10-QPeriod: Q3 FY2010

Arthur J. Gallagher & Co. Quarterly Report for Q3 Ended Sep 30, 2010

Filed October 29, 2010For Securities:AJG

Summary

Arthur J. Gallagher & Co. (AJG) reported solid financial results for the nine-month period ended September 30, 2010. Total revenues increased by 8.5% year-over-year to $1.405 billion, driven by growth in commissions and supplemental commissions, and significant contributions from acquisitions. Net earnings rose to $119.4 million, or $1.14 per diluted share, compared to $111.8 million, or $1.12 per diluted share, in the prior year period. The company demonstrated effective expense management, with total expenses growing at a slower pace than revenues. During the period, AJG continued its strategic acquisition strategy, integrating several new firms that are expected to contribute to future revenue growth. The company also maintained a strong balance sheet with increased cash and cash equivalents and a stable debt structure, with $550 million in senior notes outstanding. The company's Brokerage segment remains the primary revenue driver, showing robust commission growth, while the Risk Management segment experienced a slight revenue decline but maintained profitability.

Financial Highlights

45 data points
Beta

Revenue

$463.20M

100.0% Gross Margin

Net Income

$46.20M

10.0% Net Margin

EPS (Diluted)

$0.44

Total Assets

$3.46B

Cash & Equivalents

$296.30M

Free Cash Flow

$117.70M

Financial Statements
Beta
Revenue$463.20M
Cost of Revenue$0
Gross Profit$463.20M
Operating Expenses$84.80M
Operating Income$46.20M
Interest Expense$8.60M
Net Income$46.20M
EPS (Basic)$0.44
EPS (Diluted)$0.44
Shares Outstanding (Basic)105.50M

Key Highlights

  • 1Total revenues increased by 8.5% to $1.405 billion for the nine months ended September 30, 2010.
  • 2Net earnings grew to $119.4 million, or $1.14 per diluted share, from $111.8 million, or $1.12 per diluted share, in the prior year.
  • 3The Brokerage segment showed strong performance with an 8% revenue increase and a 20% rise in earnings before income taxes, driven by acquisitions and new business.
  • 4The company successfully integrated multiple acquisitions during the period, contributing to revenue growth.
  • 5Total expenses increased by 10.2%, but on a percentage of revenue basis, expenses remained manageable, indicating effective cost control.
  • 6Cash flow from operations remained strong at $212.4 million for the nine months, supporting the company's financial flexibility.
  • 7The company refinanced its credit facility, increasing its commitment to $500 million, enhancing its liquidity and financial flexibility.

Frequently Asked Questions

For the nine months ended September 30, 2010, Arthur J. Gallagher & Co. reported total revenues of $1.405 billion, an increase of 8.5% compared to $1.294 billion in the same period of 2009.

Net earnings for the nine-month period ended September 30, 2010, were $119.4 million, or $1.14 per diluted share, up from $111.8 million, or $1.12 per diluted share, for the corresponding period in 2009.

Revenue growth is driven by commissions and fees from its Brokerage segment, which benefits from acquisitions and new business production, as well as supplemental and contingent commissions. The Risk Management segment contributes through fees for claims and risk management services.

Arthur J. Gallagher & Co. continues to view acquisitions as an important part of its growth strategy, particularly within its Brokerage segment. The company actively seeks acquisition candidates and completed several during the reported period, expecting them to contribute to future revenue.