A month has gone by since the last earnings report for Willis Towers Watson (WTW Quick QuoteWTW - Free Report) . Shares have added about 1.1% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Willis Towers Watson due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Willis Towers Q4 Earnings Top Estimates, Revenues Up Y/Y

Willis Towers Watson Public Limited Company delivered fourth-quarter 2023 adjusted earnings of $7.44 per share, which beat the Zacks Consensus Estimate by 5.7%. The bottom line increased 17.5% year over year. WTW witnessed an increase in revenues and expanded operating margins at the Health, Wealth & Career and Risk & Broking segments, as well as improved adjusted operating income, offset by higher expenses.

Operational Update

Willis Towers posted adjusted consolidated revenues of $2.9 billion, up 7% year over year on a reported basis. Revenues increased 6% on an organic basis and a constant currency basis. The top line beat the Zacks Consensus Estimate by 0.3%. The total costs of providing services increased 6% year over year to $2.1 billion due to higher salaries and benefits, restructuring costs, transaction and transformation costs as well as other operating expenses. Our estimate was $2 billion.

Adjusted operating income was $998 million, which increased 13.1% year over year. Margin expanded 180 basis points (bps) to 34.2%. Adjusted EBITDA was $1.1 billion, up 7% year over year. Adjusted EBITDA margin was 37.1%, which remained flat year over year.

Quarterly Segment Update

Health, Wealth & Career: Total revenues of $1.79 billion rose 4% year over year (3% increase on a constant currency and 4% on an organic basis). The Zacks Consensus Estimate and our estimate were both pegged at $1.8 billion. Organic growth in Benefits Delivery & Outsourcing was driven by higher volumes and placements of Medicare Advantage and life policies in Individual Marketplace and increased compliance and other project activity in Outsourcing. Wealth businesses generated organic revenue growth from higher levels of Retirement work in North America and Europe, along with new client acquisitions, pension brokerage and higher fees in Investments.

Organic revenue growth in Health was driven by the continued expansion of the Global Benefits Management client portfolio, higher brokerage income as well as a modest tailwind from book-of-business settlement revenues.
Career had organic revenue growth from compensation survey sales and executive compensation, reward-based advisory and employee experience services. The operating margins expanded 150 basis points from the prior-year quarter to 40.5%, primarily from Transformation savings.

Risk & Broking: Total revenues of $1.08 billion rose 13% year over year (12% increase in constant currency and on an organic basis) and beat the Zacks Consensus Estimate of $1.03 billion. Our estimate was $1 billion.
Corporate Risk & Broking generated exceptional organic revenue growth, driven by strong new business, improved client retention and rate increases.

Insurance Consulting and Technology had organic revenue growth from software sales and increased project revenues. The operating margins expanded 460 basis points from the prior-year quarter to 32.9%, due to higher operating leverage, driven by strong organic revenue growth and increased productivity from recent hires and Transformation savings.

Financial Update

As of Dec 31, 2023, cash and cash equivalents were $1.4 billion, up 12.8% from 2022 end. Long-term debt increased 2.1% to $4.5 billion at quarter-end from 2022 end. Shareholders’ equity decreased 4.9% from the level on Dec 31, 2022, to $9.5 billion as of Dec 31, 2023.

Cash flow from operations was $1.3 billion in 2023, up 65.6% from the prior-year period. Free cash flow for 2023 increased 76.8% year over year to $1.2 billion.

2024 Guidance

Willis Towers expects to deliver revenues of $9.9 billion and mid-single digit organic revenue growth. The insurer projects to deliver an adjusted operating margin in the range of 22.5-23.5% for 2024. WTW expects to deliver adjusted diluted earnings per share in the range of $15.40-$17. The company projects around $88 million in non-cash pension income for 2024.

Willis Towers expects a foreign currency headwind on adjusted earnings per share of approximately $0.02 for 2024 at today’s rates. WTW expects to deliver around $425 million of cumulative run-rate savings from the Transformation program by the end of 2024, up from $380 million previously. The company anticipates total program costs of $1.125 billion, up from $900 million previously.

Full-Year Highlights

Adjusted earnings of $14.49 per share beat the Zacks Consensus Estimate by 2.6%. The bottom line increased 8% year over year. Total revenues increased 7% from the year-ago quarter to about $9.5 billion. The top line beat the Zacks Consensus Estimate by 0.1%.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

At this time, Willis Towers Watson has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Willis Towers Watson has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Willis Towers Watson is part of the Zacks Insurance - Brokerage industry. Over the past month, Arthur J. Gallagher (AJG Quick QuoteAJG - Free Report) , a stock from the same industry, has gained 5.3%. The company reported its results for the quarter ended December 2023 more than a month ago.

Arthur J. Gallagher reported revenues of $2.39 billion in the last reported quarter, representing a year-over-year change of +19.9%. EPS of $1.85 for the same period compares with $1.54 a year ago.

For the current quarter, Arthur J. Gallagher is expected to post earnings of $3.40 per share, indicating a change of +12.2% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.4% over the last 30 days.

Arthur J. Gallagher has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.