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Willis Group Misses on Earnings; Ups Div & Plans Buyback

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Willis Group Holdings plc reported fourth-quarter 2013 adjusted net income of 42 cents per share, missing the Zacks Consensus Estimate by 6 cents. The results also lagged the prior-year quarter number by 6.7%.

Including the impact of deferred tax valuation allowance of 5 cents per share, Willis Group reported net income of 37 cents per share rebounding from the year-ago loss of $4.65 per share.

The company posted adjusted net income of $2.64 per share on revenues of $3.6 billion in 2013. While the bottom line improved 2.3%, the top line reflected an improvement of 5%. The bottom line, however, missed the Zacks Consensus Estimate by 7 cents. Reported earnings per share came in at $2.04 in 2013, rebounding significantly from a loss of $2.58 per share incurred in 2012.

Operational Updates

Willis Group’s total revenue in the quarter was $919 million, up 5.5% year over year due to higher commissions and fees. Results exceeded the Zacks Consensus Estimate of $908 million.

Total commissions and fees reported by Willis Group were $911 million, up 5.1% year over year. The improvement was driven by solid contributions from all the three segments. Unfavorable foreign currency translations were a partial offset.

Willis Group’s investment income of $4 million was on par with the year-ago quarter level.

Total expenses at Willis Group plunged 53% year over year to $767, reflecting lower salaries and benefits (down 41% year over year).

In the quarter under review, adjusted operating income of Willis Group was $150 million, down 9.6% year over year. Adjusted operating margin contracted 280 basis points (bps) to 16.3%. The downfall was attributable to higher salary and benefits as well as other operating expenses. However, higher commissions and fees limited the downfall.

Quarterly Segment Update

Global: Organic growth in commissions and fees was 1.4% in the quarter while the same was 5.5% on a reported basis.

The improvement was driven by better results at Global Specialty that grew in mid-single digits. Willis Capital Markets and Advisory also posted strong results. Operating margin was 8.4%, deteriorating 1130 bps year over year.

North America: Commissions and fees grew 5.8% on an organic basis and 6.6% on a reported basis.

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

Operating margin was 18.5% in the reported quarter, expanding 130 bps year over year.

International: Commissions and fees increased 3.0% both on an organic basis and reported basis. Results were driven by mid-teen increase in Eastern Europe, high single-digit increase in Western Europe, low double-digit growth in Latin America and mid single-digit growth in Australasia. These improvements were, however, partially mitigated by low single-digit decline in the U.K. and soft performance at Asia.

Operating margin of 24.7% in the quarter improved 110 bps year over year.

Dividend and Share Repurchase Update

The board of directors of Willis Group approved a 7.1% increase in quarterly dividend to 30 cents per share. The dividend will be paid on Apr 15, 2014 to shareholders of record as of Mar 31. The annualized rate comes to $1.20 per share.

Willis Group also intends to repurchase $200 million shares in 2014.
Financial Position

Willis Group exited the quarter with cash and cash equivalents of $796 million, up 59.2% from the 2012-end level.

Total long-term debt decreased nearly 1.2% to $2.31 billion as on Dec 31, 2013 from $2.34 billion as on Dec 31, 2012.

Cash from operations improved 6.9% year over year to $561 million in 2013.

Performance of Other Insurance Brokers

Brown & Brown Inc. (BRO - Free Report) reported operating net income of 32 cents per share for the fourth quarter of 2013, which missed the Zacks Consensus Estimate by 3 cents. However, the results improved 10.3% from 29 cents per share earned in the year-ago quarter.

AON plc (AON - Free Report) reported its fourth-quarter adjusted net operating income of $1.54 per share, exceeding the Zacks Consensus Estimate by a penny and the year-ago quarter’s earnings by 21%.

Arthur J Gallagher & Co. (AJG - Free Report) reported fourth-quarter 2013 operating net earnings of 48 cents a share that missed the Zacks Consensus Estimate by a penny. However, the result increased from the prior-year quarter number by 23.1%.

Zacks Rank

Willis Group presently holds a Zacks Rank #4 (Sell).

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