Aon plc today reported results for the three months ended March 31, 2024.
Net income attributable to Aon shareholders increased 6% to $5.35 per share on a diluted basis, compared to $5.07 per share on a diluted basis, in the prior year period. Net income per share attributable to Aon shareholders, adjusted for certain items, increased 9% to $5.66 on a diluted basis, including a favorable impact of $0.02 per share if prior year period results were translated at current period foreign exchange rates (“foreign currency translation”), compared to $5.17 in the prior year period. Certain items that impacted first quarter results and comparisons with the prior year period are detailed in the “Reconciliation of Non-GAAP Measures – Operating Income, Operating Margin and Diluted Earnings Per Share” on page 10 of this press release.
“Our global team delivered strong operating results in the first quarter, including 5% organic revenue growth, 100 basis points of adjusted operating margin improvement, and 9% adjusted EPS growth” said Greg Case, Chief Executive Officer. “We’re delighted to welcome NFP to Aon and look forward to working together to help clients address increasing volatility across risk and people issues, enabled by Aon Business Services. With this earlier-than-expected close, we’re moving even faster to address client demand, create more opportunities for our 60,000 colleagues, strengthen the long-term free cash flow profile of the firm, and enhance long-term shareholder value creation.”
FIRST QUARTER 2024 FINANCIAL SUMMARY
Total revenue in the first quarter increased 5% to $4.1 billion compared to the prior year period, reflecting 5% organic revenue growth, a 1% favorable impact from fiduciary investment income and a 1% favorable impact from foreign currency translation, partially offset by a 2% unfavorable impact from acquisitions, divestitures and other items.
Total operating expenses in the first quarter increased 9% to $2.6 billion compared to the prior year period due primarily to Accelerating Aon United restructuring charges, an increase in expense associated with 5% organic revenue growth, investments in long-term growth, and a $22 million unfavorable impact from foreign currency translation, partially offset by $20 million of restructuring savings realized in the quarter.
Foreign currency translation in the first quarter had a $4 million, or $0.02 per share, favorable impact on U.S. GAAP net income and a $4 million, or $0.02 per share, favorable impact on adjusted net income. If currency were to remain stable at today’s rates, the Company would expect an unfavorable impact of approximately $0.05 per share, or an approximately $15 million decrease in adjusted operating income, in the second quarter of 2024, and an unfavorable impact of approximately $0.03 per share, or an approximately $9 million decrease in adjusted operating income for full year 2024.
Effective tax rate was 23.2% in the first quarter compared to 19.6% in the prior year period. After adjusting to exclude the applicable tax impact associated with certain non-GAAP adjustments, the adjusted effective tax rate for the first quarter of 2024 was 22.6% compared to 19.6% in the prior year period. The primary drivers of the change in the adjusted effective tax rate were the changes in the geographical distribution of income and a net unfavorable impact from discrete items.
Weighted average diluted shares outstanding decreased to 200.1 million in the first quarter compared to 207.1 million in the prior year period. The Company repurchased 0.8 million class A ordinary shares for approximately $250 million in the first quarter. As of March 31, 2024, the Company had approximately $3.1 billion of remaining authorization under its share repurchase program.
YEAR TO DATE 2024 CASH FLOW SUMMARY
Cash flows provided by operations for the first three months of 2024 decreased $134 million to $309 million compared to the prior year period, primarily due to higher receivables, payments related to E&O, restructuring, higher cash taxes and transaction and integration costs, partially offset by strong operating income growth.
Free cash flow, defined as cash flows from operations less capital expenditures, decreased 29%, to $261 million for the first three months of 2024 compared to the prior year period, reflecting a decrease in cash flows provided by operations and a $28 million decrease in capital expenditures compared to the prior year period, which was elevated due to the timing of projects and investments within the year.
FIRST QUARTER 2024 REVENUE REVIEW
Total revenue increased $199 million, or 5%, to $4.1 billion, compared to the prior year period, with organic revenue growth of 5%, driven by ongoing strong retention, net new business generation and management of the renewal book, a 1% favorable impact from fiduciary investment income and a 1% favorable impact from foreign currency translation partially offset by a 2% unfavorable impact from acquisitions, divestitures and other items.
Commercial Risk Solutions organic revenue growth of 3% reflects growth across most major geographies driven by strong retention, management of the renewal book, and net new business generation. Growth in retail brokerage was highlighted by solid growth in EMEA and Asia and the Pacific, driven by continued strength in core P&C. Results in the U.S. were pressured, reflecting lower net new business and the ongoing impacts from external capital markets activity. Results also reflect growth in Affinity globally across both consumer and benefits solutions. On average globally, exposures and pricing were positive, resulting in modestly positive market impact.
Reinsurance Solutions organic revenue growth of 7% reflects strong growth in treaty, driven by strong retention and new business generation, as well as double-digit growth in the Strategy and Technology Group. Market impact was modestly positive on results in the quarter. The majority of revenue in our treaty portfolio is recurring in nature and is recorded in connection with the major renewal periods that take place throughout the first half of the year, while the second half of the year is typically driven by facultative placements, capital markets activity and advisory work that is more transactional in nature.
Health Solutions organic revenue growth of 6% reflects strong growth globally in core health and benefits brokerage driven by new business generation and management of the renewal book. Strength in the core was highlighted by solid growth in all major geographies. Results also reflect strong growth in Consumer Benefit Solutions, partially offset by a decline in Talent driven by lower project-related revenue in advisory solutions.
Wealth Solutions organic revenue growth of 4% reflects strong growth in Retirement, driven by advisory demand and project-related work related to pension de-risking and ongoing impact of regulatory changes. Investments declined modestly as strong advisory demand in North America was more than offset by a decline in project-related work in the U.K.