Marsh & McLennan Companies Reports Third Quarter 2015 Results

GAAP EPS and Adjusted EPS Increase 13%

Higher Adjusted Operating Income and Margin Expansion

NEW YORK--()--Marsh & McLennan Companies, Inc. (NYSE: MMC), a global professional services firm offering clients advice and solutions in risk, strategy and people, today reported financial results for the third quarter ended September 30, 2015.

Marsh & McLennan Companies President and CEO Dan Glaser said: "We are pleased with our results and continue to perform well in a challenging macro environment. We produced underlying revenue growth in the third quarter and year-to-date across all operating companies, along with higher adjusted operating income and margin expansion. On a consolidated basis, underlying revenue grew 4% in the third quarter, reflecting growth of 2% in Risk & Insurance Services and 6% in Consulting. Adjusted earnings per share increased 13% to $.63 for the third quarter and 8% year-to-date. We remain on track to deliver underlying revenue growth, margin expansion and high single-digit growth in earnings per share this year."

Consolidated Results

Consolidated revenue in the third quarter of 2015 was $3.1 billion, a decline of 1% from the third quarter of 2014, reflecting the continuing impact of the strong US dollar. On an underlying basis, consolidated revenue increased 4%. Operating income rose 4% to $461 million, compared with $445 million in the prior year. Net income attributable to the Company was $323 million, or $.61 per share, compared with $297 million, or $.54 per share, in the prior year. Adjusted earnings per share increased 13% to $.63, compared with $.56 in last year’s third quarter.

For the nine months ended September 30, 2015, revenue was $9.6 billion, a decline of 2%. On an underlying basis, revenue increased 3%. Operating income was $1.8 billion, and net income attributable to the Company was $2.27 per share, an increase of 8% from $2.11 per share last year. Adjusted earnings per share rose 8% to $2.34.

Risk and Insurance Services

Risk & Insurance Services revenue was $1.6 billion in the third quarter of 2015, an increase of 2% on an underlying basis. Operating income was $225 million, compared with $229 million in the prior year. Adjusted operating income rose 3% to $248 million, compared with $242 million last year. For the nine months of 2015, revenue was $5.1 billion, reflecting growth of 2% on an underlying basis. Operating income rose to $1.2 billion, and adjusted operating income increased 4%.

Marsh's revenue in the third quarter of 2015 was $1.3 billion, an increase of 2% on an underlying basis. The US/Canada division had underlying revenue growth of 2%. International operations produced underlying revenue growth of 2%, with EMEA and Asia Pacific each rising 1% and Latin America growing 6%. Guy Carpenter's third quarter revenue was $261 million, an increase of 2% on an underlying basis.

Consulting

Consulting revenue of $1.5 billion in the third quarter increased 6% on an underlying basis from the third quarter of 2014. Both operating income and adjusted operating income rose 4% to $285 million. For the nine months of 2015, revenue was $4.4 billion, up 5% on an underlying basis. Operating income grew 5% to $781 million, and adjusted operating income increased 4%.

Mercer's revenue was $1.1 billion in the third quarter, an increase of 5% on an underlying basis. Health, with revenue of $394 million, grew 6% on an underlying basis; Retirement, with revenue of $317 million, rose 2%; Investments, with revenue of $202 million, increased 6%; and Talent, with revenue of $177 million, was up 6%. Oliver Wyman Group’s revenue was $450 million in the third quarter, an increase of 9% on an underlying basis.

Other Items

In the third quarter of 2015, Marsh & McLennan Companies had investment income of $34 million, which was predominantly carried interest from Trident III no longer subject to clawback. Investment income in the third quarter of last year was $26 million. In September 2015, the Company issued $600 million of 3.75% senior notes due in 2026, the net proceeds of which are being used for general corporate purposes. The Board also increased the quarterly dividend 11%, to $.31 per share, effective with the third quarter payment on August 14, 2015. The Company repurchased 9.9 million shares of its common stock for $550 million in the third quarter. For the nine months of 2015, the Company repurchased 23.4 million shares for $1.3 billion.

Conference Call

A conference call to discuss third quarter 2015 results will be held today at 8:30 a.m. Eastern time. To participate in the teleconference, please dial +1 800 500 0920. Callers from outside the United States should dial +1 719 457 2646. The access code for both numbers is 520888. 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.

About Marsh & McLennan Companies

MARSH & McLENNAN COMPANIES (NYSE: MMC) is a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. Marsh is a leader in insurance broking and risk management; Guy Carpenter is a leader in providing risk and reinsurance intermediary services; Mercer is a leader in talent, health, retirement, and investment consulting; and Oliver Wyman is a leader in management consulting. With annual revenue of $13 billion and approximately 58,000 colleagues worldwide, Marsh & McLennan Companies provides analysis, advice and transactional capabilities to clients in more than 130 countries. The Company is committed to being a responsible corporate citizen and making a positive impact in the communities in which it operates. Visit www.mmc.com for more information and follow us on LinkedIn and Twitter @MMC_Global.

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

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," "future," "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: the outcome of contingencies; the expected impact of acquisitions and dispositions; the impact of competition; pension obligations; the impact of foreign currency exchange rates; our effective tax rates; 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 our revenues; our cost structure, dividend policy, 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, among other things:

  • our ability to maintain adequate safeguards to protect the security of confidential, personal or proprietary information, and the potential for the improper disclosure or use of such information, whether due to human error, improper action by employees, vendors or third parties, or as a result of a cyberattack;
  • the impact of competition on our business, including the impact of our corporate tax rate, which is higher than the tax rate of our international competitors;
  • the impact of fluctuations in foreign currency exchange rates, particularly in light of the strength of the U.S. dollar against most other currencies worldwide;
  • the impact on our global pension obligations of changes in discount rates and asset returns, as well as projected salary increases, mortality rates, demographics and inflation, and the impact of cash contributions required to be made to our global defined benefit pension plans due to changes in the funded status of those plans;
  • our exposure to potential liabilities arising from errors and omissions claims against us;
  • our exposure to potential civil remedies or criminal penalties if we fail to comply with foreign and U.S. laws that are applicable in the domestic and international jurisdictions in which we operate;
  • the extent to which we are able to retain existing clients and attract new business, and our ability to effectively incentivize and retain key employees;
  • our ability to make acquisitions and dispositions and to integrate, and realize expected synergies, savings or benefits from, the businesses we acquire;
  • our ability to successfully recover should we experience a disaster or other business continuity problem;
  • the impact of changes in interest rates and deterioration of counterparty credit quality on our cash balances and the performance of our investment portfolios;
  • the impact of potential rating agency actions on our cost of financing and ability to borrow, as well as on our operating costs and competitive position;
  • changes in applicable tax or accounting requirements; and
  • potential income statement effects from the application of FASB's ASC Topic No. 740 ("Income Taxes") regarding accounting treatment of uncertain tax benefits and valuation allowances, including the effect of any subsequent adjustments to the estimates we use in applying this accounting standard.

The factors identified above are not exhaustive. Marsh & McLennan Companies and its subsidiaries operate in a dynamic business environment in which new risks may emerge frequently. Accordingly, we caution readers not to place undue reliance on any forward-looking statements, which are based only on information currently available to us and speak only as of the dates on which they are made. The Company 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 Marsh & McLennan Companies and its businesses, including information about factors that could materially affect our results of operations and financial condition, is contained in the Company's filings with the Securities and Exchange Commission, including the "Risk Factors" section and the "Management’s Discussion and Analysis of Financial Condition and Results of Operations" section of our 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
September 30,
Nine Months Ended
September 30,
2015     2014   2015     2014  
Revenue $ 3,115   $ 3,141   $ 9,555   $ 9,705  
 
Expense:
Compensation and Benefits 1,878 1,904 5,434 5,619
Other Operating Expenses 776   792   2,296   2,321  
Operating Expenses 2,654   2,696   7,730   7,940  
Operating Income 461 445 1,825 1,765
Interest Income 3 6 9 16
Interest Expense (41 ) (45 ) (117 ) (129 )
Investment Income 34   26   39   37  
Income Before Income Taxes 457 432 1,756 1,689
Income Tax Expense 128   127   500   487  
Income from Continuing Operations 329 305 1,256 1,202
Discontinued Operations, Net of Tax 2   (1 ) (1 ) (4 )
Net Income Before Non-Controlling Interests 331 304 1,255 1,198
Less: Net Income Attributable to Non-Controlling Interests 8   7   31   27  
Net Income Attributable to the Company $ 323   $ 297   $ 1,224   $ 1,171  
Basic Net Income Per Share
- Continuing Operations $ 0.61   $ 0.55   $ 2.29   $ 2.15  
- Net Income Attributable to the Company $ 0.61   $ 0.55   $ 2.29   $ 2.14  
Diluted Net Income Per Share
- Continuing Operations $ 0.60   $ 0.54   $ 2.27   $ 2.12  
- Net Income Attributable to the Company $ 0.61   $ 0.54   $ 2.27   $ 2.11  
Average Number of Shares Outstanding
- Basic 528   544   534   547  
- Diluted 533   551   540   554  
Shares Outstanding at 9/30 522   542   522   542  
 
     
Marsh & McLennan Companies, Inc.
Supplemental Information - Revenue Analysis

Three Months Ended September 30, 2015

(Millions) (Unaudited)

 
Components of Revenue Change*

Three Months Ended
September 30,

 

% Change
GAAP
Revenue

Currency
Impact

 

Acquisitions/
Dispositions
Impact

 

Underlying
Revenue

2015     2014  
Risk and Insurance Services
Marsh $ 1,317 $ 1,338 (2 )% (7 )% 4 % 2 %
Guy Carpenter 261   266   (2 )% (4 )% 2 %
Subtotal 1,578 1,604 (2 )% (7 )% 3 % 2 %
Fiduciary Interest Income 6   6  
Total Risk and Insurance Services 1,584   1,610   (2 )% (7 )% 3 % 2 %
Consulting
Mercer 1,090 1,112 (2 )% (8 )% 1 % 5 %
Oliver Wyman Group 450   429   5 % (6 )% 2 % 9 %
Total Consulting 1,540   1,541   (7 )% 1 % 6 %
Corporate / Eliminations (9 ) (10 )
Total Revenue $ 3,115   $ 3,141   (1 )% (7 )% 2 % 4 %
 

Revenue Details

The following table provides more detailed revenue information for certain of the components presented above:

       
Components of Revenue Change*

Three Months Ended
September 30,

 

% Change
GAAP
Revenue

Currency
Impact

 

Acquisitions/
Dispositions
Impact

 

Underlying
Revenue

2015     2014  
Marsh:  
EMEA $ 378 $ 414 (9 )% (10 )% 1 % 1 %
Asia Pacific 156 175 (10 )% (13 )% 2 % 1 %
Latin America 86   99   (14 )% (21 )% 2 % 6 %
Total International 620 688 (10 )% (13 )% 1 % 2 %
U.S. / Canada 697   650   7 % (2 )% 7 % 2 %
Total Marsh $ 1,317   $ 1,338   (2 )% (7 )% 4 % 2 %
Mercer:
Health $ 394 $ 392 (4 )% (2 )% 6 %
Retirement 317 330 (4 )% (8 )% 2 % 2 %
Investments 202 213 (5 )% (14 )% 3 % 6 %
Talent 177   177   1 % (8 )% 3 % 6 %
Total Mercer $ 1,090   $ 1,112   (2 )% (8 )% 1 % 5 %
 
 
Notes
 
Underlying revenue measures the change in revenue using consistent currency exchange rates, excluding the impact of certain items that affect comparability such as: acquisitions, dispositions and transfers among businesses.
 
* Components of revenue change may not add due to rounding.
 
     
Marsh & McLennan Companies, Inc.
Supplemental Information - Revenue Analysis
Nine Months Ended September 30, 2015

(Millions) (Unaudited)

 
Components of Revenue Change*

Nine Months Ended
September 30,

 

% Change
GAAP
Revenue

Currency
Impact

 

Acquisitions/
Dispositions
Impact

 

Underlying
Revenue

2015     2014  
Risk and Insurance Services
Marsh $ 4,217 $ 4,280 (1 )% (7 )% 3 % 3 %
Guy Carpenter 904   942   (4 )% (4 )% (1 )% 1 %
Subtotal 5,121 5,222 (2 )% (6 )% 2 % 2 %
Fiduciary Interest Income 16   18  
Total Risk and Insurance Services 5,137   5,240   (2 )% (6 )% 2 % 2 %
Consulting
Mercer 3,173 3,244 (2 )% (7 )% 1 % 4 %
Oliver Wyman Group 1,275   1,249   2 % (6 )% 2 % 6 %
Total Consulting 4,448   4,493   (1 )% (7 )% 1 % 5 %
Corporate / Eliminations (30 ) (28 )
Total Revenue $ 9,555   $ 9,705   (2 )% (7 )% 2 % 3 %
 

Revenue Details

The following table provides more detailed revenue information for certain of the components presented above:

       
Components of Revenue Change*

Nine Months Ended
September 30,

 

% Change
GAAP
Revenue

Currency
Impact

 

Acquisitions/
Dispositions
Impact

 

Underlying
Revenue

2015     2014  
Marsh:  
EMEA $ 1,380 $ 1,509 (9 )% (11 )% 1 % 2 %
Asia Pacific 480 520 (8 )% (10 )% 1 % 1 %
Latin America 262   285   (8 )% (17 )% 3 % 5 %
Total International 2,122 2,314 (8 )% (11 )% 1 % 2 %
U.S. / Canada 2,095   1,966   7 % (1 )% 5 % 3 %
Total Marsh $ 4,217   $ 4,280   (1 )% (7 )% 3 % 3 %
Mercer:
Health $ 1,169 $ 1,173 (4 )% (2 )% 5 %
Retirement 973 1,032 (6 )% (8 )% 2 %
Investments 614 622 (1 )% (12 )% 2 % 9 %
Talent 417   417   (7 )% 3 % 5 %
Total Mercer $ 3,173   $ 3,244   (2 )% (7 )% 1 % 4 %
 
 
Notes
 
Underlying revenue measures the change in revenue using consistent currency exchange rates, excluding the impact of certain items that affect comparability such as: acquisitions, dispositions and transfers among businesses.
 
* Components of revenue change may not add due to rounding.
 
 
Marsh & McLennan Companies, Inc.
Non-GAAP Measures
Three Months Ended September 30

(Millions) (Unaudited)

 
The Company presents below certain additional financial measures that are "non-GAAP measures," within the meaning of Regulation G under the Securities Exchange Act of 1934. These measures are: adjusted operating income (loss); adjusted operating margin; and adjusted income, net of tax.
 
The Company presents these non-GAAP measures to provide investors with additional information to analyze the Company's performance from period to period. Management also uses these measures to assess performance for incentive compensation purposes and to allocate resources in managing the Company's businesses. However, investors should not consider these non-GAAP measures in isolation from, or as a substitute for, the financial information that the Company reports in accordance with GAAP. The Company's non-GAAP measures reflect subjective determinations by management, and may differ from similarly titled non-GAAP measures presented by other companies.
 
Adjusted Operating Income (Loss) and Adjusted Operating Margin
Adjusted operating income (loss) is calculated by excluding the impact of certain noteworthy items from the Company's GAAP operating income or loss. The following tables identify these noteworthy items and reconcile adjusted operating income (loss) to GAAP operating income or loss, on a consolidated and segment basis, for the three months ended September 30, 2015 and 2014. The following tables also present adjusted operating margin, which is calculated by dividing adjusted operating income by consolidated or segment GAAP revenue.
 
       

Risk &
Insurance
Services

Consulting

Corporate/
Eliminations

Total
Three Months Ended September 30, 2015
Operating income (loss) $ 225   $ 285   $ (49 ) $ 461  
Add impact of Noteworthy Items:
Restructuring charges (a) 1 2 3
Adjustments to acquisition related accounts (b) 22       22  
Operating income adjustments 23     2   25  
Adjusted operating income (loss) $ 248   $ 285   $ (47 ) $ 486  
Operating margin 14.2 % 18.5 % N/A   14.8 %
Adjusted operating margin 15.7 % 18.5 % N/A   15.6 %
Three Months Ended September 30, 2014
Operating income (loss) $ 229   $ 274   $ (58 ) $ 445  
Add (Deduct) impact of Noteworthy Items:
Restructuring charges (a) 2 2 4
Adjustments to acquisition related accounts (b) 11 11
Other     (2 ) (2 )
Operating income adjustments 13       13  
Adjusted operating income (loss) $ 242   $ 274   $ (58 ) $ 458  
Operating margin 14.2 % 17.8 % N/A   14.2 %
Adjusted operating margin 15.0 % 17.8 % N/A   14.6 %
 
 
(a) Primarily severance, future rent under non-cancellable leases, and integration costs related to recent acquisitions.
(b) Primarily includes the change in fair value as measured each quarter of contingent consideration related to acquisitions.
 
 
Marsh & McLennan Companies, Inc.
Non-GAAP Measures
Nine Months Ended September 30

(Millions) (Unaudited)

 
The Company presents below certain additional financial measures that are "non-GAAP measures," within the meaning of Regulation G under the Securities Exchange Act of 1934. These measures are: adjusted operating income (loss); adjusted operating margin; and adjusted income, net of tax.
 
The Company presents these non-GAAP measures to provide investors with additional information to analyze the Company's performance from period to period. Management also uses these measures to assess performance for incentive compensation purposes and to allocate resources in managing the Company's businesses. However, investors should not consider these non-GAAP measures in isolation from, or as a substitute for, the financial information that the Company reports in accordance with GAAP. The Company's non-GAAP measures reflect subjective determinations by management, and may differ from similarly titled non-GAAP measures presented by other companies.
 
Adjusted Operating Income (Loss) and Adjusted Operating Margin
Adjusted operating income (loss) is calculated by excluding the impact of certain noteworthy items from the Company's GAAP operating income or loss. The following tables identify these noteworthy items and reconcile adjusted operating income (loss) to GAAP operating income or loss, on a consolidated and segment basis, for the nine months ended September 30, 2015 and 2014. The following tables also present adjusted operating margin, which is calculated by dividing adjusted operating income by consolidated or segment GAAP revenue.
 
       

Risk &
Insurance
Services

Consulting

Corporate/
Eliminations

Total
Nine Months Ended September 30, 2015
Operating income (loss) $ 1,185   $ 781   $ (141 ) $ 1,825  
Add (Deduct) impact of Noteworthy Items:
Restructuring charges (a) 3 5 8
Adjustments to acquisition related accounts (b) 51 (5 ) 46
Other     (1 ) (1 )
Operating income adjustments 54   (5 ) 4   53  
Adjusted operating income (loss) $ 1,239   $ 776   $ (137 ) $ 1,878  
Operating margin 23.1 % 17.6 % N/A 19.1 %
Adjusted operating margin 24.1 % 17.5 % N/A 19.7 %
Nine Months Ended September 30, 2014
Operating income (loss) $ 1,170   $ 746   $ (151 ) $ 1,765  
Add (Deduct) impact of Noteworthy Items:
Restructuring charges (a) 4 6 10
Adjustments to acquisition related accounts (b) 22 22
Other     (1 ) (1 )
Operating income adjustments 26     5   31  
Adjusted operating income (loss) $ 1,196   $ 746   $ (146 ) $ 1,796  
Operating margin 22.3 % 16.6 % N/A 18.2 %
Adjusted operating margin 22.8 % 16.6 % N/A 18.5 %
 
 
(a) Primarily severance, future rent under non-cancellable leases, and integration costs related to recent acquisitions.
(b) Primarily includes the change in fair value as measured each quarter of contingent consideration related to acquisitions.
 
 
Marsh & McLennan Companies, Inc.
Non-GAAP Measures
Three and Nine Months Ended September 30

(Millions) (Unaudited)

 
Adjusted income, net of tax
 
Adjusted income, net of tax is calculated as: the Company's GAAP income from continuing operations, adjusted to reflect the after-tax impact of the operating income adjustments set forth in the preceding tables; divided by MMC's average number of shares outstanding-diluted for the period.
 
   

Reconciliation of the Impact of Non-GAAP Measures on diluted earnings per share -

 

Three Months Ended
September 30, 2015

Three Months Ended
September 30, 2014

Amount  

Diluted
EPS

Amount  

Diluted
EPS

Income from continuing operations   $ 329   $ 305
Less: Non-controlling interest, net of tax 8   7  
Subtotal $ 321 $ 0.60 $ 298 $ 0.54
Operating income adjustments $ 25 $ 13
Impact of income taxes (8 ) (4 )
17   0.03   9   0.02
Adjusted income, net of tax $ 338   $ 0.63   $ 307   $ 0.56
 
 
 

Nine Months Ended
September 30, 2015

Nine Months Ended
September 30, 2014

Amount

Diluted
EPS

Amount

Diluted
EPS

Income from continuing operations $ 1,256 $ 1,202
Less: Non-controlling interest, net of tax 31   27  
Subtotal $ 1,225 $ 2.27 $ 1,175 $ 2.12
Operating income adjustments $ 53 $ 31
Impact of income taxes (15 ) (11 )
38   0.07   20   0.04
Adjusted income, net of tax $ 1,263   $ 2.34   $ 1,195   $ 2.16
 
   
Marsh & McLennan Companies, Inc.
Supplemental Information

(Millions) (Unaudited)

 

Three Months Ended
September 30,

Nine Months Ended
September 30,

2015   2014 2015   2014
Depreciation and amortization expense $ 77 $ 76 $ 233 $ 225
Identified intangible amortization expense $ 31 $ 22 $ 79 $ 64
Stock option expense $ 5 $ 4 $ 18 $ 14
Capital expenditures $ 73 $ 83 $ 249 $ 285
   
   
Marsh & McLennan Companies, Inc.
Consolidated Balance Sheets

(Millions)

 

(Unaudited)
September 30,
2015

December 31,
2014

ASSETS
 
Current assets:
Cash and cash equivalents $ 1,330 $ 1,958
Net receivables 3,517 3,377
Other current assets 679   720  
Total current assets 5,526 6,055
 
Goodwill and intangible assets 8,342 7,933
Fixed assets, net 786 809
Pension related assets 1,182 967
Deferred tax assets 667 876
Other assets 1,260   1,200  
TOTAL ASSETS $ 17,763   $ 17,840  
 
LIABILITIES AND EQUITY
 
Current liabilities:
Short-term debt $ 62 $ 11
Accounts payable and accrued liabilities 1,759 1,883
Accrued compensation and employee benefits 1,313 1,633
Accrued income taxes 107 178
Dividends payable 163    
Total current liabilities 3,404 3,705
 
Fiduciary liabilities 4,374 4,552
Less - cash and investments held in a fiduciary capacity (4,374 ) (4,552 )
Long-term debt 4,422 3,376
Pension, post-retirement and post-employment benefits 2,114 2,244
Liabilities for errors and omissions 358 341
Other liabilities 1,083 1,041
 
Total equity 6,382   7,133  
TOTAL LIABILITIES AND EQUITY $ 17,763   $ 17,840  
 

Contacts

Media:
Marsh & McLennan Companies
Edward L. Dandridge, +1-212-345-9751
ed.dandridge@mmc.com
or
Investors:
Marsh & McLennan Companies
Keith Walsh, +1-212-345-0057
keith.walsh@mmc.com

Release Summary

Marsh & McLennan Companies Reports Third Quarter 2015 Results GAAP EPS and Adjusted EPS Increase 13% Higher Adjusted Operating Income and Margin Expansion

Contacts

Media:
Marsh & McLennan Companies
Edward L. Dandridge, +1-212-345-9751
ed.dandridge@mmc.com
or
Investors:
Marsh & McLennan Companies
Keith Walsh, +1-212-345-0057
keith.walsh@mmc.com