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Aon Plc (AON - Analyst Report) reported first quarter 2013 adjusted operating earnings of $1.11 per share in line with the Zacks Consensus Estimate. Results exceeded the year-ago earnings of 98 cents by 13%.
Including restructuring charges of $19.2 million, intangible assets of $73.2 million and headquarters reallocation costs of $2.2 million, Aon reported first quarter net income of $261 million or 82 cents compared to $238 million or 71 cents per share in the year-ago period.
Quarterly Operational Update
Total revenue of Aon was $2.9 billion, up 3% year over year due to higher organic revenue (up 2% year over year), and commission and fees resulting from acquisitions net of divestitures (up 1% year over year) partially mitigated by lower investment income (down 42% year over year). However, results were a tad lower than the Zacks Consensus Estimate of $2.94 billion.
Total operating expenses of Aon were $2.5 billion, up 3% year over year due to increase in organic revenue, higher restructuring costs (up 30% year over year) and including a $10 million expense from acquisitions. This was partially offset by an $18 million favorable impact from foreign currency translation and a decline in intangible asset amortization expense (down 5% year over year) and savings related to restructuring programs (up 43.8%).
Quarterly Segment Update
Risk Solutions: Total revenue increased 3% year over year to $2 billion, driven by an organic growth in commissions and fees (up 3%) and an increase in commissions and fees from acquisitions, net of divestitures (up 1%), partially offset by a decline in investment income (down 42%).
Organic revenue in Retail Brokerage increased 4% year over year driven by higher organic revenue in Americas business (up 6%) and International business (up 3%).
Organic revenue in the Reinsurance segment increased 1% year over year due to an improvement in capital market transactions and advisory business, and global facultative placements.
Operating earnings increased 10% year over ear to $403 million during the quarter.
HR Solutions: Total revenue was $954 million, up 1% year over year due to a 1% organic growth in commissions and fees.
Organic revenue in Consulting Services increased 1% year over year due to modest growth in communications and investment consulting partly offset by a decline in Continental Europe.
Organic revenue in Outsourcing increased 1% driven by increase in net new client wins and demand for discretionary services in HR, BPO and healthcare exchanges. This was partly mitigated by a modest reduction in benefits administration.
Operating earnings decreased 30% year over year to $51 million.
Share Repurchase Update
During the first quarter, Aon repurchased 5 million Class A Ordinary shares for $300 million. Currently Aon is left with $3.7 billion under its authorization.
In Apr 2013, the board approved an 11% hike in its annual dividend on Class A Ordinary Shares to 70 cents per share from 63 cents paid earlier. This translated into a quarterly cash dividend of 17.5 cents per share, increasing from 15.75 cents paid earlier. The increased dividend will be paid on May 15, 2013, to shareholders of record as of May 1, 2013.
As of Mar 31, 2013, cash and cash equivalents of Aon was $408 million, up 26.3% year over year.
Total assets of Aon at Mar 31, 2013 were $30 billion, down 1.5% from year end 2012.
Net cash from operations was $54 million in the quarter. Cash used for operations was $15 million in the year-ago period.
Capital expenditures during the quarter declined 15% year over year to $60 million.
Free cash flow was $6 million, down 93% from $86 million in the first quarter of 2012.
Long term debt increased 1.5% from $3.71 billion at year end 2012 to $3.77 billion at Mar 31, 2013. Debt-to-capital ratio of Aon increased 270 basis points from year end 2012 to 37.5% at the end of first quarter 2013.
Performance of Others in the Industry
Brown & Brown Inc. (BRO - Snapshot Report) reported first quarter 2013 earnings of 41 cents per share exceeding the Zacks Consensus Estimate of 39 cents per share and year-ago earnings of 34 cents per share.
eHealth Inc. (EHTH - Snapshot Report) reported first quarter 2013 operating earnings of 12 cents per share surpassing the Zacks Consensus Estimate of 10 cents per share. Result is in line with the year-ago earnings.
Validus Holdings Limited (VR - Snapshot Report) reported first quarter 2013 operating earnings of $1.89 per share, exceeding the Zacks Consensus Estimate of $1.39 per share and the year-ago earnings of 91 cents per share.
Aon currently carries Zacks Rank #3 (Hold).