Marsh's Adjusted Earnings Rise 10% to $2.03 a Share, Beating Estimates on $6.86 Billion of Revenue

Marsh beat Wall Street's third-quarter expectations on Thursday, reporting adjusted earnings of $2.03 a share, up 10% from a year earlier, on revenue of $6.86 billion, as its consulting business outgrew its core insurance broking arm.

The reported figures were $808 million of net income attributable to the company, up from $747 million a year earlier, and diluted earnings of $1.69 a share, up from $1.51. Adjusted earnings of $2.03 a share came in six cents ahead of the consensus estimate, and revenue of $6.86 billion — up 8% from $6.35 billion a year earlier, or 5% on the company's underlying basis — beat the consensus by about $220 million. Operating income rose 4% to $1.22 billion; excluding noteworthy items and identified intangible amortization, adjusted operating income rose 6% to $1.53 billion, and the adjusted operating margin was 22.7%, exactly where it stood a year earlier.

Consulting was the growth engine; reinsurance was the drag

Risk and Insurance Services, the larger business, produced revenue of $4.2 billion, up 7% on a reported basis and 3% underlying. Inside it, the core Risk broking business grew revenue 10% to $3.73 billion — 5% underlying, with 4% underlying growth in the United States and Canada and 6% internationally, led by 7% growth in Europe, the Middle East and Africa, 4% in Asia Pacific and a flat quarter in Latin America. Reinsurance, the former Guy Carpenter business, went the other way: revenue fell 6% to $374 million on both a reported and an underlying basis. Fiduciary interest income eased to $100 million from $109 million.

Consulting revenue rose 9% to $2.69 billion, or 8% underlying. People and Investments — the former Mercer business — grew 6% to $1.67 billion, with Investments and Retirement revenue up 8% underlying, Health and Benefits up 5% and Workforce and Rewards down 1%. Management Consulting, built around Oliver Wyman, was the fastest-growing piece of the company: revenue rose 14% to $1.01 billion, on both a reported and an underlying basis.

Litigation costs are the distance between the two profit lines

The gap between the reported and adjusted results is mostly legal. Third-quarter noteworthy items totaled $170 million before tax, including $144 million of Greensill litigation costs and $30 million for a legal matter the company describes as restrictive-covenant litigation against a competitor, alongside $79 million of restructuring charges under the Thrive efficiency program and $35 million of McGriff integration and retention costs. A $126 million gain on the consolidation of an entity — the remeasurement of a previously held investment on acquiring the rest of it — partly offset those charges, and identified intangible amortization added a further $142 million to the $312 million of total adjustments. That is why Risk and Insurance Services could report operating income down 1% at $745 million while its adjusted operating income rose 4% to $1 billion; consulting's reported operating income rose 12% to $563 million and its adjusted figure 9% to $593 million.

Nine months in, the buyback is doing quiet work

Marsh repurchased about 2.7 million shares for $500 million in the quarter and 11.4 million shares for $2.0 billion through the first nine months, taking shares outstanding down to 475 million from 490 million a year earlier; it also repaid 550 million of euro-denominated senior notes that matured in September. For the nine months, revenue rose 7% to $21.86 billion, adjusted earnings rose 9% to $8.29 a share, and reported earnings actually fell, to $6.68 a share from $6.75, because the year's Greensill litigation costs — $569 million through September — sit in the reported line. The share count arithmetic is the quiet part of the story: adjusted profit growth of 6% at the operating line becomes 10% per share partly because there are fewer shares.

What to watch from here

The release carries no guidance, and Marsh does not set a quarterly outlook in it, so the next evidence is management's own commentary on the 8:30 a.m. Eastern conference call today and the January reinsurance renewal season for the one business that shrank. Three things will decide whether this print was a beat or a plateau: whether underlying revenue growth holds at 5% in the fourth quarter against softer commercial insurance pricing, whether the Greensill litigation line — $144 million this quarter and $569 million for the year so far — is finished, and whether the adjusted margin can move off 22.7%, where it has now sat for two consecutive third quarters. Before the print, analysts expected about $10.44 of adjusted earnings for the full year; with $8.29 banked through September, that implies roughly $2.15 in the fourth quarter, a checkable target rather than a promise.