Summary
Arthur J. Gallagher & Co. (AJG) reported its financial results for the nine months and third quarter ended September 30, 2002. The company experienced significant growth in commission and fee revenues, driven by a "hard market" in the insurance industry characterized by rising premium rates, as well as new business production and acquisitions. Despite revenue growth, net earnings for the nine-month period were slightly down compared to the prior year, primarily due to a significant increase in expenses, including salaries and employee benefits related to headcount growth and acquisitions, as well as investment write-downs and impairments in the Financial Services segment. The "hard market" conditions, while boosting revenues, also contributed to higher operating expenses such as business insurance costs and commissions paid to sub-brokers. The company's Financial Services segment was particularly impacted by equity market declines and specific investment write-downs, leading to a net loss for the segment in the third quarter. AJG continues to actively pursue strategic acquisitions to expand its market presence and service offerings, as evidenced by eight acquisitions in the first nine months of 2002.
Key Highlights
- 1Commission revenues increased by 30% to $178.2 million in Q3 2002 and by 24% to $478.3 million year-to-date, driven by a 'hard market' and new business.
- 2Fee revenues also showed strong growth, up 20% to $101.3 million in Q3 2002 and 19% to $282.9 million year-to-date, primarily from the Insurance Brokerage Services segment.
- 3Net earnings for the nine-month period decreased slightly by 3% to $91.4 million compared to $92.2 million in the prior year, with EPS falling from $1.09 to $1.05.
- 4The Financial Services segment reported a loss of $16.4 million before income taxes for Q3 2002, impacted by investment impairments and write-downs totaling $15.4 million.
- 5Salaries and employee benefits increased significantly by 28% in Q3 2002 and 24% year-to-date, reflecting increased headcount from new business growth and acquisitions.
- 6AJG completed eight acquisitions during the first nine months of 2002, contributing to revenue growth and strategic expansion.
- 7The company's liquidity remains strong, with $93.2 million in cash provided by operating activities year-to-date and $67.8 million available under its revolving credit facility.