10-QPeriod: Q3 FY2012

Arthur J. Gallagher & Co. Quarterly Report for Q3 Ended Sep 30, 2012

Filed October 31, 2012For Securities:AJG

Summary

Arthur J. Gallagher & Co. (AJG) reported strong performance for the nine months ended September 30, 2012, with total revenues reaching $1.85 billion, a significant increase from $1.56 billion in the prior year period. This growth was primarily driven by a substantial rise in commissions and fees within the brokerage segment, augmented by strategic acquisitions. Net earnings for the nine-month period also saw a healthy increase, rising to $161.5 million from $103.6 million year-over-year, with diluted EPS improving to $1.33 from $0.93. The company continued its aggressive acquisition strategy, completing 38 acquisitions in the first nine months of 2012, contributing significantly to revenue growth, particularly in the brokerage segment. While this growth is positive, investors should note the ongoing integration costs associated with these acquisitions, which are detailed in the Management's Discussion and Analysis. The company also highlighted positive organic growth in both its brokerage and risk management segments, indicating underlying business strength beyond M&A activity. The clean energy investments also contributed positively to net earnings.

Financial Highlights

45 data points
Beta

Revenue

$650.40M

95.7% Gross Margin

Net Income

$61.70M

9.5% Net Margin

EPS (Diluted)

$0.50

Total Assets

$5.01B

Cash & Equivalents

$305.20M

Free Cash Flow

$106.90M

Financial Statements
Beta
Revenue$650.40M
Cost of Revenue$27.70M
Gross Profit$622.70M
Operating Expenses$121.60M
Operating Income$61.70M
Interest Expense$10.70M
Net Income$61.70M
EPS (Basic)$0.50
EPS (Diluted)$0.50
Shares Outstanding (Basic)123.10M

Key Highlights

  • 1Total revenues increased by 18.7% to $1.85 billion for the nine months ended September 30, 2012.
  • 2Net earnings grew significantly by 55.9% to $161.5 million for the nine months ended September 30, 2012.
  • 3Diluted EPS improved to $1.33 for the nine months ended September 30, 2012, up from $0.93 in the prior year period.
  • 4The company completed 38 acquisitions in the first nine months of 2012, contributing to revenue growth.
  • 5Brokerage segment revenues grew by 17% to $1.34 billion for the nine months ended September 30, 2012.
  • 6Risk Management segment revenues grew by 5.8% to $426.9 million for the nine months ended September 30, 2012.
  • 7The company maintained a strong balance sheet with total assets of $5.01 billion and stockholders' equity of $1.64 billion as of September 30, 2012.

Frequently Asked Questions

The primary driver of revenue growth is the strong performance in the brokerage segment, which saw increased commissions and fees. This growth is further bolstered by the company's continued strategy of acquiring other businesses, with 38 acquisitions completed in the first nine months of 2012.

Acquisitions significantly contributed to revenue growth, especially in the brokerage segment. The company acquired 38 businesses in the first nine months of 2012. While beneficial for top-line growth, these acquisitions also incur integration costs, which are detailed in the MD&A section.

The clean energy investments, particularly those related to IRC Section 45 clean coal tax credits, are expected to provide a positive impact on net earnings and reduce future tax payments. The company continues to invest in and manage these operations, though risks and uncertainties are noted in the filing.

The company reported a strong liquidity position with $305.2 million in cash and cash equivalents and $484.1 million available under its credit agreement as of September 30, 2012. It manages its debt through various note purchase agreements and a credit facility, maintaining compliance with covenants. The company also declared a quarterly dividend and increased it slightly.