10-QPeriod: Q1 FY2013

Arthur J. Gallagher & Co. Quarterly Report for Q1 Ended Mar 31, 2013

Filed May 1, 2013For Securities:AJG

Summary

Arthur J. Gallagher & Co. (AJG) reported a solid first quarter for 2013, demonstrating revenue growth and improved profitability across its core segments. Total revenues increased to $674.1 million from $546.8 million in the prior year's first quarter, driven by strong performance in both the Brokerage and Risk Management segments. Net earnings rose to $40.5 million, or $0.32 per diluted share, from $28.1 million, or $0.24 per diluted share, a significant improvement year-over-year. The company continues to execute its growth strategy through a combination of organic growth and strategic acquisitions, completing four acquisitions in the first quarter with annualized revenues of $5.0 million. The Brokerage segment saw a 18% increase in revenues, while the Risk Management segment grew revenues by 9%. The Corporate segment benefited significantly from its clean energy investments, contributing positively to the overall earnings. AJG maintains a strong liquidity position and is committed to returning value to shareholders through dividends, with a consistent quarterly dividend of $0.35 per share declared.

Financial Highlights

45 data points
Beta

Revenue

$674.10M

91.4% Gross Margin

Net Income

$40.50M

6.0% Net Margin

EPS (Diluted)

$0.32

Total Assets

$5.23B

Cash & Equivalents

$224.00M

Free Cash Flow

$41.90M

Financial Statements
Beta
Revenue$674.10M
Cost of Revenue$58.10M
Gross Profit$616.00M
Operating Expenses$133.80M
Operating Income-$40.50M
Interest Expense$11.20M
Net Income$40.50M
EPS (Basic)$0.32
EPS (Diluted)$0.32
Shares Outstanding (Basic)126.10M

Key Highlights

  • 1Total revenues increased by 23.3% year-over-year to $674.1 million.
  • 2Net earnings grew by 44.1% to $40.5 million, with diluted EPS increasing to $0.32 from $0.24.
  • 3The Brokerage segment's revenues grew 18% to $454.4 million, with adjusted EBITDAC up 28%.
  • 4The Risk Management segment's revenues grew 9% to $153.6 million, with adjusted EBITDAC up 13%.
  • 5Clean energy investments contributed positively, generating $13.2 million to net earnings in the quarter.
  • 6The company completed four acquisitions in the quarter, reflecting ongoing strategic growth initiatives.
  • 7Shareholders received a consistent quarterly dividend of $0.35 per share.

Frequently Asked Questions

Revenue growth was primarily driven by increases in commissions and fees within the Brokerage and Risk Management segments. This growth was supported by contributions from recent acquisitions and positive organic growth in base commission and fee revenues, which increased by 5% in the Brokerage segment and 11% in the Risk Management segment. The Corporate segment also saw a significant increase in revenue due to its clean energy investments.

Profitability improved significantly. Net earnings rose by 44.1% to $40.5 million, and diluted earnings per share increased to $0.32 from $0.24. This improvement was evident across the operating segments, with the Brokerage segment's net earnings up 39% and the Risk Management segment's net earnings up 19%. The company also saw an improvement in adjusted EBITDAC margins.

The company continues to pursue its acquisition strategy, having completed four acquisitions in the first quarter of 2013. These acquisitions are expected to contribute to future growth. The clean energy investments are also a significant positive factor, with the company anticipating them to generate between $70 million and $80 million for the full year 2013, which will further fuel its M&A strategy in its core brokerage and risk management operations.

Arthur J. Gallagher & Co. demonstrated its commitment to returning value to shareholders by maintaining a consistent quarterly dividend of $0.35 per share. The company also has an active stock repurchase plan, with approximately 10 million shares authorized for repurchase as of March 31, 2013, although no shares were repurchased in the first quarter of 2013.