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Aon plc (AON) Earnings Beat, Revenues Miss Estimates in Q1

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Aon plc’s (AON - Free Report) first-quarter 2017 adjusted operating earnings of $1.45 per share surpassed the Zacks Consensus Estimate of $1.28 by 2.8%. Earnings also increased 20% from the year-ago quarter.

Operating margin decreased 410 basis points (bps) to 14.4%. Operating margin, adjusted for certain items, increased 220 bps to 22.3%.

Operational Update

Aon’s total revenue grew 5% to $2.4 billion in the first quarter but missed the Zacks Consensus Estimate of $2.5 billion. The year-over-year increase in revenues was supported by 4% growth in organic revenues.

Operating expenses increased 10% year over year to $2 billion in the first quarter, primarily due to higher restructuring costs, operating expenses related to acquisitions and increased expenses to support organic revenue growth. However, this was partially offset by the favorable impact of currency translations, reduction in expenses related to certain hedging programs, and savings from restructuring activities and operational initiatives.

Organic Revenue Drivers

Commercial Risk Solutions organic revenues increased 2% over the prior-year period on solid growth across the U.S., EMEA, Asia, and Pacific regions, partially offset by a decline in Latin America.

Reinsurance Solutions organic revenues increased 2% over the prior-year period on growth across every product line, including treaty, facultative, and capital markets. The upside was partially offset by a modest unfavourable market impact globally.

Retirement Solutions organic revenues increased 3% over the prior-year period on continued growth in investment consulting, primarily for delegated investment management. Also, growth in talent – particularly compensation and engagement services – drove the upside.

Health Solutions organic revenues increased 14% over the prior-year period on solid growth in health & benefits brokerage, globally. This included double-digit growth across Asia and EMEA alongside double-digit growth in health care exchanges driven by follow-on enrolment on the retiree exchange and certain project-related work.

Data & Analytic Services organic revenues increased 5% over the prior-year period on strong growth across Affinity, with particular strength in the U.S. across all product lines.

Aon PLC Price, Consensus and EPS Surprise

Financial Position

Cash flow from operations for the first quarter rose 26% year over year to $182 million, mainly driven by operational improvement. This was partially offset by $31 million of cash restructuring charges.

Free cash flow for the first nine months was $148 million, up 38% year over year due to growth in cash flow from operations and a $3 million decrease in capital expenditures.

Share Repurchase and Dividend Update

During the quarter, average diluted shares outstanding decreased to 267.0 million from 273.7 million in the prior-year quarter. The company repurchased 1.1 million Class A Ordinary Shares for approximately $125 million in the quarter. As of Mar, 2017, the company had a $7.7 billion authorization remaining under its share repurchase program.

In Apr 2017, the company announced a 9% increase to its quarterly cash dividend

Zacks Rank and Performance of Other Insurers

Aon presently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other insurers that have reported first-quarter earnings so far, the bottom line at Assurant, Inc. (AIZ - Free Report) and CNO Financial Group, Inc. (CNO - Free Report) beat their respective Zacks Consensus Estimate, while The Hartford Financial Services Group, Inc. (HIG - Free Report) missed.

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