10-QPeriod: Q2 FY2018

MARSH & MCLENNAN COMPANIES, INC. Quarterly Report for Q2 Ended Jun 30, 2018

Filed July 27, 2018For Securities:MRSHMMC

Summary

Marsh & McLennan Companies, Inc. (MRSH) reported solid financial results for the six months ended June 30, 2018. Total revenue increased by 11% to $7.73 billion compared to the prior year period, driven by strong performance across both the Risk and Insurance Services and Consulting segments. Net income attributable to the Company also saw a significant increase of 14%, reaching $1.22 billion. This growth was supported by a combination of underlying business performance, strategic acquisitions, favorable foreign currency translation, and the adoption of new revenue recognition standards which accelerated certain revenue streams. The company continues its share repurchase program, demonstrating a commitment to returning value to shareholders. Despite some ongoing regulatory investigations, the company's financial footing remains strong. The company successfully navigated the complexities of adopting new accounting standards, particularly ASC 606 (Revenue from Contracts with Customers), which impacted the timing of revenue and expense recognition but is not expected to materially affect annual results. The company also benefited from the Tax Cuts and Jobs Act, which lowered its effective tax rate. Management's discussion highlights increased operating expenses, partly due to restructuring initiatives within the Risk and Insurance Services segment, but underlying operational performance remained robust. With a healthy operating income and a clear strategy for growth and efficiency, MRSH appears well-positioned.

Financial Highlights

51 data points
Beta

Revenue

$3.73B

Net Income

$531.00M

14.2% Net Margin

EPS (Diluted)

$1.04

Total Assets

$21.16B

Cash & Equivalents

$1.04B

Free Cash Flow

$700.00M

Financial Statements
Beta
Revenue$3.73B
Operating Expenses$3.04B
Operating Income$691.00M
Interest Expense$68.00M
Net Income$531.00M
EPS (Basic)$1.05
EPS (Diluted)$1.04
Shares Outstanding (Basic)507.00M
Shares Outstanding (Diluted)512.00M

Key Highlights

  • 1Consolidated revenue for the six months ended June 30, 2018, increased 11% to $7.73 billion, compared to $6.99 billion in the prior year period.
  • 2Net income attributable to the Company for the six months ended June 30, 2018, increased 14% to $1.22 billion, or $2.38 per diluted share, up from $1.07 billion, or $2.05 per diluted share, in the prior year period.
  • 3The adoption of the new revenue recognition standard (ASC 606) accelerated revenue recognition, particularly in the Risk and Insurance Services segment, contributing to reported revenue growth.
  • 4The company benefited from a lower effective tax rate in 2018, largely due to the Tax Cuts and Jobs Act of 2017.
  • 5Operating expenses increased, partly due to a restructuring program initiated in the Risk and Insurance Services segment, incurring $55 million in severance and consulting costs during the second quarter.
  • 6The company continued its share repurchase program, buying back approximately 6.1 million shares for $500 million in the first six months of 2018.
  • 7Despite ongoing regulatory investigations in Europe and Ireland, the company is cooperating and has not yet assessed the ultimate impact on its financial results.

Frequently Asked Questions

For the six months ended June 30, 2018, Marsh & McLennan Companies reported strong financial performance with consolidated revenue increasing by 11% to $7.73 billion and net income attributable to the Company increasing by 14% to $1.22 billion. Diluted earnings per share also rose to $2.38 from $2.05 in the prior year period. This growth was driven by solid performance in both the Risk and Insurance Services and Consulting segments, strategic acquisitions, favorable currency movements, and the adoption of new revenue recognition standards.

The adoption of new accounting standards, particularly ASC 606 (Revenue from Contracts with Customers), effective January 1, 2018, impacted the timing of revenue and expense recognition. For the Risk and Insurance Services segment, this led to an acceleration of revenue recognition, especially in reinsurance broking. While this contributed to reported revenue growth, the company noted it's not expected to have a significant year-over-year impact on annual revenue. The adoption also led to capitalization of certain costs previously expensed.

The Tax Cuts and Jobs Act of 2017 significantly reduced the U.S. corporate tax rate to 21% and introduced a territorial tax system. This resulted in a lower effective tax rate for Marsh & McLennan Companies in the first half of 2018 (24.7%) compared to the prior year (25.9%). While the TCJA provided tax benefits, it was partially offset by increased costs related to the new territorial system and changes in deductibility of certain expenses. The company recorded provisional charges in late 2017 related to the TCJA, which may be subject to further adjustments.

Yes, Marsh & McLennan Companies is cooperating with ongoing civil investigations by the European Commission and the Irish Competition and Consumer Protection Commission related to potential anti-competitive practices in the commercial motor insurance market in Ireland. Additionally, the Financial Conduct Authority (FCA) in the UK had an investigation into the aviation insurance and reinsurance sector, which has been discontinued by the FCA, though the European Commission investigation continues. The company is also subject to a market study by the FCA concerning the UK wholesale insurance broker sector. While the company is cooperating, it is unable to predict the ultimate timing, outcome, or impact of these matters, and there is no assurance they will not materially adversely affect financial results.