Highlights from the MMC earnings release and analyst call.
Marsh & McLennan Companies, Inc. (MMC) reported first quarter 2021 results this morning, with adjusted earnings per share (EPS) registering at $1.99 and consolidated revenue rising 9% compared to the first quarter of 2020.
Below are notable takeaways from the results and conference call:
- The company reported organic growth of 6% during 1Q21, with total growth of 9% for the quarter.
- Organic growth in its Risk & Insurance Services (RIS) division in the first quarter was 7%, with its middle market segment (Marsh Inc. or Marsh & McLennan Agency) reporting 8% organic growth including 9% in the U.S./Canada. MMC stated this was the highest growth in U.S./Canada since MMC started reporting the division.
- Organic growth in its Consulting division (primarily project-based revenue) was up 3% organically in the first quarter.
- MMC tracks rate increases through its global proprietary pricing index. This index was up 18% in 1Q21, a moderation from the 22% of 4Q20; however, the company noted that an 18% increase is still one of the highest since they started publishing the index in 2012. U.S. workers’ compensation rates declined while financial and professional lines were the primary drivers of growth. The cyber line of business experienced the most notable quarter-to-quarter change, with the average price increase doubling from its 4Q20 level. MMC called out elevated CAT losses for the quarter and low interest rates as drivers of pricing increases but expects pricing growth to moderate in 2021. The index is skewed towards large, complicated risks but MMC noted pricing is up in small to middle market placements as well, just at a more modest rate.
- During the first quarter, MMC repaid $500 million in debt (senior notes maturing July 2021). MMC noted this completed their planned deleveraging actions and brought their debt down to $10.8 billion with its next scheduled debt maturity in January of 2022. In addition, the company increased its borrowing capacity on its revolving credit facility to $2.8B (from $1.8B) and increased its capacity to issue commercial paper up to $2B from $1.5B previously.
- MMC resumed share repurchases in the first quarter, buying back one million shares for $112 million. The company indicated it will continue to use cash opportunistically for accretive acquisitions first and share repurchase second.
- Operating margins across the company expanded 260 basis points year-over-year to 29.6%. MMC expects margins to continue to expand in 2021, though not at the same rate as 2020 as travel, hiring and other more normal spending resumes.
- The company said it is progressing with acquisitions and mentioned its April 1, 2021, acquisition of PayneWest, formerly one of the largest independent agencies in the U.S. with more than 700 employees in 26 locations. Due to the April 1 announcement, the acquisition was not included in first quarter results. However, MMC anticipates the acquisition will add to its middle market space and serve as its hub in the northwest.
MMC noted that it is benefiting from industry disruption and leadership is optimistic about the company’s outlook and focusing on resurgence rather than recovery despite the continuing uncertainty. Due to the strength of 1Q21 organic growth, MMC anticipates full-year organic growth to be at the high end of their originally announced 3-5% range, if not above. Underpinning that forecast is an assumption that global economic growth returns in 2Q21.
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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