10-QPeriod: Q2 FY2014

Arthur J. Gallagher & Co. Quarterly Report for Q2 Ended Jun 30, 2014

Filed August 1, 2014For Securities:AJG

Summary

Arthur J. Gallagher & Co. (AJG) reported solid financial results for the second quarter and first half of 2014, demonstrating robust growth driven by both organic initiatives and strategic acquisitions. Total revenues increased significantly, bolstered by strong performance in the brokerage segment, which benefited from substantial revenue contributions from recent acquisitions. The company also saw positive organic growth in its core commission and fee revenues, indicating underlying business strength. AJG continues its aggressive M&A strategy, completing several significant acquisitions during the period, notably Oval Group of Companies and the Crombie/OAMPS operations, which are expected to further enhance its global reach and service offerings. Profitability also showed improvement, with net earnings and diluted EPS increasing year-over-year. The company's clean energy investments continue to be a significant contributor to earnings and cash flow, providing a strong foundation for future growth and M&A activities. Despite substantial investments in acquisitions, AJG maintained a strong liquidity position, supported by operating cash flows and available credit facilities. The company reaffirmed its commitment to returning value to shareholders through dividends, demonstrating confidence in its ongoing financial health and future prospects.

Financial Highlights

46 data points
Beta

Revenue

$1.18B

77.1% Gross Margin

Net Income

$109.00M

9.2% Net Margin

EPS (Diluted)

$0.70

Total Assets

$10.02B

Cash & Equivalents

$973.50M

Free Cash Flow

$116.40M

Financial Statements
Beta
Revenue$1.18B
Cost of Revenue$270.50M
Gross Profit$908.80M
Operating Expenses$179.20M
Operating Income-$158.30M
Interest Expense$21.20M
Net Income$109.00M
EPS (Basic)$0.71
EPS (Diluted)$0.70
Shares Outstanding (Basic)154.30M

Key Highlights

  • 1Total revenues increased significantly year-over-year, driven by strong performance in the brokerage segment and substantial contributions from recent acquisitions.
  • 2AJG completed several significant acquisitions, including Oval Group of Companies and Crombie/OAMPS, significantly expanding its global footprint and capabilities.
  • 3Both net earnings and diluted EPS showed year-over-year improvement, reflecting enhanced profitability.
  • 4The company reported positive organic growth in commission and fee revenues for its brokerage and risk management segments.
  • 5Clean energy investments provided a significant boost to earnings and cash flow, supporting the company's M&A strategy.
  • 6AJG maintained a strong liquidity position, with significant operating cash flow and available credit facilities to support ongoing operations and strategic initiatives.
  • 7The company continued its dividend payments, demonstrating a commitment to shareholder returns.

Frequently Asked Questions

Revenue growth was primarily driven by significant contributions from recent acquisitions, particularly in the brokerage segment, and positive organic growth in core commission and fee revenues. The company also saw an increase in supplemental and contingent commissions.

AJG is financing its acquisitions through a combination of sources, including proceeds from a secondary public offering of common stock, borrowings under its Credit Agreement and new private placement debt agreements, as well as cash from operations and the issuance of its common stock.

The clean energy investments, particularly those related to refined coal tax credits (IRC Section 45), are a significant contributor to AJG's earnings and cash flow. For the six-month period ended June 30, 2014, these investments generated substantial earnings and are expected to continue providing strong financial benefits, which the company plans to reinvest in its core brokerage and risk management operations through M&A.

The company's debt levels increased significantly due to financing the substantial acquisition activity during the period. New borrowings were taken on through note purchase agreements and its credit facility to fund acquisitions such as Oval and Crombie/OAMPS.