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Arthur J. Gallagher (AJG) Q2 Earnings & Revenues Top Estimates

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Arthur J. Gallagher & Co. (AJG - Free Report) reported second-quarter 2021 adjusted net earnings of $1.17 per share, which beat the Zacks Consensus Estimate by 9.3%. Moreover, the bottom line increased 24.5% on a year-over-year basis.

The company’s performance was driven by higher adjusted revenues and strong margin expansion across Brokerage and Risk Management segment.

Arthur J. Gallagher & Co. Price, Consensus and EPS Surprise

Operational Update

Total revenues were nearly $1.9 billion, up 22.2% year over year primarily due to higher commissions, fees, supplemental revenues, contingent revenues, investment income and net gains on divestitures, revenues from clean coal activities and other corporate net revenues. Moreover, the top line beat the Zacks Consensus Estimate by 11.1%.

Arthur J. Gallagher’s total expense increased 21.2% year over year to $1.7 billion in the reported quarter. The increase was due to higher compensation, operating, reimbursements, cost of revenues from clean coal activities, interest, depreciation and amortization.

Adjusted earnings before interest, tax, depreciation and amortization and change in estimated acquisition earnout payables (EBITDAC) grew 21.5% from the prior-year quarter to $437.5 million.

Segment Results

Brokerage: Adjusted revenues of $1.4 billion increased 11.1% year over year on higher commissions, fees, supplemental revenues and contingent revenues.

Expenses increased 14.4% to $1 billion due to higher compensation, operating, depreciation and amortization.

Adjusted EBITDAC climbed 11.9% to $457.5 million while margin expanded 20 basis points (bps) to 32.9%.

Risk Management: Adjusted revenues were up 25.5% year over year to $244.9 million, primarily due to higher fees.

Expenses increased 18.2% to $248.3 million due to higher compensation, operating, reimbursements and amortization.

Adjusted EBITDAC increased 41.2% year over year to $48.3 million. Margin expanded 220 bps to 19.7%.

Corporate: Adjusted EBITDAC was negative $39.9 million compared with negative $35 million in the year-ago quarter.

Financial Update

As of Jun 30, 2021, total assets were $27.8 billion, up 24.6% from the 2020-end level.

Cash and cash equivalents at quarter end increased more than fourfold from 2020 level to $3.2 billion.

Shareholders’ equity increased 34% from the level as of Dec 31, 2020 to $8.3 billion as of Jun 30, 2021.

Share Repurchase Update

The board authorized the repurchase of up to $1.5 billion of common stock under a new share repurchase plan. This repurchase plan replaces the previous repurchase program, of which nearly $1.0 billion remains.

Dividend Update

The board of directors approved a quarterly cash dividend of 48 cents per share. The dividend will be paid out on Sep 17, 2021 to shareholders of record as on Sep 3.

Acquisition Update

In the quarter, the company closed seven acquisitions with estimated annualized revenues of about $34.1 million.

Business Update

The agreement to acquire certain Willis Towers Watson plc brokerage operations was terminated as a result of Aon plc and Willis Towers Watson terminating their combination.

In connection with the termination of the agreement, the company exercised the special optional redemption feature of $650 million tranche of 10-year senior notes that were issued on May 20, 2021. These notes will be redeemed on Aug 13, 2021.

Zacks Rank

Currently, Arthur J. Gallagher carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Insurers

Among other insurance industry players, which have reported second-quarter earnings so far, the bottom line of Everest Re Group, Ltd. , RLI Corp. (RLI - Free Report) and Cincinnati Financial Corporation (CINF - Free Report) beat the respective Zacks Consensus Estimate.


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