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Aon (AON) Q1 Earnings Beat Estimates on Revenue Growth

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Aon plc’s (AON - Free Report) came up with first-quarter operating earnings of $2.97 per share, which beat the Zacks Consensus Estimate of $2.79 and grew 26% year over year. Rise in revenues primarily supported the results.

The company posted revenues of $3.1 billion, which were above the Zacks Consensus Estimate of $2.94 billion and increased 13% year over year. The increase was supported by 3% organic revenue growth, a 5% rise related to acquisitions and net of divestitures, and a 5% favorable impact from foreign currency translation.

Total operating expenses increased 12% to $2.3 billion, led by higher expenses on compensation and benefits, information technology and amortization and impairment.

Aon plc Price, Consensus and EPS Surprise

Adjusted operating margin expanded 230 basis points to 31.8%.

The adjusted effective tax rate on a comparable basis for the first quarter of 2018 was 16.5% compared to 13.3% in the prior-year quarter. The increase was primarily driven by changes in geographical distribution of income and the various impacts of U.S. Tax Reform.

Organic Revenue Drivers

Commercial Risk Solutions: Organic revenues increased 4% year over year to $1.18 billion on the back of strong growth in the Americas and EMEA regions, driven by double-digit new business generation and strong management of the renewal book portfolio.

Reinsurance Solutions: Organic revenues increased 6% year over year to $742 million. The rise was driven by solid growth across all major product lines, especially in treaty placements driven by new business generation and growth in both facultative placements and capital markets’ transactions.

Retirement Solutions: Organic revenues remained unchanged year over year at $424 million as growth in investment consulting primarily for delegated investment management and in talent practice for assessment services were offset by a modest decline in project-related work and an unfavorable impact from the timing of certain revenues.

Health Solutions: Organic revenues also remained unchanged year over year at $451 million as solid growth in health and benefits brokerage was offset by a decline in project-related work that benefited the prior-year period in the health care exchange business.

Data & Analytic Services: Organic revenues inched up 1% year over year to $294 million driven by strong growth across Affinity, particularly in the United States, partly offset by the unfavorable impact of certain client contracts.

Financial Position Improves

Adjusted free cash flow increased 16% to $2018 million in the first quarter.
Debt-to-EBIDTA ratio moderated to 2.6x from 3.2x at the end of December 2017. The company expects this ratio to return in the 2-2.5x range on a U.S GAAP basis by the end of 2018, led by operating improvement.

Share Repurchase and Dividend Update

The company repurchased 3.9 million shares for approximately $550 million in the quarter. Subsequent to the close of the first quarter, Aon announced an 11% increase to its quarterly cash dividend.

Zacks Rank and Performance of Other Insurers

Aon carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other players from the insurance industry that have reported first-quarter earnings till now, the bottom line of Brown & Brown, Inc. (BRO - Free Report) , MGIC Investment Corporation (MTG - Free Report) and The Progressive Corporation (PGR - Free Report) beat the respective Zacks Consensus Estimate.

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