A month has gone by since the last earnings report for Arthur J. Gallagher (AJG Quick QuoteAJG - Free Report) . Shares have added about 0.5% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Arthur J. Gallagher due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Arthur J. Gallagher Q2 Earnings Beat, Revenues Miss

Arthur J. Gallagher & Co.reported second-quarter 2020 adjusted net earnings of 94 cents per share, which beat the Zacks Consensus Estimate by 30.6%. Moreover, the bottom line increased 44.6% on a year-over-year basis.

The company’s performance was driven by lower expenses, higher adjusted revenues and strong margin expansion across Brokerage segment.

Operational Update

Total revenues were nearly $1.6 billion, down 4.5% year over year primarily due to lower fees and revenues from clean coal activities. Moreover, the top line missed the Zacks Consensus Estimate by 5.6%.

Arthur J. Gallagher’s total expense decreased 9% year over year to $1.4 billion in the reported quarter. Lower cost of revenues from clean coal activities, reduced depreciation and operating cost resulted in the downside.

Adjusted earnings before interest, tax, depreciation and amortization and change in estimated acquisition earnout payables (EBITDAC) grew 33.9% from the prior-year quarter to $360 million.

Segment Results

Brokerage: Adjusted revenues of $1.2 billion increased 7.7% year over year on higher commissions, fees, supplemental revenues and contingent revenues.

Expenses increased 0.5% to $953.3 million due to higher compensation, amortization and change in estimated acquisition earnout payables. Adjusted EBITDAC climbed 33.8% to $391.3 million while margin expanded 630 basis points (bps) to 32.6%.

Risk Management: Adjusted revenues were down 7.9% year over year to $190.8 million, primarily due to lower fees.

Expenses decreased 5% to $210 million due to lower compensation, operating cost and reimbursements. Adjusted EBITDAC decreased 7.4% year over year to $33.5 million while margin contracted 10 bps to 17.6%.

Corporate: EBITDAC was negative $35 million compared with negative $45.9 million in the year-ago quarter.

Financial Update

As of Jun 30, 2020, total assets were $21.3 billion, up 8.5% from 2019-end level.

Cash and cash equivalents at quarter end decreased 42.2% from 2019 level to $349.7 million. Shareholders’ equity increased 6.1% from the level as of Dec 31, 2019 to $5.5 billion as of Jun 30, 2020.

Acquisition Update

In the quarter, the company closed four acquisitions with estimated annualized revenues of about $13.9 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Arthur J. Gallagher has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, Arthur J. Gallagher has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.