(Source: Business Wire)
Marsh & McLennan Companies, Inc. (MMC) today reported financial results for the quarter ended June 30, 2009.
"MMC performed well in the second quarter despite the continued difficult economic environment affecting our businesses. Results for our Risk and Insurance Services segment were excellent. Underlying revenue rose 2 percent, excluding fiduciary interest income. Strong growth in operating income drove a substantial improvement in margins," said MMC President and CEO Brian Duperreault.
"Marsh continued its excellent performance, achieving increased profitability through expense discipline. Guy Carpenter produced double-digit underlying revenue growth, reflecting strong new business, with increased profitability resulting from its continuing focus on expenses. The operating margin for Risk and Insurance Services increased to 18.2 percent from 10.6 percent, and adjusted operating margin increased to 20.2 percent from 14.6 percent a year ago.
"In the Consulting segment, Mercer delivered a respectable performance in the current environment, with strong expense control offset by a modest revenue decline. At Oliver Wyman, we saw sequential improvement in profitability as a result of management actions taken earlier in the year.
"Overall, we have made excellent progress strengthening our operating companies while at the same time managing through the worst effects of the economic recession." Mr. Duperreault concluded.
In the second quarter of 2009, MMC's consolidated revenue was $2.6 billion, a decline of 13 percent from the second quarter of 2008, or 6 percent on an underlying basis. Underlying revenue measures the change in revenue before the impact of acquisitions and dispositions, using consistent currency exchange rates.
MMC completed the sale of its U.S. government security clearance screening business, Kroll Government Services, in the second quarter of 2009. Its results for the quarter are included in discontinued operations and the previous results of this business have been restated as discontinued operations. In connection with this transaction, MMC evaluated Kroll's overall goodwill for impairment. This resulted in a non-cash charge of $315 million, or $.60 per share. There is no tax benefit related to the impairment charge, nor any impact on MMC's cash flows, tangible equity or debt covenants.
As a result of the goodwill impairment charge, MMC reported a net loss of $193 million, or $.37 per share, in the second quarter. This compared with net income of $65 million, or $.12 per share, in the second quarter of 2008.
Earnings per share on an adjusted basis, which excludes noteworthy items as presented in the attached supplemental schedules, was $.33 in the second quarter of 2009, compared with $.39 in the same quarter last year.
For the six months ended June 30, 2009, MMC's net loss was $17 million, or $.03 per share, compared with a net loss of $145 million, or $.28 per share, last year. Adjusted earnings per share for the six months was $.72, compared with $.84 last year.
Risk and Insurance Services
Risk and Insurance Services segment revenue in the second quarter of 2009 was $1.3 billion, a decline of 5 percent from the second quarter of 2008, and was flat on an underlying basis. Excluding fiduciary interest, underlying revenue in Risk and Insurance Services rose 2 percent. Operating income in the second quarter increased 63 percent to $245 million from $150 million last year. Adjusted operating income rose 31 percent to $271 million from $207 million, reflecting substantially improved performance at both Marsh and Guy Carpenter. For the first six months of 2009, segment revenue was $2.7 billion, a decline of 7 percent from the prior year period, and flat on an underlying basis. Excluding fiduciary interest, underlying revenue increased 1 percent.
In the second quarter, insurance premiums in the property and casualty marketplace continued to decline -- similar to what was seen earlier in the year. Additionally, the global economic recession reduced demand for commercial insurance. Marsh's revenue in the second quarter declined 7 percent from last year to $1.1 billion. On an underlying basis, revenue was flat in the quarter. Revenue for international operations was flat overall, with modest growth in Asia Pacific and 9 percent growth in Latin America. Marsh achieved a significant increase in profitability in the quarter as a result of its substantial reduction in expenses.
Guy Carpenter's revenue rose 16 percent to $227 million in the second quarter of 2009, or 11 percent on an underlying basis, compared with the prior year's quarter. An increase in new business along with continuing cost discipline led to significant improvement in Guy Carpenter's profitability. Increased rates were evident in U.S. property catastrophe reinsurance in the second quarter, while rates in casualty reinsurance were stable to down. In the second quarter, Guy Carpenter completed the acquisition of John B. Collins Associates.
Consulting
Due to the impact of continued adverse global economic conditions, consulting segment revenue declined 17 percent to $1.1 billion in the second quarter, or 9 percent on an underlying basis. Operating income in the second quarter of 2009 was $96 million. This includes an increase in professional liability costs of approximately $30 million, primarily reflecting a legal settlement at Mercer. Foreign currency translation reduced operating income by $26 million in the quarter, primarily at Mercer. Adjusted operating income, which includes the impact of both the professional liability costs and foreign exchange, was $101 million, compared with $165 million in 2008. For the first six months of 2009, segment revenue declined 17 percent to $2.2 billion, or 8 percent on an underlying basis.
Mercer's revenue declined 13 percent to $832 million in the second quarter, or 5 percent on an underlying basis. Mercer's consulting operations produced revenue of $605 million, a decline of 5 percent on an underlying basis, with modest reductions in its retirement and health and benefits businesses. Outsourcing, with revenue of $154 million, declined 5 percent, and investment consulting and management, with revenue of $73 million, increased 2 percent. Oliver Wyman's revenue declined 25 percent to $311 million in the second quarter of 2009, or 19 percent on an underlying basis.
Risk Consulting and Technology
Kroll's revenue of $161 million in the second quarter of 2009 declined 29 percent from the year-ago quarter, or 24 percent on an underlying basis. Revenue in litigation support and data recovery declined 29 percent; background screening was down 9 percent; and risk mitigation and response decreased 33 percent.
Other Items
As a result of mark-to-market declines within MMC's private equity fund investments, an investment loss of $31 million was reported in the second quarter of 2009.
At June 30, 2009, cash and cash equivalents was $1.3 billion. MMC repaid its $400 million, 7.125 percent senior notes due June 15, 2009 with the net proceeds from its debt issuance of March 15, 2009. MMC also declared a quarterly dividend of $.20 per share on outstanding common stock, payable in the third quarter of 2009.
Conference Call
A conference call to discuss second quarter 2009 results will be held today at 8:30 a.m. Eastern Time. To participate in the teleconference, please dial 888 471 3836. Callers from outside the United States should dial 719 325 2342. The access code for both numbers is 4865669. The live audio webcast may be accessed at www.mmc.com. A replay of the webcast will be available approximately two hours after the event at the same web address.
MMC is a global professional services firm providing advice and solutions in the areas of risk, strategy and human capital. It is the parent company of a number of the world's leading risk experts and specialty consultants, including Marsh, the insurance broker and risk advisor; Guy Carpenter, the risk and reinsurance specialist; Mercer, the provider of HR and related financial advice and services; Oliver Wyman, the management consultancy; and Kroll, the risk consulting firm. With approximately 53,000 employees worldwide and annual revenue of $11 billion, MMC provides analysis, advice and transactional capabilities to clients in more than 100 countries. Its stock (ticker symbol: MMC) is listed on the New York, Chicago and London stock exchanges. MMC's website address is www.mmc.com.
This press release contains "forward-looking statements," as defined in the Private Securities Litigation Reform Act of 1995. These statements, which express management's current views concerning future events or results, use words like "anticipate," "assume," "believe," "continue," "estimate," "expect," "intend," "plan," "project" and similar terms, and future or conditional tense verbs like "could," "may," "might," "should," "will" and "would." For example, we may use forward-looking statements when addressing topics such as: market and industry conditions, including competitive and pricing trends; changes in our business strategies and methods of generating revenue; the development and performance of our services and products; changes in the composition or level of MMC's revenues; our cost structure and the outcome of cost-saving or restructuring initiatives; the outcome of contingencies; dividend policy; the expected impact of acquisitions and dispositions; pension obligations; cash flow and liquidity; future actions by regulators; and the impact of changes in accounting rules.
Forward-looking statements are subject to inherent risks and uncertainties. Factors that could cause actual results to differ materially from those expressed or implied in our forward-looking statements include:
the potential impact of an adverse ruling in, or the settlement of, the purported securities class action against MMC, Marsh and certain of their former officers concerning the late 2004 decline in MMC's share price and the purported ERISA class action pending against MMC and various current and former employees, officers and directors on behalf of participants and beneficiaries of an MMC retirement plan, both of which are scheduled for trial in early 2010;
our exposure to potential liabilities arising from errors and omissions claims against us, including claims of professional negligence in providing actuarial services, such as those alleged by the Alaska Retirement Management Board in a pending lawsuit against Mercer that is scheduled for trial in the spring of 2010;
the impact of current financial market conditions on our results of operations and financial condition;
the potential impact of legislative, regulatory, accounting and other initiatives which may be taken in response to the current financial crisis;
our ability to meet our financing needs by generating cash from operations and accessing external financing sources, including the impact of current economic conditions on our cost of financing or ability to borrow;
the potential impact of rating agency actions on our cost of financing and ability to borrow, as well as on our operating costs and competitive position;
the impact on our net income caused by fluctuations in foreign exchange rates;
changes in the funded status of our global defined benefit pension plans and the impact of any increased pension funding resulting from those changes;
the impact on risk and insurance services commission revenues of changes in the availability of, and the premiums insurance carriers charge for, insurance and reinsurance products, including the impact on premium rates and market capacity attributable to catastrophic events;
the extent to which we retain existing clients and attract new business, and our ability to incentivize and retain key employees;
the challenges we face in achieving profitable revenue growth and improving operating margins at Marsh;
the impact on our consulting segment of pricing trends, utilization rates, the general economic environment and legislative changes affecting client demand;
the impact of competition, including with respect to pricing, the emergence of new competitors, and the fact that many of Marsh's competitors are not constrained in their ability to receive contingent commissions;
our ability to successfully obtain payment from our clients of the amounts they owe us for work performed;
the impact of, and potential challenges in complying with, legislation and regulation in the jurisdictions in which we operate, particularly given the global scope of our businesses and the possibility of conflicting regulatory requirements across the jurisdictions in which we do business;
our exposure to potential criminal sanctions or civil remedies if we fail to comply with foreign and U.S. laws and regulations that are applicable to our international operations, including import and export requirements, U.S. laws such as the Foreign Corrupt Practices Act, and local laws prohibiting corrupt payments to government officials;
our ability to make strategic acquisitions and dispositions and to integrate, and realize expected synergies, savings or strategic benefits from, the businesses we acquire;
our ability to successfully recover should we experience a disaster or other business continuity problem;
changes in applicable tax or accounting requirements;
potential income statement effects from the application of FIN 48 ("Accounting for Uncertainty in Income Taxes") and SFAS 142 ("Goodwill and Other Intangible Assets"), including the effect of any subsequent adjustments to the estimates MMC uses in applying these accounting standards; and
other risks detailed from time to time in MMC's filings with the Securities and Exchange Commission.
The factors identified above are not exhaustive. MMC and its subsidiaries operate in a dynamic business environment in which new risks may emerge frequently. Accordingly, MMC cautions readers not to place undue reliance on its forward-looking statements, which speak only as of the dates on which they are made. MMC undertakes no obligation to update or revise any forward-looking statement to reflect events or circumstances arising after the date on which it is made. Further information concerning MMC and its businesses, including information about factors that could materially affect our results of operations and financial condition, is contained in MMC's filings with the Securities and Exchange Commission, including the "Risk Factors" section of MMC's most recently filed Annual Report on Form 10-K.
Marsh & McLennan Companies, Inc. Consolidated Statements of Income (In millions, except per share figures) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2009 2008 2009 2008 Revenue $2,629 $3,033 $5,238 $6,057 Expense: Compensation and Benefits 1,604 1,879 3,175 3,701 Other Operating Expenses 731 859 1,445 1,726 Goodwill Impairment Charge 315 115 315 540 Total Expense 2,650 2,853 4,935 5,967 Operating Income (Loss) (21 ) 180 303 90 Interest Income 4 12 10 30 Interest Expense (65 ) (55 ) (121 ) (111 ) Investment Income (Loss) (31 ) (16 ) (46 ) (8 ) Income (Loss) Before Income Taxes (113 ) 121 146 1 Income Taxes 49 66 129 159 Income (Loss) from Continuing Operations (162 ) 55 17 (158 ) Discontinued Operations, Net of Tax (26 ) 12 (25 ) 18 Net Income (Loss) Before Non-Controlling Interest $ (188 ) $ 67 $ (8 ) $ (140 ) Less: Net Income Attributable to Non-Controlling Interest 5 2 9 5 Net Income (Loss) Attributable to MMC $ (193 ) $ 65 $ (17 ) $ (145 ) Basic Net Income (Loss) Per Share -- Continuing Operations $(0.31 ) $ 0.10 $0.01 $ (0.30 ) -- Net Income (Loss) $(0.36 ) $ 0.12 $(0.03 ) $ (0.27 ) Diluted Net Income (Loss) Per Share -- Continuing Operations $(0.32 ) $ 0.10 $0.01 $ (0.32 ) -- Net Income (Loss) $(0.37 ) $ 0.12 $(0.03 ) $ (0.28 ) Average Number of Shares Outstanding -- Basic 522 512 519 515 -- Diluted 522 512 519 515 Shares Outstanding at 6/30 523 512 523 512 -------------------------------------------------------------------------------
Marsh & McLennan Companies, Inc.
