Highlights from the AON earnings release and analyst call.
Aon plc (AON) reported first quarter 2021 results today with adjusted earnings per share (EPS) reported at $4.28 vs. consensus estimates of $4.05 for the quarter. Net income was reported at $933M, an increase of 18% from the $791M reported for the prior year 1Q20. Total revenue for the first quarter was $3.5B (vs. the consensus estimate of $3.35B), a 10% increase compared to 1Q20. Adjusted operating income of $1.32B, a 37.4% operating margin, increased by 15% over the prior year.
Highlights from the release and conference call include:
- AON reported organic growth of 6%, an improvement from 2% organic growth in 4Q20. Growth was driven by ongoing strong retention and net new business generation. AON expects to deliver “mid-single-digit or greater” organic growth for full-year 2021 based on current macroeconomic conditions and client buying behavior.
- AON’s largest business segment, Commercial Risk Solutions, posted 9% organic growth in the quarter. This reflects growth across every major geography driven by strong new business generation and management of the renewal book portfolio. Pricing was modestly positive, while exposures were flat, resulting in relatively positive market fundamentals.
- Reinsurance Solutions and Health Solutions grew at 6% and 4% organically, both down a basis point compared to 1Q21, whereas Retirement Solutions grew at 5% organically compared to 0% last year. This was highlighted by double-digit growth in Human Capital and solid growth in core Retirement business. AON’s Data & Analytic Services saw an organic revenue decline of 2%. This primarily reflects a decrease in the travel and events practice globally, but management feels that this service area is expected to rebound in 2021.
- Free cash flow increased 91% to $532M, primarily driven by strong operational improvement, a decrease in restructuring cash outlays, and a $30M decrease in capital expenditures. Management stated they expect capital expenditures to increase modestly with investments in technology to drive business growth.
- The AON and Willis Towers Watson (WLTW) combination remains on track to close in the first half of this year (subject to regulatory approval) and management still anticipates an estimated $800M in cost synergies (5.5% of the combined cost base) by merging the organizations.
AON built on the strong momentum that the company closed on in 2020. Management believes that as macroeconomic conditions continue to improve, client buying behavior is likely to remain strong. AON expects moderate growth throughout the year and is focused on making the most of its combination with WLTW by addressing new risk issues raised by the global pandemic and leveraging the strength of both companies.
This earnings summary has been prepared by Marsh, Berry & Co., Inc. and is not intended to provide investment recommendations on any company. It is not a research report, as such term is defined by applicable laws and regulations, and it does not contain sufficient information upon which to make an investment decision. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any securities, financial instruments or to participate in any particular trading strategy. These materials are based solely on information contained in publicly available documents and Marsh, Berry & Co., Inc. has not independently attempted to investigate or to verify such information.
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