How did acquisitions impact Arthur J. Gallagher's financial performance in this quarter?

Acquisitions were a significant driver of revenue growth for Arthur J. Gallagher. In the first half of 2011, the company completed thirteen acquisitions, including the substantial acquisition of Heath Lambert in the UK for $163.5 million. These acquisitions contributed significantly to the reported revenue increases in both the brokerage and risk management segments.

What is the company's outlook on insurance premium rates, and how does it affect their business?

The company noted that commercial property/casualty insurance rates have been declining for an extended period, though the rate of decline has slowed. While rates remained stable with negligible declines in the second quarter of 2011, strong competition and a weak economy continue to put pressure on rates. Arthur J. Gallagher does not expect overall pricing to turn upward until demand picks up and excess market capacity diminishes.

How is the company managing its debt and liquidity?

Arthur J. Gallagher has a solid liquidity position, supported by $97.4 million in operating cash flows for the first half of 2011. The company has access to a $500 million revolving credit facility, with $448.5 million available as of June 30, 2011. They also utilize debt through note purchase agreements, with $675.0 million outstanding under these agreements. The company reported compliance with all debt covenants and maintained a consistent dividend payment policy, including a planned increase in the quarterly dividend.

What are the key segment performances, and are there any notable trends?

The brokerage segment, representing 73% of revenue in the first half of 2011, showed strong revenue growth (16% in Q2) and improved earnings. The risk management segment, 27% of revenue, also experienced robust revenue growth (20% in Q2) and improved adjusted EBITDAC, though earnings from continuing operations saw a decline in Q2, which management attributed to specific integration costs and other factors. Organic growth was positive in both segments.

AJG 10-Q Quarterly Report Q2 FY2011 — Revenue, Net Income, EPS

Summary

Arthur J. Gallagher & Co. (AJG) reported solid performance for the second quarter and first half of 2011, with revenue growth driven by both organic increases and strategic acquisitions. The company demonstrated resilience in a challenging economic environment, characterized by stable, albeit low, commercial property/casualty insurance rates. Acquisitions, particularly the significant Heath Lambert acquisition in the UK, contributed substantially to revenue growth, underscoring AJG's international expansion strategy. Profitability remained a key focus, with improvements noted in both the brokerage and risk management segments. Despite economic headwinds, AJG managed its expenses effectively, leading to increased earnings from continuing operations and adjusted EBITDAC. The company's financial position appears strong, supported by healthy operating cash flows and access to its credit facility, allowing for continued investment in growth initiatives and shareholder returns through dividends.

Financial Highlights

47 data points

Beta

Revenue

$546.10M

1.0% Gross Margin

Net Income

$41.70M

0.1% Net Margin

EPS (Diluted)

$0.37

Total Assets

$4.58B

Cash & Equivalents

$263.20M

Free Cash Flow

$90.70M

Financial Statements

Beta

Revenue	$546.10M
Cost of Revenue	$11.70M
Gross Profit	$534.40M
Operating Expenses	$108.20M
Operating Income	$41.70M
Interest Expense	$10.60M
Net Income	$41.70M
EPS (Basic)	$0.38
EPS (Diluted)	$0.37
Shares Outstanding (Basic)	111.00M

Key Highlights

1Total revenues increased by 17% year-over-year in the second quarter to $403.8 million, driven by a 16% increase in the brokerage segment and a 20% increase in the risk management segment.
2Organic revenue growth was positive across both segments, with commissions and fees up 2.1% in brokerage and 5.9% in risk management for the second quarter.
3The company successfully completed 13 acquisitions in the first half of 2011, including the significant acquisition of Heath Lambert in the UK for $163.5 million, demonstrating a strong M&A strategy.
4Net earnings from continuing operations for the second quarter were $41.7 million, or $0.37 per diluted share, compared to $41.9 million, or $0.40 per diluted share, in the prior year quarter, showing stable profitability.
5Adjusted EBITDAC, a key non-GAAP measure, increased by 14% to $152.6 million for the brokerage segment and 19% to $20.1 million for the risk management segment in the second quarter.
6The company generated $97.4 million in net cash provided by operating activities for the first half of 2011, indicating strong operational cash generation.
7Dividends paid increased to $73.9 million for the first half of 2011, with a planned quarterly dividend increase to $0.33 per share.

Arthur J. Gallagher & Co. Quarterly Report for Q2 Ended Jun 30, 2011

Summary

Financial Highlights

Key Highlights

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