10-QPeriod: Q1 FY2019

MARSH & MCLENNAN COMPANIES, INC. Quarterly Report for Q1 Ended Mar 31, 2019

Filed April 26, 2019For Securities:MRSHMMC

Summary

Marsh & McLennan Companies, Inc. (MMC) reported a solid first quarter for 2019, with revenue increasing by 2% to $4.1 billion, or 4% on an underlying basis. This growth was driven by both its Risk and Insurance Services and Consulting segments, despite a slight headwind from foreign currency translation. The company also highlighted significant financing activities undertaken in anticipation of the major acquisition of Jardine Lloyd Thompson (JLT), which closed just after the quarter ended. Net income attributable to the company grew to $716 million ($1.40 per diluted share) from $690 million ($1.34 per diluted share) in the prior year's quarter. The company successfully managed operating expenses, which increased only slightly on a reported basis, due to strategic restructuring initiatives and higher incentive compensation, partially offset by currency impacts. The balance sheet reflects increased debt and cash balances related to the JLT transaction financing, with total assets and liabilities significantly increasing compared to year-end 2018.

Financial Highlights

51 data points
Beta

Revenue

$4.07B

Net Income

$716.00M

17.6% Net Margin

EPS (Diluted)

$1.40

Total Assets

$30.14B

Cash & Equivalents

$1.12B

Free Cash Flow

-$349.00M

Financial Statements
Beta
Revenue$4.07B
Operating Expenses$3.13B
Operating Income$938.00M
Interest Expense$120.00M
Net Income$716.00M
EPS (Basic)$1.42
EPS (Diluted)$1.40
Shares Outstanding (Basic)505.00M
Shares Outstanding (Diluted)511.00M

Key Highlights

  • 1Revenue increased by 2% to $4.1 billion (4% underlying revenue growth) in Q1 2019.
  • 2Net income attributable to the company rose to $716 million, or $1.40 per diluted share, up from $690 million, or $1.34 per diluted share, in Q1 2018.
  • 3Operating income increased by 3% to $938 million.
  • 4Significant financing activities occurred, including issuing approximately $6.5 billion in senior notes, largely to fund the acquisition of JLT.
  • 5The company adopted the new lease accounting standard effective January 1, 2019, recognizing lease liabilities and right-of-use assets.
  • 6Restructuring initiatives were underway in both Marsh & McLennan's Marsh and Mercer segments, with associated costs incurred in the quarter.
  • 7The acquisition of JLT was completed on April 1, 2019, immediately following the end of the reporting period.

Frequently Asked Questions

The substantial increase in debt and cash balances, particularly the 'Funds held in escrow for acquisition,' was primarily due to financing activities undertaken to fund the acquisition of Jardine Lloyd Thompson (JLT). The company issued approximately $6.5 billion in senior notes during the quarter, with these funds placed in escrow until the JLT transaction closed on April 1, 2019.

Effective January 1, 2019, Marsh & McLennan adopted the new lease accounting standard (ASC 842). This resulted in the recognition of $1.9 billion in lease liabilities and $1.7 billion in right-of-use (ROU) assets on the balance sheet, primarily related to real estate operating leases. The adoption was applied retrospectively, with no cumulative effect adjustment to retained earnings.

The company is involved in several ongoing investigations, including a civil competition investigation by the European Commission related to the exchange of commercially sensitive information in the aviation insurance and reinsurance sector in the EEA, and a similar proceeding initiated by an anti-trust agency in Brazil. Additionally, there are ongoing investigations concerning the commercial motor insurance market in the Republic of Ireland. The company is cooperating with these investigations and cannot predict their outcome or impact.

Foreign currency translation had a negative impact on reported results. Revenue decreased by 3% due to currency fluctuations, while operating expenses also saw a decrease of 4% from currency impacts. The company estimates that a 10% movement in major foreign currencies against the U.S. dollar could impact full-year net operating income by approximately $57 million, excluding the JLT acquisition.