News Column

Marsh & McLennan Companies Reports First Quarter 2014 Results

May 2, 2014

Double-Digit Earnings Growth and Operating Margin Expansion Mark Excellent Start to Year

Both Operating Income and Adjusted Operating Income Increase 11%

GAAP EPS Grows From $.74 to $.80

Adjusted EPS Rises 11% to $.81

LONDON--(BUSINESS WIRE)--

Marsh & McLennan Companies, Inc. (NYSE:MMC), a global professional services firm offering clients advice and solutions in risk, strategy, and human capital, today reported financial results for the first quarter ended March 31, 2014.

President and CEO Dan Glaser said: "We produced double-digit earnings growth and meaningful margin expansion in the first quarter, with adjusted earnings per share rising 11% to $.81. This represents a strong start to 2014 and continues the excellent momentum we have achieved over the past several years. On a consolidated basis, underlying revenue growth was 4%, adjusted operating income rose 11%, and the adjusted margin increased 120 basis points to 20.9%, reflecting continued margin expansion in both the Risk and Insurance Services and Consulting segments."

Consolidated Results

Consolidated revenue in the first quarter of 2014 was $3.3 billion, an increase of 4% on both a reported and underlying basis, compared with the first quarter of 2013. Underlying revenue measures the change in revenue using consistent currency exchange rates, excluding the impact of certain items, such as acquisitions, dispositions, and transfers among businesses. Operating income rose 11% to $673 million, compared with $607 million in the prior year. Adjusted operating income, which excludes noteworthy items as presented in the attached supplemental schedules, also rose 11% to $682 million.

Net income attributable to the Company was $443 million, or $.80 per share, in the first quarter. This compares with $413 million, or $.74 per share, in the prior year. Earnings per share from continuing operations rose 11% to $.80, compared with $.72 last year. Adjusted earnings per share also increased 11% to $.81, compared with $.73 last year.

Risk and Insurance Services

Risk and Insurance Services revenue was $1.8 billion in the first quarter of 2014, an increase of 4%, or 3% on an underlying basis. Operating income rose 5% to $493 million, compared with $468 million in the prior year. Adjusted operating income increased 6% to $500 million.

Marsh's revenue in the first quarter of 2014 was $1.5 billion, an increase of 5%, or 4% on an underlying basis. International operations produced underlying revenue growth of 4%, reflecting growth of 11% in Latin America; 9% in Asia Pacific; and 2% in EMEA. In the US/Canada division, underlying revenue was up 2%. Guy Carpenter's revenue was $381 million, an increase of 2% from the prior year, or flat on an underlying basis.

Consulting

Consulting segment revenue was $1.4 billion in the first quarter, an increase of 5% from the first quarter of 2013 on both a reported and underlying basis. Operating income rose 20% to $225 million, compared with $187 million in the prior year, and adjusted operating income rose 19% to $225 million.

Mercer's revenue was $1.1 billion in the first quarter, an increase of 2%, or 3% on an underlying basis. Health, with revenue of $388 million, grew 2% on an underlying basis; Retirement, with revenue of $357 million, rose 4%; Investments, with revenue of $199 million, grew 8%; and Talent, with revenue of $117 million, declined 1%. Oliver Wyman Group’s revenue was $371 million in the first quarter, an increase of 16%, or 11% on an underlying basis.

Other Items

In the first quarter of 2014, the Company reported investment income of $13 million, compared with $21 million in the prior year period. At March 31, 2014, cash and cash equivalents was $1.4 billion; net debt, which is total debt less cash and cash equivalents, was $1.7 billion. The Company repurchased 2.05 million shares of its common stock for $100 million in the first quarter.

Conference Call

A conference call to discuss first quarter 2014 results will be held today at 8:30 a.m. Eastern time. To participate in the teleconference, please dial +1 877 852 6579. Callers from outside the United States should dial +1 719 325 4781. The access code for both numbers is 7318853. The live audio webcast may be accessed at www.mmc.com. A replay of the webcast will be available approximately two hours after the event.

About Marsh & McLennan Companies

MARSH & McLENNAN COMPANIES (NYSE: MMC) is a global professional services firm offering clients advice and solutions in the areas of risk, strategy, and human capital. Marsh is a global leader in insurance broking and risk management; Guy Carpenter is a global leader in providing risk and reinsurance intermediary services; Mercer is a global leader in talent, health, retirement, and investment consulting; and Oliver Wyman is a global leader in management consulting. With annual revenue exceeding $12 billion, Marsh & McLennan Companies' 55,000 colleagues worldwide provide analysis, advice, and transactional capabilities to clients in more than 130 countries. The Company prides itself on being a responsible corporate citizen and making a positive impact in the communities in which it operates. Visit www.mmc.com for more information.

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

This press release contains “forward-looking statements,” as defined in the Private Securities Litigation Reform Act of 1995. These statements, which express management's current views concerning future events or results, use words like “anticipate,” “assume,” “believe,” “continue,” “estimate,” “expect,” “future,” “intend,” “plan,” “project” and similar terms, and future or conditional tense verbs like “could,” “may,” “might,” “should,” “will” and “would.” For example, we may use forward-looking statements when addressing topics such as: the outcome of contingencies; the expected impact of acquisitions and dispositions; the impact of competition; pension obligations; the impact of foreign currency exchange rates; our effective tax rates; changes in our business strategies and methods of generating revenue; the development and performance of our services and products; changes in the composition or level of our revenues; our cost structure, dividend policy, cash flow and liquidity; future actions by regulators; and the impact of changes in accounting rules.

Forward-looking statements are subject to inherent risks and uncertainties. Factors that could cause actual results to differ materially from those expressed or implied in our forward-looking statements include, among other things:

  • our exposure to potential liabilities arising from errors and omissions claims against us;
  • the impact of competition, including with respect to our geographic reach, the sophistication and quality of our services, our pricing relative to competitors, our customers' option to self-insure or utilize internal resources instead of consultants, and our corporate tax rates relative to a number of our competitors;
  • the extent to which we retain existing clients and attract new business, and our ability to incentivize and retain key employees;
  • our ability to maintain adequate physical, technical and administrative safeguards to protect the security of confidential information or data, and the potential of a system or network disruption that results in regulatory penalties, remedial costs and/or the improper disclosure of confidential information or data;
  • our exposure to potential criminal sanctions or civil remedies if we fail to comply with foreign and U.S. laws and regulations that are applicable in the domestic and international jurisdictions in which we operate, including evolving sanctions against Russia and existing trade sanctions laws relating to countries such as Cuba, Iran, Sudan and Syria, anti-corruption laws such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010, local laws prohibiting corrupt payments to government officials, as well as import and export restrictions;
  • our ability to make acquisitions and dispositions and to integrate, and realize expected synergies, savings or benefits from, the businesses we acquire;
  • changes in the funded status of our global defined benefit pension plans and the impact of any increased pension funding resulting from those changes;
  • the impact on our net income caused by fluctuations in foreign currency exchange rates;
  • our ability to successfully recover should we experience a disaster or other business continuity problem, such as an earthquake, hurricane, flood, terrorist attack, pandemic, security breach, cyber attack, power loss, telecommunications failure or other natural or man-made disaster;
  • the impact of changes in interest rates and deterioration of counterparty credit quality on our results related to our cash balances and investment portfolios, including corporate and fiduciary funds;
  • the potential impact of rating agency actions on our cost of financing and ability to borrow, as well as on our operating costs and competitive position;
  • changes in applicable tax or accounting requirements; and
  • potential income statement effects from the application of FASB's ASC Topic No. 740 (“Income Taxes”) regarding accounting treatment of uncertain tax benefits and valuation allowances, including the effect of any subsequent adjustments to the estimates we use in applying this accounting standard.

    The factors identified above are not exhaustive. Marsh & McLennan Companies and its subsidiaries operate in a dynamic business environment in which new risks may emerge frequently. Accordingly, we caution readers not to place undue reliance on the above forward-looking statements, which speak only as of the dates on which they are made. The Company undertakes no obligation to update or revise any forward-looking statement to reflect events or circumstances arising after the date on which it is made. Further information concerning Marsh & McLennan Companies and its businesses, including information about factors that could materially affect our results of operations and financial condition, is contained in the Company's filings with the Securities and Exchange Commission, including the “Risk Factors” section of our most recently filed Annual Report on Form 10-K.

     

    Marsh & McLennan Companies, Inc.

    Consolidated Statements of Income

    (In millions, except per share figures)

    (Unaudited)

     
         

    Three Months Ended

    March 31,

    2014       2013  
    Revenue$3,264   $ 3,126  
    Expense:
    Compensation and Benefits 1,839 1,803
    Other Operating Expenses 752   716  
    Operating Expenses2,591   2,519  
    Operating Income673 607
    Interest Income5 4
    Interest Expense(42) (44 )
    Investment Income13   21  
    Income Before Income Taxes649 588
    Income Tax Expense192   176  
    Income from Continuing Operations457 412
    Discontinued Operations, Net of Tax(1) 12  
    Net Income Before Non-Controlling Interests456 424
    Less: Net Income Attributable to Non-Controlling Interests13   11  
    Net Income Attributable to the Company$443   $ 413  
    Basic Net Income Per Share
    - Continuing Operations$0.81   $ 0.73  
    - Net Income Attributable to the Company$0.81   $ 0.75  
    Diluted Net Income Per Share
    - Continuing Operations$0.80   $ 0.72  
    - Net Income Attributable to the Company$0.80   $ 0.74  
    Average Number of Shares Outstanding
    - Basic548   548  
    - Diluted556   557  
    Shares Outstanding at 3/31549   550  
     
     

    Marsh & McLennan Companies, Inc.

    Supplemental Information - Revenue Analysis

    Three Months Ended March 31, 2014

    (Millions) (Unaudited)

     
              Components of Revenue Change*
    Three Months Ended

    March 31,

    % Change

    GAAP

    Revenue

    Currency

    Impact

     

    Acquisitions/

    Dispositions

    Impact

     

    Underlying

    Revenue

    2014   2013
    Risk and Insurance Services
    Marsh $1,452 $ 1,388 5 % (1 )% 2 % 4 %
    Guy Carpenter381   375   2 % 2 %
    Subtotal 1,833 1,763 4 % (1 )% 2 % 3 %
    Fiduciary Interest Income 6   8  
    Total Risk and Insurance Services 1,839   1,771   4 % (1 )% 2 % 3 %
    Consulting
    Mercer 1,061 1,041 2 % (1 )% 3 %
    Oliver Wyman Group371   321   16 % 1 % 3 % 11 %
    Total Consulting1,432   1,362   5 % (1 )% 1 % 5 %
    Corporate / Eliminations(7) (7 )
    Total Revenue$3,264   $ 3,126   4 % (1 )% 2 % 4 %
     


    Revenue Details

    The following table provides more detailed revenue information for certain of the components presented above:

     
              Components of Revenue Change*
    Three Months Ended

    March 31,

    % Change

    GAAP

    Revenue

    Currency

    Impact

     

    Acquisitions/

    Dispositions

    Impact

     

    Underlying

    Revenue

    2014   2013
    Marsh:
    EMEA $617 $ 594 4 % 1 % 1 % 2 %
    Asia Pacific151 147 2 % (7 )% 9 %
    Latin America84   78   7 % (14 )% 10 % 11 %
    Total International852 819 4 % (2 )% 1 % 4 %
    U.S. / Canada600   569   6 % (1 )% 4 % 2 %
    Total Marsh $1,452   $ 1,388   5 % (1 )% 2 % 4 %
    Mercer:
    Health $388 $ 381 2 % 2 %
    Retirement 357 343 4 % 4 %
    Talent 117 123 (5 )% (2 )% (1 )% (1 )%
    Investments 199   194   2 % (6 )% 1 % 8 %
    Total Mercer $1,061   $ 1,041   2 % (1 )% 3 %
     
    Notes
    Underlying revenue measures the change in revenue using consistent currency exchange rates, excluding the impact of certain items that affect comparability such as: acquisitions, dispositions and transfers among businesses.
     
    * Components of revenue change may not add due to rounding.

    Marsh & McLennan Companies, Inc.

    Non-GAAP Measures

    Three Months Ended March 31

    (Millions) (Unaudited)

    The Company presents below certain additional financial measures that are "non-GAAP measures," within the meaning of Regulation G under the Securities Exchange Act of 1934. These measures are: adjusted operating income (loss); adjusted operating margin; and adjusted income, net of tax.

    The Company presents these non-GAAP measures to provide investors with additional information to analyze the Company's performance from period to period. Management also uses these measures to assess performance for incentive compensation purposes and to allocate resources in managing the Company's businesses. However, investors should not consider these non-GAAP measures in isolation from, or as a substitute for, the financial information that the Company reports in accordance with GAAP. The Company's non-GAAP measures reflect subjective determinations by management, and may differ from similarly titled non-GAAP measures presented by other companies.

    Adjusted Operating Income (Loss) and Adjusted Operating Margin

    Adjusted operating income (loss) is calculated by excluding the impact of certain noteworthy items from the Company's GAAP operating income or loss. The following tables identify these noteworthy items and reconcile adjusted operating income (loss) to GAAP operating income or loss, on a consolidated and segment basis, for the three months ended March 31, 2014 and 2013. The following tables also present adjusted operating margin, which is calculated by dividing adjusted operating income by consolidated or segment GAAP revenue.

               

    Risk &

    Insurance

    Services

    Consulting

    Corporate/

    Eliminations

    Total
    Three Months Ended March 31, 2014
    Operating income (loss)$493   $225   $(45)$673  
    Add (Deduct) impact of Noteworthy Items:
    Restructuring charges (a) 22
    Adjustments to acquisition related accounts (b) 7       7  
    Operating income adjustments7     2   9  
    Adjusted operating income (loss)$500   $225   $(43)$682  
    Operating margin26.8%15.8%N/A   20.6%
    Adjusted operating margin27.2%15.8%N/A   20.9%
     
    Three Months Ended March 31, 2013
    Operating income (loss) $ 468   $ 187   $ (48 ) $ 607  
    Add (Deduct) impact of Noteworthy Items:
    Restructuring charges (a) 2 2 3 7
    Adjustments to acquisition related accounts (b) 1       1  
    Operating income adjustments 3   2   3   8  
    Adjusted operating income (loss) $ 471   $ 189   $ (45 ) $ 615  
    Operating margin 26.4 % 13.7 % N/A   19.4 %
    Adjusted operating margin 26.6 % 13.9 % N/A   19.7 %
     
    (a) Primarily severance, future rent under non-cancellable leases, and integration costs related to recent acquisitions.
    (b) Primarily includes the change in fair value as measured each quarter of contingent consideration related to acquisitions.
     

    Marsh & McLennan Companies, Inc.

    Non-GAAP Measures

    Three Months Ended March 31

    (Millions) (Unaudited)

    Adjusted income, net of tax

    Adjusted income, net of tax is calculated as: the Company's GAAP income from continuing operations, adjusted to reflect the after-tax impact of the operating income adjustments set forth in the preceding table; divided by MMC's average number of shares outstanding-diluted for the period.

    Reconciliation of the Impact of Non-GAAP Measures on diluted earnings per share -

     
          Three Months Ended March 31, 2014   Three Months Ended March 31, 2013
    Amount  

    Diluted

    EPS

    Amount   Diluted EPS
    Income from continuing operations   $457   $ 412
    Less: Non-controlling interest, net of tax 13   11  
    Subtotal $444$0.80 $ 401 $ 0.72
    Add (deduct): operating income (loss) adjustments $9 $ 8
    Impact of income taxes (3) (3 )
    6   0.01 5   0.01
    Adjusted income, net of tax $450   $0.81   $ 406   $ 0.73
     
     

    Marsh & McLennan Companies, Inc.

    Supplemental Information

    (Millions) (Unaudited)

     
         

    Three Months Ended

    March 31,

    2014   2013
    Depreciation and amortization expense $75 $ 70
    Identified intangible amortization expense $22 $ 18
    Stock option expense $7 $ 7
    Capital expenditures $99 $ 88
     
     

    Marsh & McLennan Companies, Inc.

    Consolidated Balance Sheets

    (Millions) (Unaudited)

     
         

    March 31,

    2014

     

    December 31,

    2013

    ASSETS
     
    Current assets:
    Cash and cash equivalents $1,380 $ 2,303
    Net receivables 3,462 3,310
    Other current assets 721   687  
    Total current assets5,563 6,300
     
    Goodwill and intangible assets 7,799 7,365
    Fixed assets, net 825 828
    Pension related assets 889 979
    Deferred tax assets 564 626
    Other assets 937   882  
    TOTAL ASSETS$16,577   $ 16,980  
     
    LIABILITIES AND EQUITY
     
    Current liabilities:
    Short-term debt $432 $ 334
    Accounts payable and accrued liabilities 1,895 1,861
    Accrued compensation and employee benefits 701 1,466
    Accrued income taxes 176 148
    Dividends payable 139    
    Total current liabilities3,343 3,809
     
    Fiduciary liabilities 4,814 4,234
    Less - cash and investments held in a fiduciary capacity (4,814) (4,234 )
    Long-term debt 2,619 2,621
    Pension, post-retirement and post-employment benefits 1,135 1,150
    Liabilities for errors and omissions 354 373
    Other liabilities 1,083 1,052
     
    Total equity8,043   7,975  
    TOTAL LIABILITIES AND EQUITY$16,577   $ 16,980  
     


    Marsh & McLennan Companies, Inc.

    Media:

    Edward L. Dandridge, +1-212-345-9751

    ed.dandridge@mmc.com

    or

    Investors

    Keith Walsh, +1-212-345-0057

    keith.walsh@mmc.com




    Marsh & McLennan

    Source: Marsh & McLennan


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