Arthur J. Gallagher (AJG) Q2 Earnings Beat, Revenues Rise

Arthur J. Gallagher & Co. (NYSE:AJG) reported second-quarter 2016 adjusted net earnings of 97 cents per share that surpassed the Zacks Consensus Estimate by a penny. The bottom line also improved 4.3% year over year.

Net profit of 84 cents in the quarter increased 4% year over year.

The company’s outperformance was driven by strong performance from the Brokerage segment.

Operational Update

Total revenue was $1.4 billion, up 2.2% year over year. The upside was driven by an 8% growth in total adjusted revenues from Brokerage and 10% from Risk Management segments. However, revenues marginally missed the Zacks Consensus Estimate.

Total commissions and fees earned improved 4.7% year over year to $1.1 billion in the quarter.

Arthur J. Gallagher & Co.’s total expense increased 8.3% year over year to $1.3 billion in the quarter. The increase stemmed from a rise in compensation cost, cost of revenues, and amortization.

Earnings before interest, tax, depreciation and amortization (EBITDAC) increased 9.9% to $266.5 million.

Segment Results

Brokerage: Adjusted revenues of $937.7 million increased 8% year over year driven by higher commissions. Total expense increased 4.4% year over year to $760.9 million.

Adjusted EBITDAC improved 10% to $284 million.

Risk Management: Adjusted revenue amounted to $176.5 million, down 7% year over year due to lower fees. Total expense decreased 5.2% year over year to $154.1 million.

Adjusted EBITDAC decreased 8% year over year to $30.1 million.

Corporate

Total revenue came at $311.5 million, up 5.1% year over year.

Total expense increased 6.6% year over year.

EBITDAC came in as a loss of $30.9 million, wider than a loss of $24.7 million in the prior year quarter.

Financial Update

Total assets as of Jun 30, 2016 were $11.4 billion, up 4.6% from $10.7 billion at year-end 2015.

Cash and cash equivalents at quarter end decreased 14% to $411 million from 2015 end.

Shareholders’ equity decreased 2.4% from the 2015-end level to $3.6 billion at quarter end.

Acquisition Update

During the quarter, the company closed 13 acquisitions with annualized revenues of over $40.4 million.

Zacks Rank

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

Performance of Other Players

The bottom line at Brown & Brown Inc. (NYSE:BRO) and The Travelers Companies, Inc. (NYSE:TRV) beat their respective Zacks Consensus Estimate while that of Marsh & McLennan Companies, Inc. (NYSE:MMC) came in line with expectation.