10-QPeriod: Q3 FY2018

MARSH & MCLENNAN COMPANIES, INC. Quarterly Report for Q3 Ended Sep 30, 2018

Filed October 26, 2018For Securities:MRSHMMC

Summary

Marsh & McLennan Companies, Inc. (MRSH) reported solid financial results for the nine months ended September 30, 2018. Revenue increased by 9% to $11.24 billion, driven by contributions from acquisitions and a favorable impact from the adoption of new revenue recognition standards. Operating income grew by 8% to $2.14 billion, reflecting disciplined expense management and strategic growth initiatives. Key financial highlights include a strong operating cash flow of $1.32 billion and continued investment in strategic acquisitions. The company also announced a significant pending acquisition of Jardine Lloyd Thompson Group plc (JLT), which is expected to close in spring 2019, demonstrating a commitment to inorganic growth. Investors should note the impact of new accounting standards, particularly on revenue recognition, and the ongoing integration of acquired businesses as key factors to monitor.

Financial Highlights

51 data points
Beta

Revenue

$3.50B

Net Income

$276.00M

7.9% Net Margin

EPS (Diluted)

$0.54

Total Assets

$21.13B

Cash & Equivalents

$951.00M

Free Cash Flow

$819.00M

Financial Statements
Beta
Revenue$3.50B
Operating Expenses$2.96B
Operating Income$541.00M
Interest Expense$69.00M
Net Income$276.00M
EPS (Basic)$0.55
EPS (Diluted)$0.54
Shares Outstanding (Basic)504.00M
Shares Outstanding (Diluted)510.00M

Key Highlights

  • 1Consolidated revenue for the nine months ended September 30, 2018, increased by 9% to $11.24 billion, compared to $10.34 billion in the prior year period.
  • 2Operating income for the nine months ended September 30, 2018, increased by 8% to $2.14 billion, compared to $1.99 billion in the prior year period.
  • 3Net income attributable to the Company for the nine months ended September 30, 2018, was $1.50 billion, a slight increase from $1.46 billion in the prior year period.
  • 4Operating cash flow for the nine months ended September 30, 2018, was $1.32 billion, an increase from $1.14 billion in the prior year period.
  • 5The company repurchased approximately 8.2 million shares of common stock for $675 million during the first nine months of 2018.
  • 6A significant pending acquisition of Jardine Lloyd Thompson Group plc (JLT) was announced, valued at approximately $5.6 billion, expected to close in spring 2019.
  • 7The adoption of new revenue recognition standards effective January 1, 2018, impacted the timing of revenue recognition, particularly accelerating reinsurance broking revenue.

Frequently Asked Questions

The adoption of the new revenue recognition standard effective January 1, 2018, primarily impacted the timing of revenue recognition, especially in the Risk and Insurance Services segment. It accelerated the recognition of reinsurance broking revenue and also led to the capitalization and amortization of certain costs that were previously expensed. The company recorded a cumulative effect adjustment to retained earnings of $364 million upon adoption and noted a 2% decrease in revenue for the third quarter of 2018 due to this change, though the overall annual impact was not expected to be significant.

Marsh & McLennan Companies announced an agreement to acquire Jardine Lloyd Thompson Group plc (JLT) for approximately £4.3 billion (or $5.6 billion). The transaction is expected to close in the spring of 2019 and is subject to various conditions, including regulatory and shareholder approvals. This acquisition is a significant strategic move aimed at expanding the company's global reach and capabilities. The company has entered into a bridge loan agreement to finance the acquisition and has taken steps to hedge currency risk associated with the GBP-denominated purchase price.

For the nine months ended September 30, 2018, Marsh & McLennan Companies reported an operating income of $2.14 billion, an increase of 8% from the prior year. Net income attributable to the Company was $1.50 billion. The company generated strong operating cash flow of $1.32 billion during the same period, an increase from $1.14 billion in the prior year, demonstrating robust cash generation capabilities to fund operations, investments, and shareholder returns.

The company is subject to ongoing investigations by regulatory authorities, including the European Commission and the U.K. FCA, related to competition and the exchange of commercially sensitive information in the aviation and aerospace insurance and reinsurance broking sectors. The company is cooperating with these investigations and is unable to predict their outcome or ultimate impact, but acknowledges that adverse resolutions could materially affect its results. Additionally, the company is involved in other legal proceedings and claims in the ordinary course of business.