Arthur J. Gallagher & Co. AJG reported fourth-quarter 2018 adjusted net earnings of 53 cents per share, which beat the Zacks Consensus Estimate by 3.9%. However, the bottom line plunged 35.4% on a year-over-year basis.
The company’s performance was driven by solid organic growth, sturdy performance across all segments and strong margin expansion.
Operational Update
Total revenues were $1.7 billion, up 3.6% year over year. This upside was driven by higher total revenues in Brokerage and Risk Management. Also, the top line surpassed the Zacks Consensus Estimate by 3%.
Organic commissions and fees earned increased 6.1% year over year to $1.1 billion in the quarter under review.
Arthur J. Gallagher’s total expense rose 8.3% year over year to $1.6 billion in the reported quarter. Expenses escalated primarily due to higher compensation costs, operating costs, reimbursements, interest expenses, cost of revenues from clean coal activities, interest plus higher depreciation as well as amortization expenses.
Adjusted earnings before interest, tax, depreciation and amortization and change in estimated acquisition earnout payables (EBITDAC) grew 15%. Margin expanded 45 basis points.
Arthur J. Gallagher & Co. Price, Consensus and EPS Surprise
Full Year Highlights
Operating earnings per share increased 15% from 2018 to $3.45.
Adjusted EBITDAC improved 12% while margin expanded 40 basis points.
Segment Results
Brokerage: Adjusted revenues of $912.2 million increased 5.6% year over year.
Adjusted operating expenses increased 15.7% to $174.7 million.
Adjusted EBITDAC climbed 16% to $225.6 million while margin expanded 46 bps.
Risk Management: Adjusted revenues were up 6.7% year over year to $199 million, mainly owing to higher fees.
Adjusted operating expenses decreased 3.7% to $41.4 million.
Adjusted EBITDAC increased 9% year over year to $34.9 million while margin expanded 17 bps.
Corporate: Adjusted loss of $104.6 million was wider than $89.4 million loss incurred in the year-ago quarter.
Financial Update
As of Dec 31, 2018, total assets were $16.3 billion, up 9.6% from 2017.
Cash and cash equivalents in 2018 declined 3% from 2017 level to $2.2 billion.
Shareholders’ equity increased 6.3% from the level as of Dec 31, 2017 to $4.6 billion as of Dec 31, 2018.
Dividend Update
The board of directors approved a 4.9% increase in its quarterly dividend to 43 cents.
Acquisition Update
In 2018, the company closed 48 acquisitions with estimated annualized revenues of about $340 million.
Zacks Rank
Currently, Arthur J. Gallagher carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Insurers
Of the insurance industry players that have reported fourth-quarter earnings so far, The Travelers Companies, Inc. TRV and RLI Corp. RLI beat the respective Zacks Consensus Estimate for earnings while The Progressive Corporation PGR missed the same.
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