10-QPeriod: Q2 FY2019

Arthur J. Gallagher & Co. Quarterly Report for Q2 Ended Jun 30, 2019

Filed July 26, 2019For Securities:AJG

Summary

Arthur J. Gallagher & Co. (AJG) reported solid financial results for the six months ending June 30, 2019. Total revenues grew to $3.65 billion, an increase driven by strong performance in the Brokerage segment, which saw revenues climb to $2.51 billion, up 14% year-over-year. This growth was fueled by a combination of acquisitions and robust organic growth in commissions and fees. The Risk Management segment also showed modest revenue growth, reaching $478.5 million. The company's net earnings attributable to controlling interests were $444.2 million for the first six months of 2019, a significant increase from $388.6 million in the prior year, reflecting improved profitability across its core operations. AJG continued its strategic growth through acquisitions, investing $733.9 million in the first half of 2019 for new businesses, expanding its market reach and service capabilities. The company also maintained a disciplined approach to capital management, increasing its credit facility and demonstrating a commitment to shareholder returns through consistent dividend payments. While the corporate segment, largely influenced by clean energy investments, experienced a decline in revenue, the core brokerage and risk management segments delivered strong operational performance, positioning AJG for continued growth.

Financial Highlights

45 data points
Beta

Revenue

$1.66B

82.4% Gross Margin

Net Income

$110.10M

6.6% Net Margin

EPS (Diluted)

$0.58

Total Assets

$19.20B

Cash & Equivalents

$512.30M

Free Cash Flow

$515.80M

Financial Statements
Beta
Revenue$1.66B
Cost of Revenue$292.00M
Gross Profit$1.37B
Operating Expenses$1.55B
Interest Expense$44.90M
Net Income$110.10M
EPS (Basic)$0.59
EPS (Diluted)$0.58
Shares Outstanding (Basic)185.80M

Key Highlights

  • 1Total revenues increased to $3.65 billion for the six months ended June 30, 2019, up from $3.50 billion in the prior year.
  • 2Brokerage segment revenues grew by 14% to $2.51 billion for the six months ended June 30, 2019, driven by acquisitions and organic growth.
  • 3Net earnings attributable to controlling interests increased to $444.2 million for the first six months of 2019, up from $388.6 million in the same period of 2018.
  • 4The company invested $733.9 million in acquisitions during the first six months of 2019, indicating a continued focus on strategic expansion.
  • 5Diluted net earnings per share (EPS) rose to $2.35 for the six months ended June 30, 2019, compared to $2.10 in the prior year.
  • 6The company amended and restated its credit agreement, increasing the revolving credit commitment to $1.2 billion, enhancing financial flexibility.
  • 7The clean energy segment, while facing revenue declines, contributed positively to overall earnings, with estimated full-year 2019 net earnings from these investments projected between $95-$110 million.

Frequently Asked Questions

Revenue growth was primarily driven by the Brokerage segment, which benefited from strong commission and fee income, bolstered by acquisitions completed in the preceding twelve months and positive organic growth in new business and renewals. The Risk Management segment also contributed to revenue growth with an increase in fees.

Acquisitions played a significant role in AJG's growth, contributing to increased revenues and expanded market presence. The company invested $733.9 million in acquisitions during the first six months of 2019, which, while adding integration costs and amortization expenses, drove top-line growth and is expected to contribute to future earnings.

While revenues from consolidated clean coal production plants decreased, the clean energy investments are projected to generate between $95 million and $110 million in net earnings for the full year 2019. The company plans to utilize this cash flow to support its ongoing mergers and acquisition strategy in its core brokerage and risk management operations.

AJG enhanced its financial flexibility by amending and restating its multicurrency credit agreement, increasing its revolving credit commitment to $1.2 billion and extending the maturity date. The company also maintains a strong liquidity position with significant cash and cash equivalents, enabling it to fund operations, acquisitions, and shareholder returns.