雅虎香港財經 Marsh & McLennan Companies, Inc. (NYSE:MMC) Q1 2024 Earnings Call Transcript
Marsh & McLennan Companies, Inc. (NYSE:MMC) Q1 2024 Earnings Call Transcript April 18, 2024
Marsh & McLennan Companies, Inc. beats earnings expectations. Reported EPS is $2.82, expectations were $2.79. MMC isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to Marsh McLennan's Earnings Conference Call. Today's call is being recorded. First quarter 2024 financial results and supplemental information were issued earlier this morning. They are available on the company's website at marshmclennan.com. Please note that remarks made today may include forward-looking statements. Forward-looking statements are subject to risks and uncertainties and a variety of factors may cause actual results to differ materially from those contemplated by such statements. For a more detailed discussion of those factors, please refer to our earnings release for this quarter and to our most recent SEC filings, including our most recent Form 10-K, all of which are available on the Marsh McLennan website.
During the call today, we may also discuss certain non-GAAP financial measures. For a reconciliation of these measures to the most closely comparable GAAP measures, please refer to the schedule in today's earnings release. [Operator Instructions] I will now turn this over to John Doyle, President and CEO of Marsh McLennan.
John Doyle: Good morning. Thank you for joining us to discuss our first quarter results reported earlier today. I'm John Doyle, President and CEO of Marsh McLennan. On the call with me is Mark McGivney, our CFO, and the CEOs of our businesses: Martin South of Marsh; Dean Klisura of Guy Carpenter; Nick Studer of Oliver Wyman; and Pat Tomlinson of Mercer, who is joining us -- joining this call for the first time. Welcome, Pat. Also with us today is Sarah DeWitt, Head of Investor Relations. Marsh McLennan had a strong start to 2024. Our first quarter results were excellent, and we are well-positioned for another good year. Top-line [Technical Difficulty] continued with 9% underlying revenue growth, which was on top of 9% growth in the first quarter of last year.
All of our businesses had strong revenue growth with Marsh, Mercer and Oliver Wyman accelerating growth from the fourth quarter. We grew adjusted operating income by 11% from a year ago. Our adjusted operating margin expanded 80 basis points compared to the first quarter of 2023. We had adjusted EPS growth of 14%. And we completed $300 million of share repurchases in the quarter. In addition, we continue to add to our talent, capabilities and scale through acquisitions. These investments will help strengthen our strategic position and sustain top-line growth. For example, Mercer completed the purchase of Vanguard's OCIO business, which expands our reach into the endowments and foundation segment. MMA acquired two leading agencies in Louisiana, and Oliver Wyman closed the acquisition of SeaTec, which extends our capabilities in the aviation, transportation and defense industries.
At Marsh McLennan, we bring together specialized capabilities and perspectives across risk, strategy and people to help clients make critical decisions with confidence. For example, in the area of supply chain risk, we developed a solution called [Centrisk] (ph), which draws on the perspective and capabilities of Marsh and Oliver Wyman to identify key risks in our client supply chains. Using this framework, we create a digital twin model of a client supply lines, which provides for a scenario-based vulnerability assessment to help manage risk. This product is already helping clients across multiple sectors, including in the banking, manufacturing, aviation and defense industries. As we noted last quarter, Marsh, Oliver Wyman and Guy Carpenter developed the Unity facility, a public-private insurance solution that enables grain shipments from Ukrainian ports.
In the first quarter, we worked with the Ukrainian government, DZ Bank, Lloyd's and others to expand the facility to all ships carrying non-military cargo. This will help support Ukraine's economic resilience in time of war. In the healthcare sector, Marsh and Mercer are working together to help clients evaluate connections between talent retention, patient safety and the cost of malpractice insurance. Marsh's risk assessment capabilities and Mercer's extensive health and human capital expertise, combined with our rich datasets, are creating new, highly-valued perspectives in the healthcare sector. These are just a few examples of how we're applying our unique expertise to address pressing challenges and deliver significant value to clients.
Recently, we released our Annual ESG Report. The report includes enhanced disclosure on our ESG efforts and underscores how the actions we're taking [Technical Difficulty] and on behalf of our clients also have a positive impact on the communities where we live and work. Let me share some examples. We collaborated with the Center for NYC Neighborhoods to launch a community-based catastrophe insurance program. This parametric insurance program helps finance emergency grants to community members following an event, with funds reaching households within days of a catastrophe. In cyber, we developed a global personal microinsurance solution to protect against threats like online identity theft, viruses, cyber-bullying and failure to deliver purchased goods.
With regard to sustainability, we are supporting the Dubai Energy and Water Authority's commitment to provide 100% of its energy from clean sources by 2050. As part of this work, we conducted a client -- a climate resilience assessment of one of the world's largest solar parks. We modeled the site's ability to withstand future climate conditions and proposed adaptation measures to mitigate extreme risks. We continue to improve sustainability in our own operations as well. For example, in 2023, we expanded the use of renewable electricity across our US offices and in our largest UK locations. And we submitted our climate targets for validation as part of our goal to achieve net zero globally by 2050. We remain committed to generating exceptional financial performance and returns for shareholders, and we also recognize that the successful outcomes we help enable for our clients and our own actions can have a lasting positive effect on communities around the world.
Shifting to the macro picture, we see significant opportunity to help clients navigate the range of outcomes driven by a more complex environment. The geopolitical backdrop remains unsettled with multiple major wars and rising tensions globally. More than half the world's population will go to elections in 2024, and the economic outlook remains uncertain as well. Despite this uncertainty, the environment is supportive of growth in our business. In general, we see continued economic growth in most of our major markets, inflation and interest rates remain elevated, labor markets are tight, the cost of risk is up, and healthcare costs continue to rise. We have a strong record of performance across economic cycles due to the resilience of our business and demand for our advice and solutions.
Turning to insurance and reinsurance market conditions, primary insurance rates increased, with the Marsh Global Insurance Market Index up 1% overall in the quarter. Property rates increased 3% versus 6% in the fourth quarter. Casualty was up 3%, in line with last quarter. Workers' compensation decreased mid-single digits while financial and professional liability rates were down 7%, and cyber pricing decreased 6%. Reinsurance market conditions remained stable, with increased client demand and adequate capacity. In the April renewal period, US property cat reinsurance rates were flat with some decreases for accounts without losses. Loss-impacted accounts averaged increases in the 10% to 20% range. The US casualty reinsurance market was challenging, but rates were in line with January renewals.
In January, April 1 property cat rates overall were down slightly on a risk-adjusted basis. Early signs for June 1 Florida cat risk renewals point to improved market conditions for cedents. Increased reinsurance appetite for growth should be adequate to meet higher demand. As always, we are helping our clients navigate these dynamic market conditions. Now, let me turn briefly to our first quarter financial performance, which Mark will cover in detail. We generated adjusted EPS of $2.89, which is up 14% versus a year ago. Revenue grew 9% on an underlying basis with 9% growth in both RIS and in consulting. Marsh was up 8%, Guy Carpenter grew 8%, Mercer 6%, and Oliver Wyman was up 13%. Overall, in the first quarter, we had adjusted operating income growth of 11%, and our adjusted operating margin expanded 80 basis points year-over-year.
Turning to our outlook, we are very well-positioned for another good year in 2024. We continue to expect mid-single-digit or better underlying revenue growth, another year of margin expansion and strong growth in adjusted EPS. Our outlook assumes current macro conditions persist. However, meaningful uncertainty remains and the economic backdrop could be materially different than our assumptions. In summary, the first quarter was a great start to the year for Marsh McLennan. Our business delivered strong performance and we continue to execute well on our strategic initiatives. I'm proud of the focus and determination of our colleagues and the value they deliver to our clients and shareholders. With that, let me turn it over to Mark for a more detailed review of our results.
Mark McGivney: Thank you, John, and good morning. Our first quarter results were outstanding and represent an excellent start to the year. We saw continued momentum in underlying growth, strong margin expansion, double-digit growth in adjusted EPS. Our consolidated revenue increased 9% in the first quarter to $6.5 billion, underlying growth of 9%. Operating income was $1.9 billion, and adjusted operating income increased 11% to $2 billion. Our adjusted operating margin increased 80 basis points to 32%, and we expect higher margin expansion for the rest of the year, particularly in the second half. GAAP EPS was $2.82, and adjusted EPS was $2.89, up 14% [Technical Difficulty] last year. Looking at Risk and Insurance Services, first quarter revenue was $4.3 billion, up 9% compared with a year ago on both a reported and underlying basis.
This result marks the 12th consecutive quarter of 8% or higher underlying growth in RIS and continues the best stretch of growth in two decades. RIS operating income was $1.6 billion in the first quarter. Adjusted operating income was also $1.6 billion, up 11% over last year, and our adjusted operating margin expanded 50 basis points to 39.1%. At Marsh, revenue in the quarter increased 9% to $3 billion or 8% on an underlying basis. This comes on top of 9% growth in the first quarter of last year. In US and Canada, underlying growth was 8% for the quarter, reflecting solid renewal and new business growth. In international, underlying growth was strong at 8% and comes on top of 10% in the first quarter last year. EMEA was up 9%, Latin America grew 8%, and Asia-Pacific was up 6%.
Guy Carpenter's revenue was $1.1 billion, up 7%, or 8% on an underlying basis, driven by growth across most regions and Global Specialties. This was the fifth straight quarter of 8% or higher underlying growth at Guy Carpenter. In the Consulting segment, first quarter revenue was $2.2 billion, up 9% on an underlying basis. Consulting operating income was $432 million, and adjusted operating income was $444 million, up 9%. Our adjusted operating margin in Consulting was 20.7% in the first quarter, an increase of 40 basis points. Mercer's revenue was $1.4 billion in the quarter, up 6% on an underlying basis. This was Mercer's 12th straight quarter of 5% or higher underlying growth and continues the best run of growth in 15 years. Health underlying growth was 10% and reflected strong momentum across all regions.
Wealth grew 5%, driven by growth in both investment management and DB Consulting. Our assets under management were $489 billion at the end of the first quarter, up 17% sequentially and up 38% compared to the first quarter of last year. Year-over-year growth was driven by our transactions with Westpac and Vanguard, rebounding capital markets and positive net flows. Career revenue increased 1%, reflecting a tough comparison to a period of strong growth last year, as well as softness in the US. Oliver Wyman's revenue in the first quarter was $789 million, up 13% on an underlying basis from the slow start we had in the first quarter of last year, and reflected strength across all regions. Foreign exchange had very little impact on earnings in the first quarter.
Assuming exchange rates remain at current levels, we expect FX to be a $0.02 headwind in the second quarter and a further $0.01 headwind in the second half. Total noteworthy items in the quarter were $49 million. The majority of these items were restructuring costs, mostly related to the program we began in the fourth quarter of 2022. Our other net benefit credit was $67 million in the quarter. For the full year, we expect our other net benefit credit will be approximately $265 million. Interest expense in the first quarter was $159 million, up from $136 million in the first quarter of 2023, reflecting higher levels of debt and higher interest rates. Based on our current forecast, we expect $158 million of interest expense in the second quarter and approximately $620 million for the full year.
Our adjusted effective tax rate in the first quarter was 23.9% compared with 25% in the first quarter of last year. Our tax rate benefited from favorable discrete items, the largest of which was the accounting for share-based compensation, similar to a year ago. Excluding discrete items, our adjusted effective tax rate was approximately 26.5%. When we give forward guidance around our tax rate, we do not project discrete items, which can be positive or negative. Based on the current environment, we continue to expect an adjusted effective tax rate of between 25.5% and 26.5% for 2024. Turning to capital management and our balance sheet. We ended the quarter with total debt of $13.5 billion. Our next scheduled debt maturity is in the second quarter, when $600 million of senior notes mature.
Our cash position at the end of the first quarter was $1.5 billion. Uses of cash in the quarter totaled $1 billion, and included $354 million for dividends, $347 million for acquisitions, and $300 million for share repurchases. We continue to expect to deploy approximately $4.5 billion of capital in 2024 across dividends, acquisitions and share repurchases. The ultimate level of share repurchase will depend on how our M&A pipeline develops. While there continues to be uncertainty in the outlook for the global economy, we feel good about the momentum in our business and the current environment remains supportive of growth. Overall, our strong start leaves us well-positioned for another good year in 2024. Based on our outlook today, for the full year, we continue to expect mid-single-digit or better underlying growth, margin expansion and strong growth in adjusted EPS.
With that, I'm happy to turn it back to John.
John Doyle: Thank you, Mark. Andrew, we are ready to begin Q&A.
Operator: Certainly. We'll now begin the question-and-answer session. [Operator Instructions] And our first question comes from the line of David Motemaden with Evercore ISI.
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