Marsh & McLennan Surpasses

Marsh & McLennan Companies, Inc.'s (MMC - Analyst Report) third quarter adjusted earnings (excluding non-recurring items) of 48 cents per share were substantially ahead of the Zacks Consensus Estimate of 27 cents.

Results were aided by significant expense reduction, strong margin improvement in the Risk and Insurance Services as a result of improved profitability at Marsh and Guy Carpenter, and were offset by decline in the Consulting business due to the challenging economic environment and lower interest income.

Marsh & McLennan reported GAAP net loss (including non-recurring items) of $221 million or 41 cents per share, compared to a net loss of $193 million or 37 cents per share in the prior quarter and a net loss of $8 million or 2 cents per share in the prior-year period.

Kroll reported its best quarter so far of the year, with sequential increases in both revenue and profitability. The improvement was driven primarily by Kroll’s largest business, litigation support and data recovery, which reported a modest increase in underlying revenue.

Consolidated revenue was $2.5 billion, down 10.5% year-over-year or 7% on an underlying basis.

The Risk and Insurance Services segment revenue was $1.2 billion, down 3.8% year-over-year and 3.0% on an underlying basis. However, operating income was significantly up, reflecting improved results in both Marsh and Guy Carpenter. Results reflected the benefits of cost-containment measures.

Marsh’s revenue was $1.0 billion, down 4.9% year-over-year whereas Guy Carpenter’s revenue during the reported quarter was $223 million, up 13.2% year-over-year. Profitability on an adjusted basis improved compared to the prior-year quarter due to significant increase in new business and consistent cost discipline.

The Consulting segment's revenue shrank 13.9% year-over-year to $1.1 billion or 10.0% on an underlying basis, reflecting substantial declines in both Mercer and Oliver Wyman. The decrease was due to ongoing adverse global economic and financial market turmoil.

Revenue in the Risk Consulting and Technology business that includes Kroll's operations was $170 million, down 27.7% from the prior-year period or 8.0% on an underlying basis.

Marsh & McLennan continued to experience decent expense reduction as a result of its well-executed restructuring initiatives. It reported a 16.3% year-over-year decline in expenses to $2.3 billion.

The company continues to experience decent expense reduction as a result of its well-executed restructuring initiatives. Going forward, results should somewhat benefit from improved pricing, which will be largely offset by the strength of the US dollar and reduced revenue from the consulting business, due to ongoing weakness in economy.

After reviewing the results, we are maintaining a Neutral recommendation on the shares.