This quarterly report represents an earnings surprise of 10.90%. A quarter ago, it was expected that this advisory, broking and solutions company would post earnings of $1.98 per share when it actually produced earnings of $2.66, delivering a surprise of 34.34%.
Over the last four quarters, the company has surpassed consensus EPS estimates four times.
Operational Update
Revenues improved 4% year over year to $2 billion in the third quarter. Revenues grew 7% on an organic basis and 3% on a constant currency basis. The top line missed the Zacks Consensus Estimate of $2.1 billion.
Total costs of providing services dropped 54% year over year to $842 billion due to a decrease in transaction and integration expenses.
Adjusted operating income amounted to $264 million, which improved 14.3% year over year. Margin came in at 13.4%, up 120 basis points (bps) year over year.
Adjusted EBITDA climbed 10.7% year over year to $415 million in the third quarter. Adjusted EBITDA margin was 24.4%, up 220 bps year over year.
Quarterly Segment Update
Human Capital & Benefits: Total revenues of $852 million improved 7% year over year (5% increase constant currency and 6% organic increase). On an organic basis, Technology and Administrative Solutions, Health and Benefits, Retirement and Talent and Rewards all delivered revenue growth. The operating margin came in at 28.4%, up 210 bps year over year.
Corporate Risk & Broking: Total revenues of $697 million rose 7% year over year (up 6% in both constant currency and organic basis). On an organic basis, North America, International, Western Europe and Great Britain generated revenue growth with new business generation and strong renewals across several insurance lines. The operating margin came in at 16.3%, up 380 bps year over year.
Investment, Risk & Reinsurance: Total revenues of $172 million declined 22% year over year (down 24% constant currency but up 10% organic). On an organic basis, Insurance Consulting and Technology business and the Investment business exhibited growth. The segment’s operating margin came in at 12.9%, up 360 bps year over year.
Benefits Delivery & Administration: Total revenues of $242 million climbed 7% year over year (up 7% both constant currency and organic). The increase was driven by Individual Marketplace, primarily by TRANZACT, which generated revenues of $111 million in the third quarter with strong growth in Medicare Advantage sales. Benefits Outsourcing revenues also increased. The operating margin was negative 7.9% compared with negative 5.3% reported in the prior-year quarter.
Financial Update
As of Sep 30, 2021, the company’s cash and cash equivalents totaled $2.2 billion, which improved 6% from the 2020-end level.
Long-term debt declined 15.7% from 2020-end to nearly $4 billion in the quarter under review.
As of Sep 30, 2021, shareholders’ equity of $11.4 billion rose 4.6% from the level as of Dec 31, 2020.
Cash flow from operating activities in the first nine months of 2021 decreased 56% year over year to $1.9 billion. Adjusted free cash flow increased 17% year over year to $1.2 billion.
The company bought back $1 billion worth share in the first nine months of 2021.