10-QPeriod: Q1 FY2012

Arthur J. Gallagher & Co. Quarterly Report for Q1 Ended Mar 31, 2012

Filed May 2, 2012For Securities:AJG

Summary

Arthur J. Gallagher & Co. reported solid revenue growth for the first quarter of 2012, driven by both organic increases and strategic acquisitions. Total revenues increased by 21% compared to the prior year's first quarter, reaching $546.8 million. This growth was primarily fueled by the brokerage segment, which saw a significant rise in commissions and fees. The company also demonstrated improved profitability, with net earnings more than doubling year-over-year to $28.1 million, translating to a diluted EPS of $0.24, up from $0.14 in the same period last year. Acquisitions continue to be a key driver of expansion, with twelve new firms integrated during the quarter, adding $30.6 million in annualized revenues. The company's strategic focus on both domestic and international markets appears to be paying off, with international operations contributing 19% of revenues. While the company faces ongoing economic headwinds, the firming insurance market and its diversified business segments position it for continued growth.

Financial Highlights

45 data points
Beta

Revenue

$546.80M

96.8% Gross Margin

Net Income

$28.10M

5.1% Net Margin

EPS (Diluted)

$0.24

Total Assets

$4.60B

Cash & Equivalents

$301.80M

Free Cash Flow

-$62.60M

Financial Statements
Beta
Revenue$546.80M
Cost of Revenue$17.70M
Gross Profit$529.10M
Operating Expenses$108.30M
Operating Income$28.10M
Interest Expense$10.60M
Net Income$28.10M
EPS (Basic)$0.24
EPS (Diluted)$0.24
Shares Outstanding (Basic)116.40M

Key Highlights

  • 1Total revenues increased by 21% to $546.8 million for the quarter ended March 31, 2012, compared to $447.4 million in the prior year period.
  • 2Net earnings more than doubled to $28.1 million from $15.2 million in the first quarter of 2011.
  • 3Diluted earnings per share rose to $0.24 from $0.14 year-over-year.
  • 4The company completed twelve acquisitions in the quarter, adding significant annualized revenue and expanding its market presence.
  • 5Organic growth in commissions, fees, and supplemental commissions was 3.5% in the brokerage segment and 7.0% in the risk management segment.
  • 6The clean energy investments segment contributed $7.2 million to net earnings, highlighting diversification benefits.
  • 7Total assets grew to $4.60 billion as of March 31, 2012, from $4.48 billion as of December 31, 2011.

Frequently Asked Questions

Revenue growth was primarily driven by a combination of organic growth in both the brokerage and risk management segments, as well as the successful integration of twelve acquired businesses during the quarter. Commissions and fees from the brokerage segment, in particular, saw a substantial increase.

Profitability significantly improved. Net earnings more than doubled to $28.1 million in the first quarter of 2012, compared to $15.2 million in the same period of 2011. This resulted in a notable increase in diluted earnings per share from $0.14 to $0.24.

The corporate segment, which includes clean energy investments, contributed positively to the company's results by generating $7.2 million in net earnings. This diversification strategy, particularly through IRC Section 45 clean coal tax credits, adds another layer of value beyond the core insurance brokerage and risk management services.

Arthur J. Gallagher & Co. had $92.0 million in borrowings outstanding under its Credit Agreement at March 31, 2012, with $392.1 million remaining available. The company also has $675.0 million in long-term debt under note purchase agreements. Management believes that cash flows from operations, along with available credit, are sufficient to meet liquidity needs, though acquisitions in the quarter were significantly funded by borrowings under the Credit Agreement.