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AON Q2 Earnings Beat Estimates on Strong Reinsurance Performance
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Aon plc (AON - Free Report) reported second-quarter 2022 operating earnings of $2.63 per share, which beat the Zacks Consensus Estimate of $2.57. The bottom line also climbed 15% year over year.
Total revenues improved 3% year over year to $2,983 million, which comprised organic revenue growth of 8%, partially offset by a 1% unfavorable impact from acquisitions and divestitures and a 4% unfavorable impact from foreign currency translation. The top line missed the consensus mark of $3,009 million.
The strong second-quarter earnings were supported by solid contributions from Reinsurance Solutions and Health Solutions. Also, growth in core P&C and an improvement in project-related work in Commercial Risk Solutions benefited the results. However, the positives were partially offset by frail performance in Wealth Solutions and increased expenses.
Total operating expenses inched up 3% year over year to $2,283 million due to 1% and 23% increases in compensation and benefits, and other general expenses, respectively. This was partially offset by lower amortizations, depreciations and premises costs. The reported figure was lower than our estimate of $2,383.3 million.
Adjusted operating income jumped 5% year over year to $783 million and beat our estimate of $804.3 million. Adjusted operating margin expanded 40 bps to 26.2%.
Revenue Lines
Commercial Risk Solutions: Organic revenues improved 7% year over year on the back of strong performance in different geographical locations, robust retention and management of the renewal book portfolio.
Double-digit growth in Latin America, EMEA and Pacific regions in the second quarter reflect a strong retail brokerage. Results also reflected solid growth in core P&C and an improvement in project-related work. Among other factors contributing to this upside, global growth in the affinity business in consumer and business solutions is integral. The segment reported a year-over-year rise of 3% in total revenues to $1,692 million, which beat the Zacks Consensus Estimate of $1,584.9 million but came short of our estimate of $1,716.9 million.
Reinsurance Solutions: Organic revenues improved 9% year over year, courtesy of double-digit growth in treaty owing to a continued new business generation, around the world, as well as strong retention and a hike in facultative placements. Total revenues climbed 7% year over year to $537 million, beating the Zacks Consensus Estimate of $375.1 million and our estimate of $531.3 million.
Health Solutions: Organic revenues improved 11% year over year, driven by growth in core health and benefits brokerage, owing to solid retention and management of its renewal book portfolio. Other factors contributing to the upside include growth in human capital on the back of rewards and advisory solutions. Total revenues of the segment increased 6% year over year to $414 million, missing the Zacks Consensus Estimate of $482.5 million, but beating our estimate of $410.6 million.
Wealth Solutions: Organic revenues increased 3% year over year, driven by retirement consulting, increased utilization, pension de-risking, and investment growth. The positives were partially offset by lower AUM-based delegated investment management revenues. Total revenues of the segment declined 4% year over year to $343 million, missing the Zacks Consensus Estimate of $349 million and our estimate of $347.1 million.
Financial Position
AON exited the second quarter with cash and cash equivalents of $740 million, which increased from $544 million at the 2021 end. As of Jun 30, 2022, Aon had total assets worth $34.7 billion, up from $31.9 billion on Dec 31, 2021. At the second quarter-end, long-term debt was $9,666 million, which jumped from $8,228 million at the 2021 end. Short-term debt and the current portion of the long-term debt amounted to $739 million at the second quarter-end.
Cash flow from operations was down to $1,131 million in the first half from the year-ago level of $1,345 million because of increased incentive compensation payments. Free cash flow decreased 17% year over year to $1,063 million in the first half of 2022. Capital expenditure came in at $68 million, down 3% year over year, during this period.
Capital Deployment
AON bought back 1.7 million Class A Ordinary shares for around $500 million in the quarter under review. Aon had $7.9 billion of authorization left under its share repurchase program as of Jun 30, 2022.
Outlook
Aon expects to achieve double-digit free cash flow growth this year. Organic revenue growth is expected to be more than a mid-single-digit for 2022.
At current foreign currency rates, AON expects to incur a 4-cent unfavorable impact per share in the third quarter and 7-cent in the fourth quarter. Also, in the September quarter, Aon is expected to bear a $101-million interest expense.
Headquartered in San Diego, CA, Encore Capital is a global debt recovery solutions provider. The Zacks Consensus Estimate for ECPG’s 2022 bottom line indicates a 14.4% increase from the prior year’s reported number.
Based in Knoxville, TN, SmartFinancial is a leading financial services provider for individuals and corporate clients. The Zacks Consensus Estimate for SMBK’s 2022 earnings indicates 20.3% year-over-year growth.
New York-based Paramount Group works as a fully-integrated real estate investment trust. The Zacks Consensus Estimate for PGRE’s 2022 bottom line indicates 4.4% year-over-year growth.
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AON Q2 Earnings Beat Estimates on Strong Reinsurance Performance
Aon plc (AON - Free Report) reported second-quarter 2022 operating earnings of $2.63 per share, which beat the Zacks Consensus Estimate of $2.57. The bottom line also climbed 15% year over year.
Total revenues improved 3% year over year to $2,983 million, which comprised organic revenue growth of 8%, partially offset by a 1% unfavorable impact from acquisitions and divestitures and a 4% unfavorable impact from foreign currency translation. The top line missed the consensus mark of $3,009 million.
The strong second-quarter earnings were supported by solid contributions from Reinsurance Solutions and Health Solutions. Also, growth in core P&C and an improvement in project-related work in Commercial Risk Solutions benefited the results. However, the positives were partially offset by frail performance in Wealth Solutions and increased expenses.
Aon plc Price, Consensus and EPS Surprise
Aon plc price-consensus-eps-surprise-chart | Aon plc Quote
Operations
Total operating expenses inched up 3% year over year to $2,283 million due to 1% and 23% increases in compensation and benefits, and other general expenses, respectively. This was partially offset by lower amortizations, depreciations and premises costs. The reported figure was lower than our estimate of $2,383.3 million.
Adjusted operating income jumped 5% year over year to $783 million and beat our estimate of $804.3 million. Adjusted operating margin expanded 40 bps to 26.2%.
Revenue Lines
Commercial Risk Solutions: Organic revenues improved 7% year over year on the back of strong performance in different geographical locations, robust retention and management of the renewal book portfolio.
Double-digit growth in Latin America, EMEA and Pacific regions in the second quarter reflect a strong retail brokerage. Results also reflected solid growth in core P&C and an improvement in project-related work. Among other factors contributing to this upside, global growth in the affinity business in consumer and business solutions is integral. The segment reported a year-over-year rise of 3% in total revenues to $1,692 million, which beat the Zacks Consensus Estimate of $1,584.9 million but came short of our estimate of $1,716.9 million.
Reinsurance Solutions: Organic revenues improved 9% year over year, courtesy of double-digit growth in treaty owing to a continued new business generation, around the world, as well as strong retention and a hike in facultative placements. Total revenues climbed 7% year over year to $537 million, beating the Zacks Consensus Estimate of $375.1 million and our estimate of $531.3 million.
Health Solutions: Organic revenues improved 11% year over year, driven by growth in core health and benefits brokerage, owing to solid retention and management of its renewal book portfolio. Other factors contributing to the upside include growth in human capital on the back of rewards and advisory solutions. Total revenues of the segment increased 6% year over year to $414 million, missing the Zacks Consensus Estimate of $482.5 million, but beating our estimate of $410.6 million.
Wealth Solutions: Organic revenues increased 3% year over year, driven by retirement consulting, increased utilization, pension de-risking, and investment growth. The positives were partially offset by lower AUM-based delegated investment management revenues. Total revenues of the segment declined 4% year over year to $343 million, missing the Zacks Consensus Estimate of $349 million and our estimate of $347.1 million.
Financial Position
AON exited the second quarter with cash and cash equivalents of $740 million, which increased from $544 million at the 2021 end. As of Jun 30, 2022, Aon had total assets worth $34.7 billion, up from $31.9 billion on Dec 31, 2021. At the second quarter-end, long-term debt was $9,666 million, which jumped from $8,228 million at the 2021 end. Short-term debt and the current portion of the long-term debt amounted to $739 million at the second quarter-end.
Cash flow from operations was down to $1,131 million in the first half from the year-ago level of $1,345 million because of increased incentive compensation payments. Free cash flow decreased 17% year over year to $1,063 million in the first half of 2022. Capital expenditure came in at $68 million, down 3% year over year, during this period.
Capital Deployment
AON bought back 1.7 million Class A Ordinary shares for around $500 million in the quarter under review. Aon had $7.9 billion of authorization left under its share repurchase program as of Jun 30, 2022.
Outlook
Aon expects to achieve double-digit free cash flow growth this year. Organic revenue growth is expected to be more than a mid-single-digit for 2022.
At current foreign currency rates, AON expects to incur a 4-cent unfavorable impact per share in the third quarter and 7-cent in the fourth quarter. Also, in the September quarter, Aon is expected to bear a $101-million interest expense.
Zacks Rank & Key Picks
AON currently has a Zacks Rank #4 (Sell).
Some better-ranked stocks in the broader finance space are Encore Capital Group, Inc. (ECPG - Free Report) , SmartFinancial, Inc. (SMBK - Free Report) and Paramount Group, Inc. (PGRE - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Headquartered in San Diego, CA, Encore Capital is a global debt recovery solutions provider. The Zacks Consensus Estimate for ECPG’s 2022 bottom line indicates a 14.4% increase from the prior year’s reported number.
Based in Knoxville, TN, SmartFinancial is a leading financial services provider for individuals and corporate clients. The Zacks Consensus Estimate for SMBK’s 2022 earnings indicates 20.3% year-over-year growth.
New York-based Paramount Group works as a fully-integrated real estate investment trust. The Zacks Consensus Estimate for PGRE’s 2022 bottom line indicates 4.4% year-over-year growth.