10-QPeriod: Q1 FY2018

Arthur J. Gallagher & Co. Quarterly Report for Q1 Ended Mar 31, 2018

Filed May 7, 2018For Securities:AJG

Summary

Arthur J. Gallagher & Co. (AJG) reported solid financial results for the first quarter of 2018, demonstrating revenue growth and increased profitability. Total revenues rose by 11.5% to $1.838 billion, driven by strong performance in the brokerage segment, which benefited from both organic growth and strategic acquisitions. Net earnings attributable to controlling interests saw a significant increase of 19.6% to $273.7 million, translating to a diluted EPS of $1.48, up from $1.27 in the prior year's comparable period. The company's effective tax rate decreased due to the Tax Cuts and Jobs Act enacted in late 2017, contributing to improved net earnings. The company highlighted its successful integration of recent acquisitions and continued focus on expanding its service offerings and geographic reach. Management expressed optimism about ongoing market conditions, anticipating stable insurance pricing with modest exposure growth, which should support continued organic revenue expansion. AJG's diversified business model, strong market position, and disciplined M&A strategy position it well for sustained growth and value creation for shareholders.

Financial Highlights

45 data points
Beta

Revenue

$1.84B

76.5% Gross Margin

Net Income

$273.70M

14.9% Net Margin

EPS (Diluted)

$1.48

Total Assets

$16.13B

Cash & Equivalents

$697.90M

Free Cash Flow

-$217.60M

Financial Statements
Beta
Revenue$1.84B
Cost of Revenue$431.20M
Gross Profit$1.41B
Operating Expenses$1.60B
Interest Expense$31.30M
Net Income$273.70M
EPS (Basic)$1.51
EPS (Diluted)$1.48
Shares Outstanding (Basic)181.50M

Key Highlights

  • 1Total revenues increased by 11.5% to $1.838 billion, compared to $1.646 billion in Q1 2017.
  • 2Net earnings attributable to controlling interests grew by 19.6% to $273.7 million, up from $228.8 million in Q1 2017.
  • 3Diluted earnings per share (EPS) increased to $1.48 from $1.27 in the prior year's quarter, representing a 16.5% increase.
  • 4The brokerage segment, AJG's largest, saw a 10.5% increase in total revenues to $1.196 billion, driven by organic growth and acquisitions.
  • 5The company's effective tax rate decreased significantly due to the Tax Cuts and Jobs Act, positively impacting net earnings.
  • 6AJG completed multiple acquisitions during the quarter, further expanding its market presence and service capabilities.
  • 7The company maintained a strong balance sheet with substantial liquidity to support ongoing operations and strategic initiatives.

Frequently Asked Questions

The primary driver of revenue growth was the strong performance of the brokerage segment, which benefited from both organic growth (new business and renewals) and the successful integration of acquisitions completed in the preceding twelve months. Supplemental and contingent revenues also contributed positively.

The Tax Cuts and Jobs Act, enacted in late 2017, significantly lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. This reduction in the corporate tax rate led to a lower effective tax rate for AJG in the first quarter of 2018, which contributed to a substantial increase in net earnings and diluted earnings per share compared to the prior year.

Management anticipates continued organic growth driven by a stable insurance rate environment with modestly growing exposure units, coupled with strong new business generation, solid client retention, and enhanced value-added services. International markets are also showing signs of improvement, supporting the outlook for further expansion.

AJG maintains a strong liquidity position with a significant balance of cash and cash equivalents and available borrowing capacity under its Credit Agreement. The company's consistent dividend payments and share repurchase programs reflect its confidence in its financial health. The company was in compliance with all financial covenants under its debt agreements as of March 31, 2018.