Arthur J Gallagher Q3 Profit Rises On Top Line Growth; To Cut 400 Jobs

(RTTNews) - Tuesday, insurance brokerage Arthur J Gallagher & Co. (AJG | Quote | Chart | News | PowerRating) reported a higher profit for its third quarter from a year ago, helped primarily by an increase in quarterly revenues as commissions and fees improved. Earnings for the quarter came in ahead of Street esitmates by a penny. Looking ahead, the company said it remains cautious as insurance rates remain soft and exposure units continue to decline. The company has also planned a reduction of its existing middle and back office workforce by about 400 positions, or around 4% of its global workforce.

The Itasca, Illinois-based company reported net income for the third quarter of $41.6 million or $0.41 per share, compared to $37.8 million or $0.40 per share in the year-ago quarter.

On average, thirteen analysts polled by Thomson Reuters expected the company to earn $0.42 per share for the quarter. Analysts estimates typically exclude special items.

Revenues for the quarter increased to $439.5 million from $428.2 million in the prior-year quarter. Eight analysts had a revenue consensus of $455.54 million for the third quarter.

In the preceding second quarter, Arthur J. Gallagher reported that its quarterly profit increased to $43.8 million or $0.44 per share from $40.8 million or $0.44 per share in the same quarter a year ago, helped by a modest increase in quarterly revenues.

Among the others in the industry, insurance broker Willis Group Holdings Ltd, (WSH | Quote | Chart | News | PowerRating) posted an increase in profit for the third quarter of $78 million from a year-ago quarter, as revenues improved 25% year-over-year, totaling $725 million.

Another peer, Marsh & McLennan Companies, Inc. (MMC | Quote | Chart | News | PowerRating) is due to release its financial results for the third quarter on November 4, with analysts forecasting earnings of $0.26 per share on revenues of $2.61 billion.

Another player, Aon Corp. (AOC | Quote | Chart | News | PowerRating) is scheduled to report third-quarter results on October 30, with analysts expecting earnings of $0.66 per share on revenues of $1.85 billion for the quarter.

Arthur J Gallagher's third quarter commissions increased to $254.3 million from $244.9 million in the year-ago quarter. Revenue from fees grew to $181.9 million from $177.8 million in the comparable quarter last year. Investment income and others including brokerage and risk management, and financial services and corporate dropped from the prior year quarter.

Revenue from brokerage segment increased 4% to $325.8 million from $314.4 million in the same quarter last year, helped by higher revenues from commission and fees. Risk management segment posted revenues that dropped to $113.5 million from $118.6 million in the year-ago quarter. Financial services and corporate segment revenues were $0.2 million, compared to a negative revenue of $4.8 million in the corresponding quarter last year.

Total expenses for the quarter eased to $376.4 million from $378.8 million in the similar quarter of 2008.

During the quarter, Arthur J Gallagher acquired Triad Insurance Agency Inc., in Honolulu, Hawaii from The Bank of Hawaii, terms for which was not disclosed. Triad Insurance Agency, Inc. is a managing general agent and wholesale insurance broker providing excess and surplus property/casualty coverage and other specialty insurance products and services to their retail insurance agents and broker clients throughout Hawaii.

In addition, the company acquired Fox Lawson & Associates, LLC in St. Paul, Minnesota. Terms of the deal were not disclosed. Fox Lawson & Associates is a compensation and human resources consulting firm that specializes in wage and classification studies, performance-based pay programs, executive compensation programs and alternative reward systems for their governmental, higher education and private sector clients throughout the United States.

For the nine-month period, the company's net income increased to $111.8 million or $1.12 per share from $72.6 million or $0.78 per share in the similar period of last year.

Revenue for the period rose to $1.29 billion from $1.23 billion in the prior-year period.

Looking further, the company's chairman, president and chief executive officer, Patrick Gallagher Jr said, "I continue to be concerned about the current operating environment as insurance rates remain soft and exposure units continue to decline. I believe Gallagher, and the brokerage industry as a whole, will face continued growth challenges in late 2009 and into next year. Despite this concern, I remain confident that the nearly 10,000 Gallagher world-wide associates will continue working together to help our clients navigate this difficult environment and continue to build shareholder value."

Further, the company said that over the next few months, Gallagher expects to reduce its existing middle and back office workforce by about 400 positions, or around 4% of its global workforce, through a combination of job elimination and attrition.

In connection with this action, Gallagher expects to record a nonrecurring, pretax charge in fourth quarter 2009 of approximately $10.0 to $13.0 million for related severance costs. Gallagher estimates annual pretax cost savings associated with this reduction in workforce of approximately $25.0 to $28.0 million.

AJG closed Tuesday's regular trading at $24.01, down $0.13 or 0.54%, on a volume of 0.52 million shares. In the last 52-week period, the stock traded in the range of $14.82 to $26.02, with a three-month average volume of 0.58 million shares.

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