Insurance broker Marsh & McLennan Cos. Inc posted a 3 percent rise in quarterly earnings on Tuesday but missed estimates as operating margins narrowed in its insurance services and other units.
The results were the latest sign of softness in its underlying insurance brokerage business, the world's largest, which has struggled to restructure since the 2005 settlement of civil charges it had rigged bids and steered business to insurers that paid hidden commissions.
Marsh also announced a plan to buy back $1.5 billion of stock, which it said it would begin as soon as possible. Net income was $177 million or 31 cents a share, up from $172 million, or 31 cents a share, a year earlier. Consolidated revenue rose 7 percent to $2.82 billion. Earnings from continuing operations rose by a penny to 25 cents per share.
According to Reuters Estimates, adjusted for restructuring and legal and regulatory settlement charges, it earned 29 cents a share. Analysts had forecast earnings of 36 cents per share. "The main reason for the earnings miss was much weaker than expected margins, as operating income was $57 million less than expected," Goldman Sachs analyst Thomas Cholnoky wrote in a research note. "The shortfall was largely attributable to Marsh's core brokerage segment..."
Operating margins narrowed to 9.1 percent from 10.3 percent in its risk and insurance services segment on what the company said was a greater-than-expected impact from expenses and the absence of market services revenue.
The stock buyback follows the completion of another $500 million repurchase program in July, Marsh said. The insurance broker's firepower to buy back shares and potential to make acquisitions was enhanced by the completion of the sale of its Putnam Investments unit on Friday, which left it with $2.5 billion in cash. Marsh & McLennan's shares closed on the New York Stock Exchange Tuesday night at $27.65, up 78 cents, or nearly 3 percent. In the last 12 months, Marsh & McLennan has risen about 7 percent, or about the same as the Standard & Poor's insurance index GSPINSC.