10-QPeriod: Q2 FY2017

Arthur J. Gallagher & Co. Quarterly Report for Q2 Ended Jun 30, 2017

Filed July 28, 2017For Securities:AJG

Summary

Arthur J. Gallagher & Co. (AJG) reported solid financial results for the six months ended June 30, 2017. Total revenues increased by 9% year-over-year to $2.98 billion, driven by strong performance in both the Brokerage and Corporate segments. Net earnings attributable to controlling interests rose by 16% to $227.6 million, with diluted EPS improving to $1.26 from $1.10 in the prior year period. The Brokerage segment, the largest contributor to revenue, saw a 6% increase in total revenues, with organic growth in commissions and fees demonstrating underlying business strength. The Corporate segment significantly benefited from its clean energy investments, which generated substantial earnings. The company continued its active acquisition strategy, investing $225.2 million in new businesses during the period, indicating a commitment to expansion. AJG's balance sheet remains robust, with total assets growing to $12.6 billion. The company maintained strong liquidity, with cash and cash equivalents increasing to $587.8 million. Management expressed confidence in the company's ability to meet its liquidity needs and continue its strategic initiatives, including M&A and dividend payments.

Financial Highlights

44 data points
Beta

Revenue

$1.49B

Net Income

$70.00M

4.7% Net Margin

EPS (Diluted)

$0.39

Total Assets

$12.57B

Cash & Equivalents

$587.80M

Free Cash Flow

$153.60M

Financial Statements
Beta
Revenue$1.49B
Operating Expenses$1.44B
Interest Expense$31.60M
Net Income$70.00M
EPS (Basic)$0.39
EPS (Diluted)$0.39
Shares Outstanding (Basic)179.90M

Key Highlights

  • 1Total revenues increased by 9% to $2.98 billion for the first six months of 2017, compared to $2.73 billion in the same period of 2016.
  • 2Net earnings attributable to controlling interests grew by 16% to $227.6 million, with diluted EPS rising to $1.26 from $1.10.
  • 3The Brokerage segment demonstrated continued strength, with revenues up 6% to $1.88 billion, supported by new business and organic growth.
  • 4Clean energy investments within the Corporate segment significantly contributed to earnings, with projected net earnings of $119-$128 million for 2017.
  • 5The company actively pursued its growth strategy through acquisitions, spending $225.2 million in the first six months of 2017.
  • 6Cash and cash equivalents increased to $587.8 million, indicating a healthy liquidity position.
  • 7The company maintained its dividend payment, declaring $0.39 per common share for the third quarter of 2017.

Frequently Asked Questions

Revenue growth was primarily driven by the strong performance of the Brokerage segment, which saw increased commissions and fees due to new business and organic growth. Additionally, the Corporate segment's clean energy investments contributed significantly to revenue and earnings. Acquisitions also played a role in expanding the company's top line.

Arthur J. Gallagher & Co. continued its active acquisition strategy, investing $225.2 million in new businesses during the first six months of 2017. These acquisitions contributed to revenue growth and expanded the company's market presence, although they also incurred integration costs and increased amortization expenses related to acquired intangibles.

The company's clean energy investments, primarily in refined coal production plants, are a significant contributor to earnings. For 2017, management projects net earnings from these investments to be between $119 million and $128 million, which are expected to support the company's M&A strategy and other capital allocation priorities.

The company maintained a strong liquidity position, with cash and cash equivalents increasing to $587.8 million. AJG has access to a $800 million credit facility and managed its debt effectively, using a combination of operating cash flow and borrowings to fund acquisitions and other corporate needs. The company stated it has sufficient capital to meet its short- and long-term cash flow needs.