10-QPeriod: Q2 FY2018

Arthur J. Gallagher & Co. Quarterly Report for Q2 Ended Jun 30, 2018

Filed July 27, 2018For Securities:AJG

Summary

Arthur J. Gallagher & Co. (AJG) reported strong performance for the second quarter and first half of 2018, demonstrating significant growth across its core brokerage and risk management segments. Total revenues increased by approximately 11% and 10% year-over-year for the respective periods, driven by a combination of new business, favorable renewal rate increases, and strategic acquisitions. The company's adjusted EBITDAC for the brokerage segment saw a healthy increase of 13% and 11% for the quarter and half-year, respectively, reflecting effective cost management and operational efficiency. Diluted EPS also showed substantial improvement, growing 55% and 39% year-over-year for the quarter and half-year, respectively, on a reported basis, and 34% and 30% on an adjusted basis for the same periods. The company's strong financial results were supported by a robust acquisition strategy, with significant investments made in acquiring new firms to expand its market reach and service offerings. Despite the integration costs associated with these acquisitions, AJG managed to improve its profitability and operational leverage. The company's clean energy investments continue to be a significant contributor to overall earnings, though the outlook for these segments is subject to evolving regulatory and market conditions. Overall, AJG's Q2 2018 performance indicates a healthy and growing business with effective execution of its growth strategy. The company's ability to drive organic growth while successfully integrating acquisitions positions it well for continued success.

Financial Highlights

46 data points
Beta

Revenue

$1.66B

73.4% Gross Margin

Net Income

$114.90M

6.9% Net Margin

EPS (Diluted)

$0.62

Total Assets

$16.23B

Cash & Equivalents

$652.20M

Free Cash Flow

$530.90M

Financial Statements
Beta
Revenue$1.66B
Cost of Revenue$441.80M
Gross Profit$1.22B
Operating Expenses$1.56B
Interest Expense$33.90M
Net Income$114.90M
EPS (Basic)$0.63
EPS (Diluted)$0.62
Shares Outstanding (Basic)182.40M

Key Highlights

  • 1Total revenues for the six months ended June 30, 2018, increased by 11% to $3.50 billion compared to the prior year's $3.14 billion.
  • 2Net earnings attributable to controlling interests for the six months ended June 30, 2018, rose by 30% to $388.6 million from $298.8 million in the same period last year.
  • 3Diluted earnings per share for the six months ended June 30, 2018, were $2.10, a 27% increase from $1.65 in the prior year.
  • 4The company completed multiple acquisitions during the period, integrating new firms to expand its brokerage and risk management services.
  • 5Clean energy investments contributed significantly to earnings, with an anticipated $112 million to $118 million in net earnings for 2018.
  • 6The brokerage segment experienced strong organic revenue growth of 5.3% for the first half of 2018.
  • 7AJG's effective tax rate decreased significantly due to the U.S. corporate tax rate reduction enacted in late 2017.

Frequently Asked Questions

Arthur J. Gallagher & Co. reported total revenues of $1.66 billion for the second quarter of 2018, an increase of 11.5% compared to $1.49 billion in the second quarter of 2017. This growth was driven by strong performance in its brokerage and risk management segments.

Net earnings attributable to controlling interests increased significantly to $114.9 million in Q2 2018, from $70.0 million in Q2 2017. Diluted earnings per share rose to $0.62 from $0.39 for the same periods. Adjusted EBITDAC for the brokerage segment grew by 13% year-over-year.

Arthur J. Gallagher & Co. continued its active acquisition strategy in Q2 2018, completing numerous acquisitions to expand its geographic reach and service capabilities. Cash paid for acquisitions, net of cash and restricted cash acquired, was $395.4 million for the first half of 2018. While these acquisitions contributed to revenue growth, they also involved integration costs and amortization of acquired intangible assets.

The company's clean energy investments, particularly those related to refined coal production qualifying for IRC Section 45 tax credits, continue to be a notable contributor to earnings. For the six months ended June 30, 2018, net after-tax earnings from these investments were $66.9 million. The company anticipates these investments will generate between $112 million and $118 million in net earnings for the full year 2018.