10-QPeriod: Q1 FY2019

Arthur J. Gallagher & Co. Quarterly Report for Q1 Ended Mar 31, 2019

Filed April 29, 2019For Securities:AJG

Summary

Arthur J. Gallagher & Co. (AJG) reported solid financial results for the first quarter of 2019, demonstrating continued growth driven by its core brokerage and risk management segments. Total revenues increased by 8.3% year-over-year to $1,990.6 million, reflecting strong performance in commissions and fees, as well as significant gains from divestitures. Net earnings attributable to controlling interests rose by 22.1% to $334.1 million, and diluted EPS grew by 20.3% to $1.77. The company's strategic acquisitions continue to contribute positively to revenue and market expansion, as evidenced by the acquisition of several firms during the quarter. While the 'Corporate' segment, largely driven by clean energy investments, saw a decrease in revenue and increased losses before income taxes, the core insurance brokerage and risk management segments showed robust performance. The company also highlighted its continued commitment to returning value to shareholders through increased dividends. Management expressed confidence in the company's liquidity and ability to fund future growth and acquisitions.

Financial Highlights

45 data points
Beta

Revenue

$1.99B

80.8% Gross Margin

Net Income

$334.10M

16.8% Net Margin

EPS (Diluted)

$1.77

Total Assets

$18.63B

Cash & Equivalents

$871.50M

Free Cash Flow

-$96.20M

Financial Statements
Beta
Revenue$1.99B
Cost of Revenue$382.50M
Gross Profit$1.61B
Operating Expenses$1.67B
Interest Expense$40.20M
Net Income$334.10M
EPS (Basic)$1.81
EPS (Diluted)$1.77
Shares Outstanding (Basic)184.50M

Key Highlights

  • 1Total revenues increased by 8.3% to $1,990.6 million in Q1 2019 compared to Q1 2018.
  • 2Net earnings attributable to controlling interests grew by 22.1% to $334.1 million.
  • 3Diluted earnings per share (EPS) increased by 20.3% to $1.77.
  • 4The Brokerage segment's revenues increased by 15.6% to $1,381.9 million, driven by acquisitions and organic growth.
  • 5Net gains on divestitures amounted to $57.1 million, contributing significantly to revenue.
  • 6Dividends declared per common share increased to $0.43 from $0.41 in the prior year's quarter.
  • 7The company completed 11 acquisitions during the first quarter of 2019.

Frequently Asked Questions

Revenue growth was primarily driven by an increase in commissions and fees, coupled with significant net gains on divestitures. Acquisitions also played a substantial role, contributing to the revenue growth in the Brokerage segment.

Revenues from the clean energy segment decreased due to lower production of refined coal. While clean energy investments generated $61.5 million in net after-tax earnings, the 'Corporate' segment, which includes these investments, experienced an overall loss before income taxes due to associated operating expenses and interest costs.

Arthur J. Gallagher & Co. completed 11 acquisitions in the first quarter of 2019 and plans to continue its acquisition strategy, using a combination of debt, credit facilities, operating cash flow, and common stock to fund future deals. The company sees acquisitions as a key driver for market expansion and growth.

The company is actively defending against a class-action lawsuit related to micro-captives and is cooperating with an IRS investigation into its micro-captive advisory services. Management is vigorously defending against these matters and states it is not possible to predict the ultimate outcome or financial impact at this time.