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AON Q2 Earnings Miss on High Costs, FCF Dips 7% in 6 Months
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Aon plc (AON - Free Report) reported second-quarter 2023 operating earnings of $2.76 per share, which missed the Zacks Consensus Estimate of $2.82. However, the bottom line climbed 5% year over year.
Total revenues of $3,177 million increased 7% from a year ago and beat the consensus mark by 0.5%. The top line comprised organic revenue growth of 6% and a 2% favorable impact from fiduciary investment income, which were partially offset by a 1% unfavorable impact from foreign currency translation.
Weaker-than-expected second-quarter earnings were caused by increased operating expenses. However, the negatives were partially offset by strong retention, business generation, growth in core P&C, and solid performance in Commercial Risk Solutions’ Asia and Pacific region operations.
Total operating expenses increased 2% year over year to $2,335 million due to 12% and 7% increases in information technology, and compensation and benefits, respectively. The metric was higher than our estimate of $2,295.9 million.
Adjusted operating income jumped 11% year over year to $867 million and beat our estimate of $849.7 million. The adjusted operating margin expanded 110 bps to 27.3%, a bit higher than our estimate of 27.2%.
Revenue Lines
Commercial Risk Solutions: Organic revenues improved 5% year over year, on the back of strong performances in different geographical locations, robust retention, business generation and managing the renewal book portfolio.
Double-digit growth in the Asia and Pacific regions in the second quarter reflects a strong retail brokerage. Results also reflected solid growth in core P&C and affinity business. The segment reported a year-over-year increase of 5% in total revenues to $1,774 million, which beat our estimate of $1,742.8 million.
Reinsurance Solutions: Organic revenues improved 9% year over year, courtesy of double-digit growths in investment banking and facultative placements. Solid retention and business generation aided the segment, along with growth in Strategy and Technology Group. Total revenues climbed 13% year over year to $607 million, beating our estimate of $601.4 million.
Health Solutions: Organic revenues improved 10% year over year, driven by growth in core health and benefits brokerage, owing to business generation and managing its renewal book portfolio. Other factors contributing to the upside include double-digit growth in EMEA, Latin America and the United Kingdom. Data and advisory solutions driven growth in the Talent business aided the unit. Total revenues of the segment increased 8% year over year to $447 million, beating our estimate of $434.5 million.
Wealth Solutions: Organic revenues increased 2% year over year, driven by Retirement growth. Increased advisory demand and project-related work supported the upside. The positives were partially offset by lower AUM-based delegated investment management revenues. Total revenues of the segment increased 3% year over year to $352 million, beating our estimate of $346.4 million.
Financial Position
Aon exited the second quarter with cash and cash equivalents of $952 million, which increased from $690 million in 2022 end. As of Jun 30, 2023, the company had total assets of $36 billion, up from $32.7 billion as of Dec 31, 2022.
At the second-quarter end, the long-term debt was $9,989 million, which climbed from $9,825 million at the 2022 end. Short-term debt and the current portion of the long-term debt amounted to $1,338 million at the second-quarter end.
Cash flow from operations was flat year over year at $1,131 million in the first half of 2023. Free cash flows (FCF) decreased 7% year over year during this time to $986 million. Capital expenditure was $145 million, up 113% year over year.
Capital Deployment
Aon bought back 1.7 million Class A Ordinary shares for around $550 million in the quarter under review. Aon had $4.9 billion of authorization left under its share repurchase program as of Jun 30, 2023.
Outlook
Aon expects to achieve double-digit free cash flow growth in 2023 and in the long run. Revenues are expected to witness mid-single-digit or more organic growth for 2023 and beyond.
At current foreign currency rates, Aon expects to incur no impact in the third quarter and a favorable impact of around 5 cents in the December-quarter. Also, in the September-end quarter, the company is expected to bear $122 million in interest expenses.
Based in Saint Peter Port, Guernsey, Burford Capital offers legal finance products and services around the world. The Zacks Consensus Estimate for BUR’s current-year bottom line is pegged at $2.16 per share, indicating a massive jump from 14 cents a year ago.
New York-based Marsh & McLennan is a globally leading insurance broker. The Zacks Consensus Estimate for MMC’s current-year earnings implies 12.7% year-over-year growth. MMC beat earnings estimates in all the last four quarters, with an average of 3.4%.
Headquartered in Chicago, CME Group is one of the largest futures exchanges in the world in terms of trading volume. The Zacks Consensus Estimate for CME’s current year earnings indicates an 11.5% year-over-year increase. It beat earnings estimates in all the past four quarters, with an average of 2.9%.
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AON Q2 Earnings Miss on High Costs, FCF Dips 7% in 6 Months
Aon plc (AON - Free Report) reported second-quarter 2023 operating earnings of $2.76 per share, which missed the Zacks Consensus Estimate of $2.82. However, the bottom line climbed 5% year over year.
Total revenues of $3,177 million increased 7% from a year ago and beat the consensus mark by 0.5%. The top line comprised organic revenue growth of 6% and a 2% favorable impact from fiduciary investment income, which were partially offset by a 1% unfavorable impact from foreign currency translation.
Weaker-than-expected second-quarter earnings were caused by increased operating expenses. However, the negatives were partially offset by strong retention, business generation, growth in core P&C, and solid performance in Commercial Risk Solutions’ Asia and Pacific region operations.
Aon plc Price, Consensus and EPS Surprise
Aon plc price-consensus-eps-surprise-chart | Aon plc Quote
Q2 Operations
Total operating expenses increased 2% year over year to $2,335 million due to 12% and 7% increases in information technology, and compensation and benefits, respectively. The metric was higher than our estimate of $2,295.9 million.
Adjusted operating income jumped 11% year over year to $867 million and beat our estimate of $849.7 million. The adjusted operating margin expanded 110 bps to 27.3%, a bit higher than our estimate of 27.2%.
Revenue Lines
Commercial Risk Solutions: Organic revenues improved 5% year over year, on the back of strong performances in different geographical locations, robust retention, business generation and managing the renewal book portfolio.
Double-digit growth in the Asia and Pacific regions in the second quarter reflects a strong retail brokerage. Results also reflected solid growth in core P&C and affinity business. The segment reported a year-over-year increase of 5% in total revenues to $1,774 million, which beat our estimate of $1,742.8 million.
Reinsurance Solutions: Organic revenues improved 9% year over year, courtesy of double-digit growths in investment banking and facultative placements. Solid retention and business generation aided the segment, along with growth in Strategy and Technology Group. Total revenues climbed 13% year over year to $607 million, beating our estimate of $601.4 million.
Health Solutions: Organic revenues improved 10% year over year, driven by growth in core health and benefits brokerage, owing to business generation and managing its renewal book portfolio. Other factors contributing to the upside include double-digit growth in EMEA, Latin America and the United Kingdom. Data and advisory solutions driven growth in the Talent business aided the unit. Total revenues of the segment increased 8% year over year to $447 million, beating our estimate of $434.5 million.
Wealth Solutions: Organic revenues increased 2% year over year, driven by Retirement growth. Increased advisory demand and project-related work supported the upside. The positives were partially offset by lower AUM-based delegated investment management revenues. Total revenues of the segment increased 3% year over year to $352 million, beating our estimate of $346.4 million.
Financial Position
Aon exited the second quarter with cash and cash equivalents of $952 million, which increased from $690 million in 2022 end. As of Jun 30, 2023, the company had total assets of $36 billion, up from $32.7 billion as of Dec 31, 2022.
At the second-quarter end, the long-term debt was $9,989 million, which climbed from $9,825 million at the 2022 end. Short-term debt and the current portion of the long-term debt amounted to $1,338 million at the second-quarter end.
Cash flow from operations was flat year over year at $1,131 million in the first half of 2023. Free cash flows (FCF) decreased 7% year over year during this time to $986 million. Capital expenditure was $145 million, up 113% year over year.
Capital Deployment
Aon bought back 1.7 million Class A Ordinary shares for around $550 million in the quarter under review. Aon had $4.9 billion of authorization left under its share repurchase program as of Jun 30, 2023.
Outlook
Aon expects to achieve double-digit free cash flow growth in 2023 and in the long run. Revenues are expected to witness mid-single-digit or more organic growth for 2023 and beyond.
At current foreign currency rates, Aon expects to incur no impact in the third quarter and a favorable impact of around 5 cents in the December-quarter. Also, in the September-end quarter, the company is expected to bear $122 million in interest expenses.
Zacks Rank & Key Picks
AON currently has a Zacks Rank #3 (Hold). Investors interested in the broader finance space can consider better-ranked companies like Burford Capital Limited (BUR - Free Report) , Marsh & McLennan Companies, Inc. (MMC - Free Report) and CME Group Inc. (CME - 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.
Based in Saint Peter Port, Guernsey, Burford Capital offers legal finance products and services around the world. The Zacks Consensus Estimate for BUR’s current-year bottom line is pegged at $2.16 per share, indicating a massive jump from 14 cents a year ago.
New York-based Marsh & McLennan is a globally leading insurance broker. The Zacks Consensus Estimate for MMC’s current-year earnings implies 12.7% year-over-year growth. MMC beat earnings estimates in all the last four quarters, with an average of 3.4%.
Headquartered in Chicago, CME Group is one of the largest futures exchanges in the world in terms of trading volume. The Zacks Consensus Estimate for CME’s current year earnings indicates an 11.5% year-over-year increase. It beat earnings estimates in all the past four quarters, with an average of 2.9%.