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Willis Group Tops Earnings and Rev Est.

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Willis Group Holdings Plc reported second-quarter 2013 adjusted net income of 59 cents per share, surpassing the Zacks Consensus Estimate of 57 cents per share by 3.5%. Results were flat with the year-ago level.

Quarterly Operational Update

Willis Group’s total revenue in the quarter was $890 million, up 5.7% year over year due to higher commissions and fees. Results exceeded the Zacks Consensus Estimate of $878 million by 1.4%.

Investment income of Willis Group declined 40% year over year to $3 million in the reported quarter.

Total expense at Willis Group  shot up 8.4% year over year to $719 million mainly due to higher salaries and benefits (up 5.8% year over year), and other operating expense (up 20.1% year over year).

In the quarter under review, adjusted operating income of Willis Group was $171 million, down 1.7% year over year. Operating margin declined 150 basis points to 19.2% in the second quarter of 2013. The downfall was attributable to higher salary and benefits, and other operating expenses, and net unfavorable foreign exchange movements. However, higher commissions and fees limited the downfall.

Quarterly Segment Update

Global: Organic growth in commissions and fees was 10.3% in the quarter, while reported growth was 8.2%.

The improvement was driven by better results at Willis Re and Global Security. While the former grew in the mid-teens, the latter witnessed growth in mid-single digit.

Operating margin was 34.6%, improving 140 basis points year over year.

North America: Commissions and fees, on an organic basis grew 5.5%, while on a reported basis grew 6.1%.

The improvement came on the back of better performances across most of Willis North America's geographic regions.

Operating margin was 17% in the second quarter, expanding 180 basis points year over year.

International: Commissions and fees increased 2.6% on an organic basis and 2.5% on a reported basis. Results were driven by low single-digit increase in Western Europe, low double-digit increase in Eastern Europe, mid-single digit increase in Asia and high teens increase in Latin America. These were partially mitigated by low-single digit decline in UK and mid-single digit decline in Australasia.

Operating margin of 10.8% in the quarter contracted 560 basis points year over year.

Dividend Update

In Jul 2013, the board of directors of Willis Group approved quarterly cash dividend of 28 cents per share. Willis will pay the dividend on Oct 15, 2013 to shareholders of record as on Sep 30, 2013. The annualized dividend comes to $1.12 per share.

Financial Position

Willis Group exited the quarter with cash and cash equivalents of $503 million, up 0.6% from 2012 end level.

Total debt of Wills Group inched down 0.4% to $2.34 billion at Jun 30, 2013 from $2.35 billion at Dec 31, 2012. Recently, Willis Group completed an amendment and extension to its existing senior unsecured credit facility. The $300 million 5-year term loan is now scheduled to mature in Jul 2018. The $500 million revolving credit facility was increased by $300 million to $800 million. This term loan is also now scheduled to mature in Jul 2018.

Performance of Other Insurance Brokers

Brown & Brown Inc. (BRO - Free Report) reported second quarter 2013 earnings of 36 cents per share, surpassing the Zacks Consensus Estimate of 35 cents per share by 2.9%. Results also exceeded the year-ago earnings of 29 cents by 24.1%.
eHealth, Inc. (EHTH - Free Report) and Validus Holdings, Ltd. (VR - Free Report) are scheduled to release the second-quarter earnings results today. The Zacks Consensus Estimate for the quarter is of eHealth, Inc. is pegged at 68 cents, while the same for Validus Holdings is pegged at 91 cents.

Zacks Rank

Willis Group currently carries a Zacks Rank #4 (Sell).

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