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AON's Q3 Earnings Beat on Solid Retention, Segmental Strength
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Aon plc (AON - Free Report) reported third-quarter 2023 adjusted earnings of $2.32 per share, which outpaced the Zacks Consensus Estimate by 4%. The bottom line improved 15% year over year.
Total revenues advanced 10% year over year to $2,953 million in the quarter under review and surpassed the consensus mark by 2.6%. The top line consisted of organic revenue growth of 6% and a 2% favorable impact each from fiduciary investment income and foreign currency translation.
The quarterly results were aided by solid organic revenue growth, higher fiduciary investment income, strength in core property and casualty (P&C) and strong segmental contributions. However, the upside was partly offset by an elevated operating expense level.
Total operating expenses of $2,262 million escalated 7% year over year in the third quarter and came higher than our estimate of $2,196.5 million. The increase was due to an elevated expense level linked with 6% organic revenue growth, long-term growth investments and an adverse impact from foreign currency translation.
Adjusted operating income was $717 million, which rose 15% year over year and surpassed our estimate of $679.2 million. The adjusted operating margin of 24.3% improved 120 basis points (bps) year over year and came higher than our estimate of 23.9%.
Revenue Lines
Commercial Risk Solutions: Organic revenues grew 4% year over year in the third quarter, attributable to solid retention rates, new business growth and management of the renewal book that led to strong growth across most of the major geographies. Strength in retail brokerage drove growth across EMEA and the Pacific, while U.S. operations were aided by a well-performing construction business. The segment’s revenues of $1,585 million advanced 7% year over year and outpaced the Zacks Consensus Estimate of $1,569 million as well as our estimate of $1,556.8 million.
Reinsurance Solutions: Organic revenues climbed 11% year over year in the quarter under review, driven by solid retention rates, new business growth, solid growth in facultative placements and a well-performing Strategy and Technology Group. The unit recorded revenues of $465 million, which rose 17% year over year and beat the consensus mark of $437 million as well as our estimate of $431.4 million.
Health Solutions: Organic revenues improved 10% year over year, courtesy of net new business growth and management of the renewal book resulting in global expansion of the core health and benefits brokerage business. Strength in Consumer Benefit Solutions as well as an enhanced data and advisory solutions suite also contributed to the quarterly results. The segment’s revenues grew 12% year over year to $552 million in the third quarter, higher than the Zacks Consensus Estimate of $530 million as well as our estimate of $523.6 million.
Wealth Solutions: Organic revenues advanced 4% year over year in the quarter under review on the back of Retirement strength resulting from sustained advisory demand and project-related work associated with pension de-risking. The unit’s revenues of $352 million rose 8% year over year and outpaced the consensus mark of $339 million as well as our estimate of $335.6 million.
Financial Position (as of Sep 30, 2023)
Aon exited the third quarter with cash and cash equivalents of $808 million, which climbed 17.1% from the level in 2022 end. Total assets of $33.1 billion inched up 1.2% from the 2022-end figure.
Long-term debt amounted to $9,969 million, up 1.5% from the figure as of Dec 31, 2022. Short-term debt and the current portion of the long-term debt stood at $1,282 million.
Aon generated cash flow from operations of $2,174 million in the first nine months of 2023, which dipped 0.1% from the prior-year comparable period. Free cash flows of $1,971 million fell 4% year over year in the same time frame.
Capital expenditure was $58 million in the quarter under review.
Capital Deployment Update
Aon bought back 2.6 million class A ordinary shares for roughly $850 million in the third quarter. A leftover capacity of around $4.1 billion remained under its repurchase authorization as of Sep 30, 2023.
Management paid out a quarterly cash dividend of 61.5 cents per share in the quarter under review.
4Q23 View
At current foreign currency rates, management estimates a favorable impact of 3 cents per share in the fourth quarter of 2023. Interest expenses are anticipated to be $126 million.
Forward Outlook
Revenues are forecasted to witness mid-single-digit or higher organic growth for 2023 and beyond. Free cash flow is projected to witness high-single-digit growth this year. Management expects the restructuring program to bring about a decline in free cash flow in the near term but remains optimistic to revert to its history of double-digit free cash flow growth in the long term on the back of growing operating income and continued working capital improvements.
Of the insurance industry players that have reported third-quarter results so far, Marsh & McLennan Companies, Inc. (MMC - Free Report) , W. R. Berkley Corporation (WRB - Free Report) and Chubb Limited (CB - Free Report) beat the respective Zacks Consensus Estimate for earnings.
Marsh & McLennan reported third-quarter 2023 adjusted earnings per share of $1.57, which surpassed the Zacks Consensus Estimate by 13.8%. The bottom line climbed 33% year over year. MMC’s consolidated revenues amounted to $5,382 million, which improved 13% year over year in the quarter under review. The figure grew 10% on an underlying basis. Also, the top line beat the consensus mark by 3.7%. Total adjusted operating income of $1,059 million advanced 24% year over year. The adjusted operating margin improved 170 basis points year over year to 21.3% in the quarter under review. The Risk and Insurance Services segment’s revenues rose 12% year over year, or 11% on an underlying basis, to $3,190 million in the third quarter.
W.R. Berkley's third-quarter 2023 operating income of $1.35 per share, which beat the Zacks Consensus Estimate by 18.4%. The bottom line increased 33.7% year over year. Net premiums written were a record $2.8 billion, up 10.5% year over year. Operating revenues of WRB were $3.1 billion, up 3.4% year over year. The top line, however, beat the consensus estimate by 1.4%. Net investment income surged 33.6% to a record $271 million. The consolidated combined ratio (a measure of underwriting profitability) improved 190 basis points to 90.2. Net premiums written at the Insurance segment increased 12.1% year over year to $2.5 billion in the quarter under review.
Chubb’s third-quarter 2023 core operating income of $4.95 per share outpaced the Zacks Consensus Estimate by 17.6%. The bottom line improved 58.1% from the year-ago quarter. Net premiums written improved 9.1% year over year to $13.1 billion in the quarter, which matched the Zacks Consensus Estimate. Net premiums earned rose 9.9% to $12.7 billion. Net investment income was $1.3 billion, up 34.2% year over year. P&C underwriting income of CB was $1.31 billion, which increased 83.8% from the year-ago quarter. The P&C combined ratio improved 470 bps on a year-over-year basis to 88.4%. The North America Commercial P&C Insurance unit generated net premiums written of $5.1 billion, which increased 8.7% year over year.
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AON's Q3 Earnings Beat on Solid Retention, Segmental Strength
Aon plc (AON - Free Report) reported third-quarter 2023 adjusted earnings of $2.32 per share, which outpaced the Zacks Consensus Estimate by 4%. The bottom line improved 15% year over year.
Total revenues advanced 10% year over year to $2,953 million in the quarter under review and surpassed the consensus mark by 2.6%. The top line consisted of organic revenue growth of 6% and a 2% favorable impact each from fiduciary investment income and foreign currency translation.
The quarterly results were aided by solid organic revenue growth, higher fiduciary investment income, strength in core property and casualty (P&C) and strong segmental contributions. However, the upside was partly offset by an elevated operating expense level.
Aon plc Price, Consensus and EPS Surprise
Aon plc price-consensus-eps-surprise-chart | Aon plc Quote
Q3 Operations
Total operating expenses of $2,262 million escalated 7% year over year in the third quarter and came higher than our estimate of $2,196.5 million. The increase was due to an elevated expense level linked with 6% organic revenue growth, long-term growth investments and an adverse impact from foreign currency translation.
Adjusted operating income was $717 million, which rose 15% year over year and surpassed our estimate of $679.2 million. The adjusted operating margin of 24.3% improved 120 basis points (bps) year over year and came higher than our estimate of 23.9%.
Revenue Lines
Commercial Risk Solutions: Organic revenues grew 4% year over year in the third quarter, attributable to solid retention rates, new business growth and management of the renewal book that led to strong growth across most of the major geographies. Strength in retail brokerage drove growth across EMEA and the Pacific, while U.S. operations were aided by a well-performing construction business. The segment’s revenues of $1,585 million advanced 7% year over year and outpaced the Zacks Consensus Estimate of $1,569 million as well as our estimate of $1,556.8 million.
Reinsurance Solutions: Organic revenues climbed 11% year over year in the quarter under review, driven by solid retention rates, new business growth, solid growth in facultative placements and a well-performing Strategy and Technology Group. The unit recorded revenues of $465 million, which rose 17% year over year and beat the consensus mark of $437 million as well as our estimate of $431.4 million.
Health Solutions: Organic revenues improved 10% year over year, courtesy of net new business growth and management of the renewal book resulting in global expansion of the core health and benefits brokerage business. Strength in Consumer Benefit Solutions as well as an enhanced data and advisory solutions suite also contributed to the quarterly results. The segment’s revenues grew 12% year over year to $552 million in the third quarter, higher than the Zacks Consensus Estimate of $530 million as well as our estimate of $523.6 million.
Wealth Solutions: Organic revenues advanced 4% year over year in the quarter under review on the back of Retirement strength resulting from sustained advisory demand and project-related work associated with pension de-risking. The unit’s revenues of $352 million rose 8% year over year and outpaced the consensus mark of $339 million as well as our estimate of $335.6 million.
Financial Position (as of Sep 30, 2023)
Aon exited the third quarter with cash and cash equivalents of $808 million, which climbed 17.1% from the level in 2022 end. Total assets of $33.1 billion inched up 1.2% from the 2022-end figure.
Long-term debt amounted to $9,969 million, up 1.5% from the figure as of Dec 31, 2022. Short-term debt and the current portion of the long-term debt stood at $1,282 million.
Aon generated cash flow from operations of $2,174 million in the first nine months of 2023, which dipped 0.1% from the prior-year comparable period. Free cash flows of $1,971 million fell 4% year over year in the same time frame.
Capital expenditure was $58 million in the quarter under review.
Capital Deployment Update
Aon bought back 2.6 million class A ordinary shares for roughly $850 million in the third quarter. A leftover capacity of around $4.1 billion remained under its repurchase authorization as of Sep 30, 2023.
Management paid out a quarterly cash dividend of 61.5 cents per share in the quarter under review.
4Q23 View
At current foreign currency rates, management estimates a favorable impact of 3 cents per share in the fourth quarter of 2023. Interest expenses are anticipated to be $126 million.
Forward Outlook
Revenues are forecasted to witness mid-single-digit or higher organic growth for 2023 and beyond. Free cash flow is projected to witness high-single-digit growth this year. Management expects the restructuring program to bring about a decline in free cash flow in the near term but remains optimistic to revert to its history of double-digit free cash flow growth in the long term on the back of growing operating income and continued working capital improvements.
Zacks Rank
Aon currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performances of Some Other Insurers
Of the insurance industry players that have reported third-quarter results so far, Marsh & McLennan Companies, Inc. (MMC - Free Report) , W. R. Berkley Corporation (WRB - Free Report) and Chubb Limited (CB - Free Report) beat the respective Zacks Consensus Estimate for earnings.
Marsh & McLennan reported third-quarter 2023 adjusted earnings per share of $1.57, which surpassed the Zacks Consensus Estimate by 13.8%. The bottom line climbed 33% year over year. MMC’s consolidated revenues amounted to $5,382 million, which improved 13% year over year in the quarter under review. The figure grew 10% on an underlying basis. Also, the top line beat the consensus mark by 3.7%. Total adjusted operating income of $1,059 million advanced 24% year over year. The adjusted operating margin improved 170 basis points year over year to 21.3% in the quarter under review. The Risk and Insurance Services segment’s revenues rose 12% year over year, or 11% on an underlying basis, to $3,190 million in the third quarter.
W.R. Berkley's third-quarter 2023 operating income of $1.35 per share, which beat the Zacks Consensus Estimate by 18.4%. The bottom line increased 33.7% year over year. Net premiums written were a record $2.8 billion, up 10.5% year over year. Operating revenues of WRB were $3.1 billion, up 3.4% year over year. The top line, however, beat the consensus estimate by 1.4%. Net investment income surged 33.6% to a record $271 million. The consolidated combined ratio (a measure of underwriting profitability) improved 190 basis points to 90.2. Net premiums written at the Insurance segment increased 12.1% year over year to $2.5 billion in the quarter under review.
Chubb’s third-quarter 2023 core operating income of $4.95 per share outpaced the Zacks Consensus Estimate by 17.6%. The bottom line improved 58.1% from the year-ago quarter. Net premiums written improved 9.1% year over year to $13.1 billion in the quarter, which matched the Zacks Consensus Estimate. Net premiums earned rose 9.9% to $12.7 billion. Net investment income was $1.3 billion, up 34.2% year over year. P&C underwriting income of CB was $1.31 billion, which increased 83.8% from the year-ago quarter. The P&C combined ratio improved 470 bps on a year-over-year basis to 88.4%. The North America Commercial P&C Insurance unit generated net premiums written of $5.1 billion, which increased 8.7% year over year.