Arthur J. Gallagher (AJG) Beats On Q4 Earnings And Revenues

Arthur J. Gallagher & Co. (NYSE:AJG) reported fourth-quarter 2017 adjusted net earnings of 82 cents per share, which beat the Zacks Consensus Estimate by about 9.3%. Also, the bottom line improved 24.2% on a year-over-year basis.

The company’s performance was driven by solid organic growth, outstanding revenue improvement from the tuck-in mergers and acquisitions and strong margin expansion. The company also witnessed solid performance across all its segments.

Arthur J. Gallagher & Co. Price, Consensus and EPS Surprise

Net income rose 8% year over year to 57 cents per share.

Operational Update

Total revenue was $1.6 billion, up 15.5% year over year. This upside was driven by growth in total revenue in the Brokerage, Risk Management as well as Corporate segments. The top line surpassed the Zacks Consensus Estimate by 7.8%.

Total commissions and fees earned increased nearly 10% year over year to $1.1 billion in the quarter.

Arthur J. Gallagher’s total expense rose 15.2% year over year to $1.5 billion in the quarter. Expenses escalated due to a rise in compensation costs, operating costs, interest expenses, cost of revenues from clean coal activities, plus higher depreciation and amortization expenses.

Earnings before interest, tax, depreciation and amortization and change in estimated acquisition earnout payables (EBITDAC) increased 8.1% to $213.3 million.

Full-Year Highlights

Arthur J. Gallagher’s 2017 adjusted net earnings of $3.06 per share beat the Zacks Consensus Estimate of $2.99. Also, the bottom line improved 12% over 2016.

Revenues came in at $6.2 billion, beating the Zacks Consensus Estimate of $6.1 billion. The top line improved 3% over 2016.

Segment Results

Brokerage: Adjusted revenues of $1 billion grew 12.9% year over year on higher fees, commissions, supplemental revenues and contingent revenues. Total expense shot up nearly 11% year over year to $845.5 million.

Adjusted EBITDAC rose 12.4% to $237 million.

Risk Management: Adjusted revenues were up 6.2% year over year to $197.1 million, owing to higher fees. Total expenses increased 7.9% year over year to $173.8 million.

Adjusted EBITDAC climbed 5.3% year over year to $34 million.

Corporate: Total revenues came in at $401.7 million, up 28% year over year. Total expenses increased 26.5% year over year to $497.6 million.

EBITDAC was at a loss of $57.7 million, wider than a loss of $45.8 million in the prior-year quarter.

Financial Update

As of Dec 31, 2017, total assets were $12.9 billion, up 12.2% from year-end 2016.

Cash and cash equivalents at the year-end increased 21% from the 2016 level to $2.3 billion.

Shareholders’ equity increased about 13.5% from the 2016-end level to $4.2 billion at the end of 2017.

Acquisition Update

In the fourth quarter, the company closed nine acquisitions with annualized revenues of over $29.3 million, taking the full-year tally to 36 acquisitions closed with annualized revenues of over $159 million.

Zacks Rank

Currently, Arthur J. Gallagher carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Insurers

Among the other players from the insurance industry that have reported fourth-quarter earnings so far, the bottom line of The Progressive Corporation (NYSE:PGR) , The Travelers Companies, Inc. (NYSE:TRV) and Brown & Brown Corp. (NYSE:BRO) surpassed the respective Zacks Consensus Estimate.

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