvement, adjusted operating income of Willis Group increased 15.7% year over year to $155 million. Adjusted operating margin expanded 100 basis points (bps) to 16.2%.
Full-Year 2014 Review
Adjusted net income came in at $2.33 per share, down 4.9% year over year.
Net income of $2.00 per share was down 2% over 2013.
Revenues of $3.8 billion increased 4% over 2013.
Quarterly Segment Update
Global: Organic growth in commissions and fees declined 0.3% in the quarter.
Soft performances at Willis Insurance UK that were down low single digits offset the mid-single digit improvement in Willis Re, inducing the overall decline.
Operating margin was 11.7%, up 10 bps year over year.
North America: Commissions and fees declined 2.1% on an organic basis. The decline stemmed from non-recurrence of a $5 million revenue recognition in the quarter. Construction and Real Estate/Hospitality practices were both down mid single digits.
Operating margin was 19.3%, up 40 bps year over year.
International: Commissions and fees increased 15.9% on an organic basis. The improvement was led by a double-digit increase in Eastern Europe, with better performance in Russia. Latin America was up high single digits driven by strong results from Brazil, Venezuala and Argentina. Western Europe grew in double digits. Asia also grew in double digits with improvement across most countries.
Operating margin of 29.7% expanded 40 bps year over year.
Dividend and Share Repurchase Update
The board of directors of Willis Group approved a quarterly dividend increase of 3.3% to 31 cents per share ($1.24 per a share on an annualized rate). The dividend will be paid on Apr 15, 2015 to shareholders of record as of Mar 31.
Willis Group targets $175 million share repurchase for 2015.
Update on Operational Improvement Program
Willis Group realized cost savings of at least $9 million in the fourth quarter and $11 million in 2014.
Financial Position
Willis Group exited the quarter with cash and cash equivalents of $635 million, down 20% from the 2013-end level.
Total long-term debt declined 7.3% to $2.1 billion on Dec 31, 2014 from the 2013-end level.
Cash from operations was $477 million in 2014, down 15% year over year.
2015 Guidance
With mid-single digit organic revenue growth, Willis Group estimates EBITDA between $55 million and $65 million. The company also expects the combination of organic cost management actions and Operational Improvement Program to help it deliver at least 130 bps of positive spread between organic revenue growth and expense rise in 2015.
Zacks Rank
Willis Group presently carries a Zacks Rank #3 (Hold).
Performance of Other Insurance Brokers
The bottom line at Aon plc. (AON),Brown & Brown Inc. (BRO) and Arthur J Gallagher & Co. (AJG) outperformed their respective Zacks Consensus Estimate in the fourth quarter.
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