Willis Group Holdings plc reported third-quarter 2012 adjusted net income from continuing operations of 22 cents per share, falling short of the Zacks Consensus Estimate by 8 cents.
Results were also 46% lower than 41 cents earned in the year-ago quarter. Adjusted net income from continuing operations was $38 million, down 47% year over year. Lower revenue coupled with higher expenses weighed on the performance.
Including an $11 million charge related to a settlement with a former joint venture partner in India and a $1 million loss on disposal of the Indian operations, the company reported net income of $26 million or 15 cents per share, comparing unfavorably with $60 million or 34 cents earned in the year-ago quarter.
Total revenue in the quarter decreased 0.8% year over year to $754 million due to lower commissions and fees and lower investment income. Also, revenues lagged the Zacks Consensus Estimate of $770 million.
Commissions and fees went down 1% year over year to $749 million in the quarter, as foreign currency translation had a negative impact on it.
Investment income also declined 43% from the year-ago quarter to $4 million, attributable to lower net yields on cash and cash equivalents.
Total expense increased 2.1% year over year to $684 million, primarily due to an increase in salaries and benefits and higher depreciation expense.
In the quarter under review, adjusted operating income was $82 million, down 22% year over year. Operating margin contracted 290 basis points to 10.9%.
Global: Organic growth in commissions and fees was 3% in the quarter, while reported growth was flat with year-ago level.
Organic growth was primarily driven by mid double-digit increase in Global Specialties.
Operating margin was 22.1%, contracting 50 basis points year over year.
North America: Commissions and fees, on an organic basis and reported basis remained flat with year-ago level.
Operating margin in the quarter contracted 280 basis points.
International: Commissions and fees increased 5% year over year on an organic basis, while on a reported basis, it declined 2%. Asia and Latin America reported mid teen-digit growth, while the UK business was up in low single-digits. On the flip side, Australasia and Europe were each down in low-single digits.
Operating margin was a negative 4.5%, compared with 1.9% in the year-ago quarter.
The cash and cash equivalent balance at quarter end stood at $424 million, down 2.7% from 2011 end.
Long-term debt edged up 0.4% to $2.4 billion from 2011 end.
Dividends and Share Buybacks
Willis spent $42 million to buy back 1.16 million shares in the quarter. With this, it exhausted the $100 million in 2012 buyback authorization.
The company’s board authorized a dividend of 27 cents to the shareholders of record as on December 31, payable on January 15, 2013.
We retain our Neutral recommendation on Willis Group. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.
Marsh & McLennan Companies Inc. (MMC - Analyst Report) , which competes with Willis Group, also shares a Zacks #3 Rank and is scheduled to release its third quarter results before the opening bell on November 6.