10-QPeriod: Q2 FY2011

MARSH & MCLENNAN COMPANIES, INC. Quarterly Report for Q2 Ended Jun 30, 2011

Filed August 5, 2011For Securities:MRSHMMC

Summary

Marsh & McLennan Companies, Inc. (MRSH) reported a solid increase in revenue and operating income for the second quarter and first six months of 2011 compared to the same periods in 2010. The company saw robust growth in both its Risk and Insurance Services and Consulting segments, driven by strategic acquisitions and underlying business performance. Notably, the Risk and Insurance Services segment demonstrated strong revenue growth, with Marsh benefiting from expansion in Latin America and Guy Carpenter from global specialties. The Consulting segment, led by Mercer and Oliver Wyman Group, also showed positive top-line momentum. Despite some increased operating expenses related to compensation, pension costs, and acquisitions, the company's operating income improved significantly due to the absence of a large litigation settlement charge that impacted the prior year's results. Marsh & McLennan also actively managed its capital structure, including tendering for its own debt and continuing share repurchases. Investors should note the ongoing integration of acquired businesses and the company's focus on underlying revenue growth as key drivers for future performance.

Financial Highlights

50 data points
Beta

Revenue

$2.93B

Net Income

$282.00M

9.6% Net Margin

EPS (Diluted)

$0.50

Total Assets

$15.45B

Cash & Equivalents

$1.66B

Free Cash Flow

$631.00M

Financial Statements
Beta
Revenue$2.93B
Operating Expenses$2.46B
Operating Income$465.00M
Interest Expense$49.00M
Net Income$282.00M
EPS (Basic)$0.51
EPS (Diluted)$0.50
Shares Outstanding (Basic)547.00M
Shares Outstanding (Diluted)555.00M

Key Highlights

  • 1Consolidated revenue increased 12% to $2.9 billion in Q2 2011 and 11% to $5.8 billion in the first six months of 2011 year-over-year.
  • 2Operating income significantly improved to $465 million in Q2 2011 and $937 million in the first six months of 2011, compared to an operating loss of $50 million and operating income of $375 million, respectively, in the prior year periods.
  • 3Risk and Insurance Services segment revenue grew 11% in Q2 2011 and 10% in the first six months of 2011, with underlying revenue growth of 5% in both periods.
  • 4Consulting segment revenue increased 13% in Q2 2011 and 11% in the first six months of 2011, with underlying revenue growth of 5% and 6%, respectively.
  • 5The company repurchased approximately 7.8 million shares of common stock in Q2 2011 for $235 million.
  • 6The company commenced tender offers to purchase up to $500 million of its outstanding notes due 2014 and 2015, and completed the purchase of $600 million in notes on July 15, 2011.
  • 7The effective tax rate for Q2 2011 was 31.1%, and for the first six months of 2011 was 29.8%, which included a tax benefit from an IRS audit settlement.

Frequently Asked Questions

The significant improvement in operating income was primarily driven by the absence of a $400 million charge recorded in the second quarter of 2010 related to the resolution of litigation brought by the Alaska Retirement Management Board against Mercer. While operating expenses did increase due to factors like compensation, pension costs, and acquisitions, the comparison benefited greatly from the non-recurrence of this large prior-year charge.

The company completed several acquisitions across both its Risk and Insurance Services and Consulting segments during the reporting periods. These acquisitions contributed to revenue growth, representing approximately 2-3% of the total revenue increase in Q2 and the first six months of 2011. Acquisitions also led to an increase in operating expenses, with their impact on underlying expenses being around 2-3% for the same periods.

Marsh & McLennan actively managed its capital structure. In Q2 2011, the company repurchased approximately 7.8 million shares for $235 million. Furthermore, it initiated tender offers and subsequently purchased $600 million of its outstanding notes due 2014 and 2015. The company also has an ongoing share repurchase authorization with approximately $179 million remaining.

The effective tax rate for Q2 2011 was 31.1%, and for the first six months of 2011 was 29.8%. The first six months' rate included a tax benefit from the settlement of an IRS audit for 2006-2008. The prior year's effective tax rate was significantly impacted by a tax benefit related to the Alaska settlement and, in Q2 2010, a high tax benefit on a pre-tax loss. The company notes that its effective tax rate is sensitive to the geographic mix of earnings and potential changes in tax laws.