Highlights from the MMC earnings release and analyst call
Marsh & McClennan Companies, Inc. (“MMC”) reported 3Q20 results this morning, posting adjusted Earnings Per Share (“EPS”) of $0.82 vs analyst expectations of $0.72. Stronger margins drove the higher EPS as revenue was largely inline with expectations. Key takeaways from the company call are below:
- MMC reported organic revenue down 1% across the company during 3Q20, with 2% organic growth in its Risk & Insurance Services division, driven by 3% organic growth at Marsh & McLennan Agency LLC (“MMA”) its middle-market brokerage business. The Consulting division, which includes more project-based work, was down 4% on an organic basis.
- The company expanded margins in the quarter and throughout the year by controlling discretionary spending and the natural expense reductions related to less new business and modest growth. Expense controls were “loosened” in 3Q and the company expects to see these expenses increase in step with revenue growth in the future.
- MMC tracks Property & Casualty (“P&C”) rate trending via a proprietary global index. This index rose for the 12th consecutive quarter in 3Q20 and was up 20% vs 3Q19 and compared to 2Q up 19% and 1Q up 14% vs. the prior year quarter, indicating that rate increases continue to accelerate. MMC noted that this index is weighted to large, complex account pricing, and small and middle market pricing is increasing, but likely at a lesser rate than the index suggests. Areas of significant increase were noted in property, financial and professional coverages, all up more than 20% in the quarter, with workers comp noted as a line that is declining low single digits year-over-year.
- In general, MMC commented that while some industries are under pressure (energy, aviation) and insureds are looking to reduce coverage exposure, Cyber is one area where insureds are adding coverage, rather than paring back to offset rate increases or reduction in base.
- MMC noted the JLT integration is largely complete with many of the targeted synergies achieved earlier than expected. Real estate and technology consolidation will continue for roughly the next year.
- MMC provided an update to the 2020 outlook, which assumes recessionary conditions persist for the next several months. The company’s MMA division is expected to report organic growth in the low single digits for the full year, with declines in other business units (Oliver Wyman, Employee Benefits and discretionary lines) dragging on the overall results to largely flat organic growth for the whole company. Overall, the company did increase its adjusted EPS outlook for the year, largely related to margin expansion.
MMC’s call highlighted the ability of the company to pull expense levers and realize margin expansion in a soft or declining organic growth environment. The company was cautious about saying they have passed the “trough” of the COVID-19 impact, noting that the next couple quarters will likely determine where the bottom is, and the direction is dependent upon many factors including government responses to recent outbreaks and the economic impact thereof.
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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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