Morningstar | Marsh & McLennan’s 2Q Is a Little Soft
Marsh & McLennan’s second-quarter results were a little soft, but nothing in the quarter alters our long-term expectation of modest growth and margin improvement. Excluding currency effects and acquisitions, revenue was up 3% year-over-year as a relatively strong showing on the brokerage side was offset by weakness in consulting revenue. We will maintain our $82 fair value estimate.On the brokerage side, Marsh & McLennan saw 5% year-over-year growth excluding currency impacts and acquisitions. Going into the year, we had expected an improving insurance pricing environment to be a modest tailwind for the company, and that appears to be playing out. A large carrier noted in its earnings announcement earlier this week that it saw pricing accelerating as we have moved through the year, which suggests this tailwind could have some legs for Marsh & McLennan.
Results on the consulting side were less pleasing, with this segment up only 1% excluding currency impacts and acquisitions. Management pointed to weakness in project-related work and in work for the U.S. financial sector as the primary culprits. However, this side of the business can be a little lumpy quarter-to-quarter, and we are not overly concerned about this.
Adjusted for one-time items and a change in accounting, operating margins slipped to 20.0% from 20.7% last year, with the decline concentrated on the consulting side, which the weak revenue results affected. However, we continue to believe the company has opportunities to modestly improve margins over time. The company is currently making some changes to its organizational structure, which will reduce management layers and standardize operating structures, and we believe this could have a positive impact on this front.
Marsh & McLennan Companies is a holding company. Through its subsidiaries, the company provides clients advice and solutions in risk, strategy and people. The company provides analysis, advice and transactional capabilities to clients. The company conducts business through two segments: Risk and Insurance Services, which includes risk management activities (risk advice, risk transfer and risk control and mitigation solutions) as well as insurance and reinsurance broking and services; and Consulting, which includes health, wealth and career services and products, and other management, economic and brand consulting services.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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