It has been about a month since the last earnings report for Marsh & McLennan (MMC). Shares have lost about 8.8% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Marsh & McLennan due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Marsh & McLennan’s Q4 Earnings Top Estimates, Rise Y/Y
Marsh & McLennan delivered fourth-quarter 2019 adjusted earnings per share of $1.19, surpassing the Zacks Consensus Estimate by 0.8% on the back of solid revenues. Moreover, the same increased 9.2% year over year.
Marsh & McLennan’s consolidated revenues of $4.3 billion were up 3% on an underlying basis. This upside is majorly attributable to the Risk and Insurances Services plus Consulting Segments. However, the top line missed the Zacks Consensus Estimate by 1.8%.
Total operating expenses of $3.7 billion in the fourth quarter were up 18.8% year over year due to higher compensation and benefits as well as other operating expenses.
Quarterly Segmental Results
Risk and Insurance Services
Revenues at the Risk and Insurance Services segment were $2.4 billion, up 3% on an underlying basis. Adjusted operating income surged 31% to $550 million from the prior-year quarter’s level.
Marsh, a unit within this segment generated revenues of $2.2 billion, up 3% on an underlying basis. In U.S./Canada, underlying revenues rose 4%.
Underlying revenue growth from international operations of 1% includes 7% increase of the metric in the Asia Pacific and a 2% rise in Latin America.
However, the same was partially offset by a 1% dip in EMEA.
Another unit under this segment, Guy Carpenter, displayed 10% revenue growth on an underlying basis in the quarter under review.
Consulting
The Consulting segment’s revenues inched up 2% on an underlying basis to $1.9 billion. Also, adjusted operating income was flat at $359 million.
A unit within this segment, Mercer, generated revenues of $1.3 billion, up 4% on an underlying basis. Wealth’s revenues were up 2% on an underlying basis. Health and Career’s revenues were each up 6% and 4% year over year on an underlying basis.
Another unit Oliver Wyman Group registered revenues of $559 million, down 2% on an underlying basis.
Share Repurchase Update
The company bought back shares worth $185 million in the quarter under review.
Financial Update
Marsh & McLennan exited the fourth quarter of 2019 with cash and cash equivalents of nearly $1.2 billion, up 8.3% from the figure at 2018 end.
Cash flow from operations for 2019 totaled $2.3 billion, sliding 2.8% year over year.
As of Dec 31, 2019, Marsh & McLennan’s total assets were $31.3 billion, up 45.1% from the figure as of Dec 31, 2018.
Total equity was $7.9 billion, up 4.7% from the level at 2018 end.
Full-Year Update
For 2019, the company’s revenues of $16.7 billion were up 4% year over year on an underlying basis. Adjusted earnings per share rose 7% year over year to $4.66.
How Have Estimates Been Moving Since Then?
Estimates review followed a downward path over the past two months.
VGM Scores
Currently, Marsh & McLennan has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Marsh & McLennan has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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