Marsh & McLennan Companies Reports Third Quarter 2012 Results

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Marsh & McLennan Companies Reports Third Quarter 2012 Results

Revenue and Profitability Growth Continues Across All Operating Companies

Third Quarter GAAP EPS Increases to $.44


Double-Digit Growth in Adjusted Operating Income to $358 million

Double-Digit Increase in Adjusted EPS to $.39

NEW YORK--(BUSINESS WIRE)-- Marsh & McLennan Companies, Inc. (NYS: MMC) , a global professional services firm providing advice and solutions in risk, strategy and human capital, today reported financial results for the third quarter ended September 30, 2012.

Brian Duperreault, President and CEO, said: "Our Company delivered another strong quarter. Each of our operating companies continued to generate growth in underlying revenue, which, combined with ongoing expense discipline, produced across-the-board improvement in operating margins and profitability.

"Marsh's underlying revenue grew across all geographies, reflecting solid client revenue retention rates and continued new business development. Guy Carpenter's trend of underlying revenue growth continued. In Consulting, both Mercer and Oliver Wyman contributed to the segment's growth in revenue and profitability.

"For the nine months, we produced double-digit growth in operating income, substantial margin improvement, and excellent growth in earnings per share," concluded Mr. Duperreault.

Consolidated Results

Consolidated revenue in the third quarter of 2012 was $2.8 billion, an increase of 1%, or 3% on an underlying basis from the third quarter of 2011. Underlying revenue measures the change in revenue using consistent currency exchange rates, excluding the impact of items such as acquisitions, dispositions and transfers among businesses. Operating income rose 22% to $378 million. Adjusted operating income, which excludes noteworthy items as presented in the attached supplemental schedules, rose 12% to $358 million in the third quarter.

Income from continuing operations in the third quarter of 2012 was $246 million, or $.43 per share, compared with $133 million, or $.23 per share, in the third quarter of 2011. The prior period includes $72 million of expense, or approximately $.09 per share, related to the early extinguishment of debt. Adjusted earnings per share in the current quarter was $.39, compared with $.24 in the third quarter of 2011. Without the impact of the early extinguishment of debt last year, adjusted earnings per share increased 18%. Net income was $241 million, compared with $130 million in the third quarter of 2011.

For the nine months ended September 30, 2012, income from continuing operations was $939 million, or $1.66 per share, compared with $738 million, or $1.30 per share, in 2011. Adjusted earnings per share for the nine months was $1.63, compared with $1.30 last year. Excluding expense related to the early extinguishment of debt, adjusted earnings per share increased 17%.

Risk and Insurance Services

Risk and Insurance Services segment revenue in the third quarter of 2012 was $1.5 billion, an increase of 2%, or 4% on an underlying basis. Operating income increased 26% to $234 million, compared with $186 million in last year's third quarter. Adjusted operating income in the third quarter increased 13% to $213 million from $189 million. For the nine months of 2012, segment revenue was $5 billion, an increase of 5% from the prior year period, and 6% on an underlying basis. Operating income increased 14% to $1.1 billion, compared with $925 million in 2011. Adjusted operating income rose 13% to $1 billion, compared with $918 million last year.

Marsh's revenue in the third quarter of 2012 was $1.3 billion, a 4% increase on an underlying basis. International operations reported underlying revenue growth of 6% in the third quarter, reflecting growth of 7% in Asia Pacific, and 5% in both EMEA and Latin America. In the United States/Canada division, underlying revenue grew 3%. Guy Carpenter's third quarter revenue was $249 million, an increase of 1% on an underlying basis, reflecting a moderating pricing environment and increased risk retention by clients.

Consulting

Consulting segment revenue in the third quarter of 2012 was $1.3 billion, an increase of 1%, or 3% on an underlying basis. Operating income increased 20% to $193 million, compared with $161 million in the prior year period. Adjusted operating income rose 15% to $192 million, compared with $168 million. For the nine months of 2012, segment revenue increased 2% to $4 billion, or 4% on an underlying basis. Operating income increased 19% to $524 million, compared with $441 million in 2011. Adjusted operating income rose 17% to $528 million, compared with $453 million last year.

Mercer's revenue in the third quarter of 2012 was $995 million, an increase of 3% on an underlying basis. Investments, with revenue of $129 million, had underlying revenue growth of 10%; Health & Benefits, with revenue of $256 million, rose 7%; Outsourcing, with revenue of $179 million, increased 2%; Talent, Rewards & Communications, with revenue of $179 million, was up 1%; and Retirement, with revenue of $252 million, was unchanged from the third quarter of 2011. Oliver Wyman's revenue of $351 million in the third quarter of 2012 increased 3% on an underlying basis.

Other Items

The Company had an investment loss of $4 million in the third quarter. At the end of the third quarter of 2012, cash and cash equivalents exceeded $2 billion. In the period, the Company repurchased 2.3 million shares of its common stock for $80 million. The Company has $373 million remaining under the share repurchase program authorized by the Board of Directors.

On Oct. 12, 2012, Standard & Poor's Ratings Services raised its counterparty credit rating on the Company to 'BBB' from 'BBB-', citing material improvement in the Company's business and financial profiles in recent years. At the same time, S&P raised the Company's short-term rating by one notch to 'A-2'.

Conference Call

A conference call to discuss third quarter 2012 results will be held today at 8:30 a.m. Eastern Time. To participate in the teleconference, please dial +1 888 296 4215. Callers from outside the United States should dial +1 719 325 2197. The access code for both numbers is 2270546. 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 (NYS: MMC) is a global team of professional services companies 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 human resource consulting and related services; and Oliver Wyman is a global leader in management consulting. Marsh & McLennan Companies' over 53,000 colleagues worldwide provide analysis, advice and transactional capabilities to clients in more than 100 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.

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; pension obligations; market and industry conditions; the impact of foreign currency exchange rates; our effective tax rates; the impact of competition; 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, particularly in our Marsh and Mercer businesses in the U.S. and the U.K.;
  • our ability to make strategic acquisitions and dispositions and to integrate, and realize expected synergies, savings or strategic 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 of any regional, national or global political, economic, regulatory or market conditions on our results of operations and financial condition, including the European debt crisis and market perceptions concerning the stability of the Euro;
  • 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 impact on our net income caused by fluctuations in foreign currency exchange rates;
  • the impact on our net income or cash flows and our effective tax rate in a particular period caused by settled tax audits and expired statutes of limitation;
  • the extent to which we retain existing clients and attract new business, and our ability to incentivize and retain key employees;
  • 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 to our international operations, including trade sanctions laws such as the Iran Threat Reduction and Syria Human Rights Act of 2012, anti-corruption laws such as the U.S. Foreign Corrupt Practices Act and the UK Bribery Act 2010, local laws prohibiting corrupt payments to government officials, as well as import and export restrictions;
  • 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 our competitors;
  • 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;
  • our ability to successfully recover should we experience a disaster or other business continuity problem;
  • our ability to maintain adequate physical, technical and administrative safeguards to protect the security of our data;
  • 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
September 30,
    Nine Months Ended
September 30,
2012    2011 2012   2011
Revenue$2,845 $2,806 $8,922 $8,618 
Expense:
Compensation and Benefits1,7601,7535,3325,202
Other Operating Expenses707 743 2,167 2,169 
Operating Expenses2,467 2,496 7,499 7,371 
Operating Income3783101,4231,247
Interest Income691821
Interest Expense(44)(49)(135)(149)
Cost of Early Extinguishment of Debt(72)(72)
Investment (Loss) Income(4) 20 13 
Income Before Income Taxes3361981,3261,060
Income Tax Expense90 65 387 322 
Income from Continuing Operations246133939738
Discontinued Operations, Net of Tax1 2 (1)17 
Net Income Before Non-Controlling Interests$247$135$938$755
Less: Net Income Attributable to Non-Controlling Interest6 5 21 18 
Net Income Attributable to the Company$241 $130 $917 $737 
Basic Net Income Per Share
- Continuing Operations$0.44 $0.24 $1.68 $1.32 
- Net Income Attributable to the Company$0.44 $0.24 $1.68 $1.35 
Diluted Net Income Per Share
- Continuing Operations$0.43 $0.23 $1.66 $1.30 
- Net Income Attributable to the Company$0.44 $0.24 $1.66 $1.33 
Average Number of Shares Outstanding
- Basic544 540 544 543 
- Diluted552 549 552 552 
Shares Outstanding at 9/30544 538 544 538 
 
Marsh & McLennan Companies, Inc.
Supplemental Information - Revenue Analysis

Three Months Ended

(Millions) (Unaudited)

 
            Components of Revenue Change*

Three Months Ended
September 30,

% Change
GAAP Revenue

Currency
Impact

   

Acquisitions/
Dispositions
Impact

   

Underlying
Revenue

 2012 2011    
Risk and Insurance Services
Marsh

$

1,251

$

1,210

3%

(3)%

2%

4%

Guy Carpenter 249 251

(1)%

(1)%

1%

Subtotal

1,500

1,461

3%

(3)%

2%

4%

Fiduciary Interest Income 10 14
Total Risk and Insurance Services 

1,510

 1,475

2%

(3)%

2%

4%

Consulting
Mercer995975

2%

(3)%

2%

3%

Oliver Wyman Group 351 364

(3)%

(4)%

(3)%

3%

Total Consulting 1,346 1,339

1%

(3)%

3%

Corporate / Eliminations 

(11)

 

(8)

Total Revenue

$

2,845

$

2,806

1%

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