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Willis Group Holdings plc (WSH - Analyst Report) reported third-quarter 2012 adjusted net income from continuing operations of 22 cents per share, falling short of the Zacks Consensus Estimate by 8 cents.

Results were also 46% lower than 41 cents earned in the year-ago quarter. Adjusted net income from continuing operations was $38 million, down 47% year over year. Lower revenue coupled with higher expenses weighed on the performance.

Including an $11 million charge related to a settlement with a former joint venture partner in India and a $1 million loss on disposal of the Indian operations, the company reported net income of $26 million or 15 cents per share, comparing unfavorably with $60 million or 34 cents earned in the year-ago quarter.

Operational Performance

Total revenue in the quarter decreased 0.8% year over year to $754 million due to lower commissions and fees and lower investment income. Also, revenues lagged the Zacks Consensus Estimate of $770 million.

Commissions and fees went down 1% year over year to $749 million in the quarter, as foreign currency translation had a negative impact on it.

Investment income also declined 43% from the year-ago quarter to $4 million, attributable to lower net yields on cash and cash equivalents.

Total expense increased 2.1% year over year to $684 million, primarily due to an increase in salaries and benefits and higher depreciation expense.

In the quarter under review, adjusted operating income was $82 million, down 22% year over year. Operating margin contracted 290 basis points to 10.9%.

Segment Update

Global: Organic growth in commissions and fees was 3% in the quarter, while reported growth was flat with year-ago level.

Organic growth was primarily driven by mid double-digit increase in Global Specialties.

Operating margin was 22.1%, contracting 50 basis points year over year.

North America: Commissions and fees, on an organic basis and reported basis remained flat with year-ago level.

Operating margin in the quarter contracted 280 basis points.

International: Commissions and fees increased 5% year over year on an organic basis, while on a reported basis, it declined 2%. Asia and Latin America reported mid teen-digit growth, while the UK business was up in low single-digits. On the flip side, Australasia and Europe were each down in low-single digits.

Operating margin was a negative 4.5%, compared with 1.9% in the year-ago quarter.

Financial Update   

The cash and cash equivalent balance at quarter end stood at $424 million, down 2.7% from 2011 end.

Long-term debt edged up 0.4% to $2.4 billion from 2011 end.

Dividends and Share Buybacks

Willis spent $42 million to buy back 1.16 million shares in the quarter. With this, it exhausted the $100 million in 2012 buyback authorization.

The company’s board authorized a dividend of 27 cents to the shareholders of record as on December 31, payable on January 15, 2013.

Zacks Rank

We retain our Neutral recommendation on Willis Group. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.

Marsh & McLennan Companies Inc. (MMC - Analyst Report), which competes with Willis Group, also shares a Zacks #3 Rank and is scheduled to release its third quarter results before the opening bell on November 6.

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