10-QPeriod: Q1 FY2016

Arthur J. Gallagher & Co. Quarterly Report for Q1 Ended Mar 31, 2016

Filed May 2, 2016For Securities:AJG

Summary

Arthur J. Gallagher & Co. (AJG) reported increased revenues and net earnings for the first quarter of 2016 compared to the same period in 2015, driven by growth in both its Brokerage and Risk Management segments. The company's strategic focus on acquisitions and organic growth appears to be yielding positive results, with notable revenue increases in the Brokerage segment driven by both new business and acquired operations. While the overall insurance rate environment is moderating, AJG's professionals are demonstrating expertise in navigating these conditions. The company continues to invest in its future, notably through its headquarters relocation project, which is partially offset by tax incentives. AJG also highlighted its ongoing commitment to returning capital to shareholders through dividends and share repurchases. Management remains optimistic about the company's financial position and future prospects, supported by strong cash flow generation and a solid credit facility.

Financial Highlights

44 data points
Beta

Revenue

$1.30B

Net Income

$46.50M

3.6% Net Margin

EPS (Diluted)

$0.26

Total Assets

$10.71B

Cash & Equivalents

$425.40M

Free Cash Flow

$38.10M

Financial Statements
Beta
Revenue$1.30B
Operating Expenses$1.24B
Interest Expense$25.80M
Net Income$46.50M
EPS (Basic)$0.26
EPS (Diluted)$0.26
Shares Outstanding (Basic)177.00M

Key Highlights

  • 1Total revenues increased by 8% to $1,004.8 million for the combined Brokerage and Risk Management segments in Q1 2016 compared to Q1 2015.
  • 2Net earnings attributable to controlling interests significantly increased to $46.5 million in Q1 2016, up from $21.9 million in Q1 2015.
  • 3Brokerage segment revenue grew 10% to $825.5 million, with organic commission and fee revenue up 3.5%, indicating continued underlying business growth.
  • 4Risk Management segment revenue saw a modest 1% increase to $179.3 million, with organic fees growing by 4.7%.
  • 5The company completed eight acquisitions in the Brokerage segment during Q1 2016, with annualized revenues of $30.0 million, reflecting an active M&A strategy.
  • 6Cash flow from operating activities was $109.4 million for Q1 2016, demonstrating the company's ability to generate cash from its core operations.
  • 7AJG repurchased 0.8 million shares of common stock for $30.4 million in Q1 2016, in line with its capital return strategy and efforts to offset shares issued for acquisitions.

Frequently Asked Questions

Revenue growth was primarily driven by the Brokerage segment, which saw a 10% increase in total revenues. This growth was fueled by a combination of organic increases in commissions and fees (3.5%) and the revenue generated from eight acquisitions completed during the quarter.

Profitability improved significantly. Net earnings attributable to controlling interests more than doubled, increasing from $21.9 million in Q1 2015 to $46.5 million in Q1 2016. This improvement was seen across both the Brokerage and Risk Management segments.

Arthur J. Gallagher & Co. continues to actively pursue an acquisition strategy, particularly in its Brokerage segment. The company completed eight acquisitions in Q1 2016, contributing $30.0 million in annualized revenues, demonstrating a consistent approach to expanding its business through inorganic growth.

The company maintains a strong liquidity position, supported by $109.4 million in cash flow from operations for Q1 2016 and an available credit facility of $273.5 million as of March 31, 2016. They also recently amended and extended their Credit Agreement, increasing the commitment to $800 million. The company anticipates completing a $275 million private placement debt transaction in Q2 2016.