Strong Growth in GAAP Operating Income of
24% and Adjusted Operating Income of 16%
Margin Expansion in Both Segments
GAAP EPS Rises 20% to $.73 and Adjusted EPS
Increases 10% to $.69
Marsh & McLennan Companies, Inc. (NYSE:MMC), a global
professional services firm offering clients advice and solutions in
risk, strategy and people, today reported financial results for the
third quarter ended September 30, 2016.
Dan Glaser, President and CEO, said: "We produced another
quarter of strong earnings growth, delivering double-digit growth
in both GAAP and adjusted EPS, with margin expansion in both
segments. Through nine months, we have generated underlying revenue
growth of 3%, solid earnings growth and margin expansion in each
segment. For the full year, we continue to expect to deliver
underlying revenue growth, meaningful margin expansion and strong
growth in earnings per share."
Consolidated Results
Consolidated revenue in the third quarter of 2016 was $3.1
billion, an increase of 1% on both a reported and underlying basis
compared with the third quarter of 2015. Operating income rose 24%
to $572 million. Adjusted operating income, which excludes
noteworthy items as presented in the attached supplemental
schedules, increased 16% to $562 million. Net income attributable
to the Company was up 17% to $379 million. Earnings per share
increased 20% to $.73. Adjusted earnings per share rose 10% to $.69
compared with $.63 in last year’s third quarter.
For the nine months ended September 30, 2016, revenue was $9.8
billion, an increase of 3% on both a reported and underlying basis.
Net income attributable to the Company was up 9% to $1.3 billion,
and earnings per share rose 12% to $2.54. Adjusted earnings per
share increased 8% to $2.53 compared with $2.34 for the comparable
period in 2015.
Risk & Insurance Services
Risk & Insurance Services revenue was $1.6 billion in the
third quarter of 2016, an increase of 3%. Revenue grew 2% on an
underlying basis. Operating income was $315 million, an increase of
39%. Adjusted operating income rose 22% to $302 million compared
with $248 million in last year’s third quarter. For the nine months
ended September 30, 2016, revenue was $5.4 billion, an increase of
4%, or 2% on an underlying basis. Operating income rose 13% to $1.3
billion. Adjusted operating income rose 8% to $1.3 billion,
compared with $1.2 billion last year.
Marsh's revenue in the third quarter of 2016 was $1.4 billion,
an increase of 2% on an underlying basis. The U.S./Canada division
produced underlying revenue growth of 3%, while International
operations rose 2%: EMEA was flat, Asia Pacific rose 2% and Latin
America increased 9%. Guy Carpenter's third quarter revenue was
$260 million, flat on an underlying basis.
Consulting
Consulting revenue was $1.5 billion in the third quarter, a
decrease of 2%. Revenue was flat on an underlying basis. Operating
income rose 8% to $308 million. Adjusted operating income increased
8% to $309 million compared with $285 million in last year’s third
quarter. For the nine months of 2016, revenue was $4.5 billion, up
2%, or 3% on an underlying basis. Operating income rose 7% to $838
million. Adjusted operating income increased 8% to $835 million
compared with $776 million in 2015.
Mercer’s revenue was $1.1 billion in the third quarter, an
increase of 3% on an underlying basis. Investments grew 7% on an
underlying basis; Talent increased 7%; Health grew 2%; and
Retirement was flat. Oliver Wyman Group’s revenue was $404 million
in the third quarter, a decrease of 9% on an underlying basis.
Other Items
Investment income was negligible in the third quarter, compared
with $34 million in the prior year period. The Company repurchased
3 million shares of stock for $200 million in the third quarter.
Through nine months, the Company has repurchased 10 million shares
for $625 million.
Conference Call
A conference call to discuss third quarter 2016 results will be
held today at 8:30 a.m. Eastern time. To participate in the
teleconference, please dial +1 888 349 9618. Callers from outside
the United States should dial +1 719 325 2202. The access code for
both numbers is 9526128. 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 people. Marsh is a leader in
insurance broking and risk management; Guy Carpenter is a leader in
providing risk and reinsurance intermediary services; Mercer is a
leader in talent, health, retirement and investment consulting; and
Oliver Wyman is a leader in management consulting. With annual
revenue of $13 billion and approximately 60,000 colleagues
worldwide, Marsh & McLennan Companies provides analysis, advice
and transactional capabilities to clients in more than 130
countries. The Company is committed to being a responsible
corporate citizen and making a positive impact in the communities
in which it operates. Visit www.mmc.com for more information and follow us on
LinkedIn and Twitter @MMC_Global.
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." Forward-looking statements are subject to
inherent risks and uncertainties that could cause actual results to
differ materially from those expressed or implied in our
forward-looking statements.
Factors that could materially affect our future results include,
among other things:
- our ability to maintain adequate
safeguards to protect the security of our information systems and
confidential, personal or proprietary information;
- our ability to successfully recover if
we experience a business continuity problem due to cyberattack,
natural disaster or otherwise;
- our exposure to potential losses and
liabilities, including reputational impact, arising from errors and
omissions, breach of fiduciary duty and similar claims against
us;
- our ability to compete effectively and
adapt to changes in the competitive environment, including to
pricing pressures and technological and other types of
innovation;
- the impact of macroeconomic conditions,
political events and market conditions on us, our clients and the
industries in which we operate, including the effects of the vote
in the U.K. to exit the E.U. and rising protectionist laws and
business practices;
- the impact of changes in applicable tax
laws and regulations, particularly in the United States and
Europe;
- the effect of our global pension
obligations on our financial position, earnings and cash flows and
the impact of low interest rates on those obligations;
- the financial and operational impact of
complying with laws and regulations where we operate;
- our exposure to potential civil
remedies or criminal penalties if we fail to comply with applicable
U.S. and non-U.S. laws and regulations;
- the impact of fluctuations in foreign
exchange, interest rates and securities markets on our
results;
- the impact on our competitive position
of our tax rate relative to our competitors;
- our ability to incentivize and retain
key employees; and
- the impact of changes in accounting
rules or in our accounting estimates or assumptions.
The factors identified above are not exhaustive. We caution
readers not to place undue reliance on any forward-looking
statements, which are based only on information currently available
to us and 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 and the "Management’s
Discussion and Analysis of Financial Condition and Results of
Operations" 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 EndedSeptember
30, Nine Months EndedSeptember
30, 2016 2015
2016 2015
Revenue
$ 3,135 $ 3,115
$ 9,847 $ 9,555
Expense: Compensation and Benefits
1,817 1,878
5,543 5,434 Other Operating Expenses
746 776
2,273 2,296
Operating Expenses
2,563 2,654
7,816 7,730
Operating Income 572 461
2,031 1,825
Interest Income — 3
4 9
Interest
Expense (47 ) (41 )
(141 ) (117 )
Investment Income (Loss) — 34
(2
) 39
Income Before Income Taxes 525 457
1,892 1,756
Income Tax Expense 141 128
538 500
Income from Continuing
Operations 384 329
1,354 1,256
Discontinued
Operations, Net of Tax — 2
—
(1 )
Net Income Before Non-Controlling Interests 384
331
1,354 1,255
Less: Net Income Attributable to
Non-Controlling Interests
5 8
22 31
Net Income
Attributable to the Company $ 379 $
323
$ 1,332 $
1,224
Basic Net Income Per Share -
Continuing Operations $ 0.73 $
0.61
$ 2.56 $
2.29
- Net Income Attributable to the
Company $ 0.73 $ 0.61
$ 2.56 $ 2.29
Diluted Net Income Per Share - Continuing
Operations $ 0.73 $
0.60
$ 2.54 $ 2.27
- Net Income Attributable to the Company $
0.73 $ 0.61
$
2.54 $ 2.27
Average
Number of Shares Outstanding - Basic 518
528
520 534
- Diluted 523
533
525 540
Shares
Outstanding at 9/30 516 522
516
522
Marsh & McLennan Companies,
Inc.Supplemental Information - Revenue Analysis
Three Months Ended September 30,
2016(Millions) (Unaudited)
Components of Revenue Change*
Three Months EndedSeptember
30,
%
ChangeGAAPRevenue
CurrencyImpact
Acquisitions/
DispositionsImpact
UnderlyingRevenue
2016 2015
Risk and Insurance
Services Marsh
$ 1,364 $ 1,317
4 %
(1)% 2%
2 %
Guy Carpenter
260 261
—
—
—
—
Subtotal
1,624 1,578
3 %
(1)% 2%
2 %
Fiduciary Interest Income
8 6 Total Risk and
Insurance Services
1,632 1,584
3 %
(1)% 2%
2 %
Consulting
Mercer
1,109 1,090
2 %
(2)% 1%
3 %
Oliver Wyman Group
404 450
(10)%
(1)%
—
(9)% Total Consulting
1,513 1,540 (2)% (2)%
—
—
Corporate / Eliminations (10 ) (9 )
Total
Revenue $ 3,135 $ 3,115
1 %
(1)% 1%
1 %
Revenue Details
The following table provides more detailed revenue information
for certain of the components presented above:
Components of Revenue Change* Three Months
EndedSeptember 30,
% Change
GAAPRevenue
CurrencyImpact
Acquisitions/
DispositionsImpact
UnderlyingRevenue
2016 2015
Marsh:
EMEA
$ 394 $ 378
5 %
(3)%
7 %
—
Asia Pacific
153 156 (3)%
3 %
(7)%
2%
Latin America
88 86
2 %
(7)%
—
9% Total International
635 620
2 %
(2)%
3 %
2% U.S. / Canada
729 697
5 %
—
2 %
3% Total Marsh
$ 1,364 $ 1,317
4 %
(1)%
2 %
2%
Mercer: Health
$ 397 $ 394
1 %
(1)% (1)% 2% Retirement
292 317 (8)% (4)% (3)%
—
Investments
213 202
5 %
(2)%
—
7% Talent
207 177
17 %
(1)%
11 %
7% Total Mercer
$ 1,109 $ 1,090
2 %
(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, transfers among businesses and the
deconsolidation of Marsh India.
* Components of revenue change may not add due to rounding.
Marsh & McLennan Companies,
Inc.
Supplemental Information - Revenue
Analysis
Nine Months Ended September 30,
2016
(Millions) (Unaudited)
Components of Revenue Change* Nine Months
EndedSeptember 30,
%
ChangeGAAPRevenue
CurrencyImpact
Acquisitions/
Dispositions Impact
UnderlyingRevenue
2016 2015
Risk and Insurance
Services Marsh
$ 4,411 $ 4,217 5%
(2)% 5% 2% Guy Carpenter
919 904 2%
—
—
2% Subtotal
5,330 5,121 4% (2)% 4% 2% Fiduciary Interest
Income
20 16 Total Risk and Insurance Services
5,350 5,137 4% (2)% 4% 2%
Consulting Mercer
3,227 3,173 2% (2)% 1% 3% Oliver
Wyman Group
1,303 1,275 2% (1)% 1% 3% Total
Consulting
4,530 4,448 2% (2)% 1% 3%
Corporate / Eliminations (33 ) (30 )
Total Revenue
$ 9,847 $ 9,555 3% (2)%
2% 3%
Revenue Details
The following table provides more detailed revenue information
for certain of the components presented above:
Components of Revenue Change* Nine Months
EndedSeptember 30,
% Change
GAAPRevenue
CurrencyImpact
Acquisitions/
DispositionsImpact
UnderlyingRevenue
2016 2015
Marsh:
EMEA
$ 1,443 $ 1,380
5 %
(4)%
7 %
1%
Asia Pacific
482 480
—
(1)% (1)% 2% Latin America
252 262 (4)% (13)%
—
9% Total International
2,177 2,122
3 %
(4)%
5 %
2% U.S. / Canada
2,234 2,095
7 %
—
5 %
2% Total Marsh
$ 4,411 $ 4,217
5 %
(2)%
5 %
2%
Mercer: Health
$ 1,207 $ 1,169
3 %
(1)%
—
5% Retirement
918 973 (6)% (3)% (3)%
—
Investments
619 614
1 %
(4)%
—
4% Talent
483 417
16 %
(2)%
12 %
5% Total Mercer
$ 3,227 $ 3,173
2 %
(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, transfers among businesses and the deconsolidation of
Marsh India. * Components of revenue change may not add due
to rounding.
Marsh & McLennan Companies,
Inc.
Reconciliation of Non-GAAP
Measures
(Millions) (Unaudited)
Overview
The Company reports its financial results
in accordance with accounting principles generally accepted in the
United States (referred to in this release as “GAAP” or “reported”
results). The Company also refers to and presents below certain
additional non-GAAP financial measures, within the meaning of
Regulation G under the Securities Exchange Act of 1934. These
measures are: adjusted operating income (loss), adjusted operating
margin, adjusted income, net of tax and adjusted earnings per share
(EPS). The Company has included reconciliations of these non-GAAP
financial measures to the most directly comparable financial
measure calculated in accordance with GAAP in the following
tables.
The Company believes these non-GAAP financial measures
provide useful supplemental information that enables investors to
better compare the Company’s performance across periods. Management
also uses these measures internally to assess the operating
performance of its business, to assess performance for employee
compensation purposes and to decide how to allocate resources.
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 include adjustments that reflect how management
views our businesses, and may differ from similarly titled non-GAAP
measures presented by other companies.
Adjusted Operating
Income (Loss) and Adjusted Operating MarginAdjusted 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 and nine
months ended September 30, 2016 and 2015. The following tables also
present adjusted operating margin. For the three months ended
September 30, 2016 and 2015, adjusted operating margin is
calculated by dividing adjusted operating income by consolidated or
segment GAAP revenue. For the nine months ended September
30, 2016 and 2015, adjusted operating margin is calculated by
dividing adjusted operating income by consolidated or segment GAAP
revenue less the net gain on the deconsolidation of Marsh's India
subsidiary and contingent proceeds related to the disposal of
Mercer's U.S. defined contribution recordkeeping business.
Risk
&InsuranceServices
Consulting
Corporate/
Eliminations
Total Three Months Ended September 30, 2016
Operating income (loss) $ 315
$ 308 $ (51
) $ 572 Add (Deduct) impact of
Noteworthy Items: Restructuring (a)
(1 ) —
2 1 Adjustments to acquisition related accounts (b)
(13 ) 1 — (12 ) Other
1 — — 1
Operating income adjustments (13 ) 1
2 (10 ) Adjusted operating
income (loss) $ 302 $
309 $ (49 ) $
562 Operating margin 19.2
% 20.4 % N/A 18.2
% Adjusted operating margin 18.5 %
20.4 % N/A 18.0 %
Three Months Ended September 30, 2015 Operating income
(loss) $ 225 $ 285 $ (49 ) $
461 Add impact of Noteworthy Items: Restructuring (a)
1 — 2 3 Adjustments to acquisition related accounts (b) 22 —
— 22
Operating income adjustments 23
— 2 25
Adjusted operating income
(loss) $ 248 $ 285 $ (47 ) $
486
Operating margin 14.2 % 18.5 % N/A
14.8 %
Adjusted operating margin 15.7 % 18.5 % N/A
15.6 % (a) Primarily severance for center led initiatives,
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.
Reconciliation of Non-GAAP
Measures
(Millions) (Unaudited)
Adjusted Operating Income (Loss) and
Adjusted Operating Margin (cont’d)
Risk
&InsuranceServices
Consulting
Corporate/
Eliminations
Total Nine Months Ended September 30, 2016
Operating income (loss) $ 1,340
$ 838 $ (147
) $ 2,031 Add (Deduct) impact of
Noteworthy Items: Restructuring (a)
2 1 6
9 Adjustments to acquisition related accounts (b)
7
2 — 9 Disposal/deconsolidation of business (c)
(12 ) (6 ) — (18 )
Other
1 — — 1
Operating income adjustments
(2 ) (3 ) 6 1
Adjusted operating income (loss) $
1,338 $ 835 $
(141 ) $ 2,032
Operating margin 25.0 % 18.5 %
N/A 20.6 % Adjusted operating
margin 25.1 % 18.5 % N/A
20.7 % Nine Months Ended September
30, 2015 Operating income (loss) $ 1,185 $
781 $ (141 ) $ 1,825 Add
(Deduct) impact of Noteworthy Items: Restructuring (a) 3 — 5 8
Adjustments to acquisition related accounts (b) 51 (5 ) — 46 Other
— — (1 ) (1 )
Operating income adjustments 54
(5 ) 4 53
Adjusted operating income
(loss) $ 1,239 $ 776 $ (137
) $ 1,878
Operating margin 23.1 % 17.6 % N/A
19.1 %
Adjusted operating margin 24.1 % 17.5 % N/A
19.7 % (a) Primarily severance for center led
initiatives, 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. (c)
Reflects the net gain on the deconsolidation of Marsh's India
subsidiary and contingent proceeds related to the disposal of
Mercer's U.S. defined contribution recordkeeping business. The
amounts are removed from GAAP revenue in the calculation of
adjusted operating margin.
Marsh & McLennan Companies,
Inc.
Reconciliation of Non-GAAP
Measures
(Millions) (Unaudited)
Adjusted Income, Net of Tax and Adjusted Earnings per
Share 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 tables. Adjusted EPS is calculated by
dividing the Company’s adjusted income, net of tax, by MMC's
average number of shares outstanding-diluted for the relevant
period. The following tables reconcile adjusted income, net of tax
to GAAP income from continuing operations and adjusted EPS to GAAP
EPS for the three months and nine months ended September 30, 2016
and 2015.
Three Months Ended
September 30, 2016
Three Months Ended
September 30, 2015
Amount
AdjustedEPS
Amount
AdjustedEPS
Income from continuing operations
$
384 $ 329 Less:
Non-controlling interest, net of tax
5 8
Subtotal
$ 379 $ 0.73 $
321 $ 0.60 Operating income adjustments
$
(10 ) $ 25 Impact of
income taxes
(7 ) (8 )
(17 )
(0.04 ) 17 0.03 Adjusted income, net of
tax
$ 362 $
0.69 $ 338 $ 0.63
Nine Months Ended
September 30, 2016
Nine Months Ended
September 30, 2015
Amount
AdjustedEPS
Amount
AdjustedEPS
Income from continuing operations
$ 1,354 $ 1,256
Less: Non-controlling interest, net of tax
22 31
Subtotal
$ 1,332 $ 2.54 $ 1,225
$ 2.27 Operating income adjustments
$ 1 $ 53 Impact
of income taxes
(7 ) (15 )
(6 )
(0.01 ) 38 0.07 Adjusted income, net of
tax
$ 1,326 $
2.53 $ 1,263 $
2.34
Marsh & McLennan Companies,
Inc.
Supplemental Information
Three and Nine Months Ended September
30
(Millions) (Unaudited)
Three Months EndedSeptember 30, Nine Months
EndedSeptember 30, 2016
2015
2016 2015
Consolidated Compensation and Benefits
$ 1,817 $ 1,878
$
5,543 $ 5,434 Other operating expenses
746
776
2,273 2,296 Total Expenses
$ 2,563 $ 2,654
$
7,816 $ 7,730
Depreciation and amortization expense
$ 77 $ 77
$ 231 $ 233 Identified intangible amortization
expense
32 31
99 79 Total
$ 109 $ 108
$
330 $ 312 Stock option
expense
$ 3 $ 5
$ 18 $ 18 Capital
expenditures
$ 60 $ 73
$ 174 $ 249
Risk and Insurance Services Compensation and Benefits
$ 924 $ 926
$ 2,779 $ 2,697 Other
operating expenses
393 433
1,231
1,255 Total Expenses
$ 1,317 $
1,359
$ 4,010 $
3,952 Depreciation and amortization expense
$
35 $ 35
$ 105 $ 107 Identified intangible
amortization expense
26 28
83 69
Total
$ 61 $ 63
$ 188 $ 176
Consulting Compensation and Benefits
$ 807 $
861
$ 2,506 $ 2,475 Other operating expenses
398 394
1,186 1,192 Total
Expenses
$ 1,205 $ 1,255
$ 3,692 $ 3,667
Depreciation and amortization expense
$ 25 $ 27
$ 75 $ 80 Identified intangible amortization expense
6 3
16 10 Total
$
31 $ 30
$
91 $ 90
Marsh & McLennan Companies,
Inc.
Consolidated Balance Sheets
(Millions)
(Unaudited)
September 30,
2016
December 31,
2015
ASSETS Current assets: Cash and cash equivalents
$ 1,388 $ 1,374 Net receivables
3,603 3,471 Other current assets
218 199
Total current assets 5,209 5,044
Goodwill and intangible assets
8,882 8,925 Fixed assets, net
717 773 Pension related assets
1,253 1,159 Deferred
tax assets
1,085 1,138 Other assets
1,212
1,177
TOTAL ASSETS $ 18,358
$ 18,216
LIABILITIES AND EQUITY
Current liabilities: Short-term debt
$ 262 $
12 Accounts payable and accrued liabilities
1,862 1,886
Accrued compensation and employee benefits
1,310 1,656
Accrued income taxes
213 154 Dividends payable
178
—
Total current liabilities 3,825 3,708
Fiduciary liabilities
4,532 4,146 Less - cash and
investments held in a fiduciary capacity
(4,532 )
(4,146 )
— — Long-term debt
4,494 4,402 Pension,
post-retirement and post-employment benefits
1,969 2,058
Liabilities for errors and omissions
317 318 Other
liabilities
999 1,128
Total equity
6,754 6,602
TOTAL LIABILITIES AND
EQUITY $ 18,358 $ 18,216
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161025005836/en/
Media:Marsh & McLennan CompaniesLaura Schooler,
+1-212-345-0370laura.schooler@mmc.comorInvestors:Marsh
& McLennan CompaniesKeith Walsh,
+1-212-345-0057keith.walsh@mmc.com
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