Aon's (AON) Earnings Surpass Estimates in Q4, Improve Y/Y

Aon plc’s AON fourth-quarter 2019 operating earnings of $2.53 per share beat the Zacks Consensus Estimate by 1.6%, primarily backed by higher revenues and strong segmental contributions. Moreover, the metric increased 17.1% year over year.

Total revenues increased 4% to $2.9 billion including 7% organic revenue growth. However, the metric’s uptick was partially offset by a 1% unfavorable impact from adverse foreign currency translation along with 2% dip associated with divestitures, net of acquisitions.

Operating margin grew 20 bps to 18.2% and operating margin, adjusted for certain items, expanded 210 basis points to 27.9%.

Total operating expenses were up 4% to $2.4 billion, primarily due to a rise in costs related to organic revenue growth, increase in investments, higher restructuring charges.

The adjusted effective tax rate on a comparable basis for the fourth quarter was 15.7% compared with 16.5% in the prior-year period. This contraction was primarily aided by changes in geographical distribution of income and a net unfavorable impact from discrete items.

Aon plc Price, Consensus and EPS Surprise

Aon plc Price, Consensus and EPS Surprise

Aon plc price-consensus-eps-surprise-chart | Aon plc Quote

 

Organic Revenue Catalysts    

Commercial Risk Solutions: Organic revenues rose 7% on the back of strong growth across every major geography, highlighted by double-digit growth in the United States and Latin America, new businesses and management of the renewal book portfolio. The segment witnessed a 5% increase in total revenues year over year to $1.3 billion.

Reinsurance Solutions: Organic revenues improved 17%, driven by double-digit growth in all major businesses, new business generation along with solid growth in catastrophe bonds within capital markets transactions. Moreover, total revenues for the segment increased 15% year over year.

Retirement Solutions: Organic revenues rose 3% year over year, contributed by sturdy growth in every major business, attributable to growth in its rewards and assessment businesses within the Human Capital practice along with significant growth in delegated investment management. However, total revenues dipped 3% year over year.

Health Solutions: Organic revenues were up 5% year over year, led by solid international growth in health and benefits brokerage, especially boosted by a robust uptrend in the United States market coupled with new business generation and double-digit growth in voluntary benefits along with a specific area of consistent investments on the back of buoyant client demand.

Data & Analytic Services: Organic revenues grew 6% year over year owing to international prosperity in Affinity business, particularly in the United States. Results also reflect strength in the Aon Inpoint and ReView businesses, supported by strong retention.

Financial Position

At the end of the quarter, the company’s cash flow from operations increased 9% to $1.8 billion and free cash flow rose 11% to $1.6 billion.

The company exited the fourth quarter with total assets worth $29.4 billion, up 11.3% from the level on Dec 31, 2018.

As of Dec 31, 2019, long-term debt stands at $6.6 billion, deteriorating 10.6% year over year.

Share Repurchase and Dividend Update

The company bought back 2.3 million Class A Ordinary shares for nearly $450 million in the quarter under review. As of Dec 31, 2019, it had stock worth $2 billion left under its share repurchase program.

Full-Year Highlights

For 2019, the company’s adjusted EPS jumped 12% to $9.17. Also, total revenues inched up 2% to $11 billion including 6% organic revenue growth.

Zacks Rank

Aon carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Insurers

Among other players from the insurance industry having already reported fourth-quarter earnings, the bottom-line results of Brown & Brown, Inc. BRO and RLI Corp. RLI beat estimates while that of Principal Financial PFG met the Zacks Consensus Estimate.

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