Arthur J. Gallagher & Co. Announces Third Quarter 2012 Financial Results

ITASCA, Ill., Oct. 30, 2012 /PRNewswire/ -- Arthur J. Gallagher & Co. (NYSE: AJG) today reported its financial results for the quarter and nine-month period ended September 30, 2012.  A printer-friendly format and supplemental quarterly data is available at www.ajg.com.  For a description of the non-GAAP measures used to report financial results in this earnings release, please see "Information Regarding Non-GAAP Measures" beginning on page 7.

"Our third quarter was another strong quarter," said J. Patrick Gallagher, Jr., Chairman, President and CEO.  "Our combined Brokerage and Risk Management segments posted 12% growth in adjusted total revenues, 4.2% organic growth in base commission and fee revenues and 18% growth in adjusted EBITDAC and we improved adjusted EBITDAC margins by 121 basis points."

  • Our Brokerage segment had another excellent quarter.  Adjusted total revenues were up 14%, base organic commission and fee revenues grew 4.0%, adjusted EBITDAC was up 20%, adjusted EBITDAC margins were up 141 basis points and adjusted diluted net earnings per share increased 8%.  We also completed another 11 acquisitions with annualized revenues of $56.6 million and our pipeline remains strong.
  • Our Risk Management segment also had a solid quarter.  Excluding the New Zealand earthquake claim-settling unit which has nearly wrapped up operations, adjusted total revenues were up 5%, base organic fees were up 5.0%, adjusted EBITDAC was up 6% and we hit our targeted adjusted EBITDAC margin of 16% while making our planned client-centric investments.  

"The rate environment continues to improve and portions of the economy continue to show improvement.  More than ever, our clients rely on us to navigate through the changing and more complex risk environment, and our client-focused professionals are delivering every day."

The following provides non-GAAP information that management believes is helpful when comparing 2012 revenues, EBITDAC and diluted net earnings (loss) per share with the same periods in 2011: 

Quarter Ended September 30








Diluted Net Earnings 





Revenues



EBITDAC



(Loss) Per Share

Segment


3rd Q 12

3rd Q 11

Chg


3rd Q 12

3rd Q 11

Chg


3rd Q 12

3rd Q 11

Chg




















(in millions)



(in millions)





















Brokerage, as adjusted


$  479.0

$  421.1

14%


$  122.0

$  101.3

20%


$    0.43

$    0.40

8%


Gains on book sales 


0.7

0.8



0.7

0.8



-

-



Heath Lambert integration


-

-



(4.2)

(5.5)



(0.02)

(0.03)



Workforce & lease termination


-

-



(1.1)

(0.3)



(0.01)

-



Acquisition related adjustments

-

-



-

(0.6)



-

0.03



Effective income tax rate impact

-

-



-

-



-

0.01

















Brokerage, as reported


479.7

421.9



117.4

95.7



0.40

0.41

















Risk Management, as adjusted


140.3

133.2

5%


22.6

21.4

6%


0.09

0.09

0%


New Zealand earthquake claims administration


1.9

5.8



0.3

1.4



-

0.01



GAB Robins integration


-

-



-

(4.1)



-

(0.02)



Workforce & lease termination


-

-



(0.1)

(1.0)



-

(0.01)

















Risk Management, as reported


142.2

139.0



22.8

17.7



0.09

0.07

















Total Brokerage & Risk Management, as reported


621.9

560.9



140.2

113.4



0.49

0.48

















Corporate, as reported


28.5

1.9



(13.0)

(7.0)



0.01

(0.07)

















Total Company, as reported


$  650.4

$  562.8



$  127.2

$  106.4



$    0.50

$    0.41

















Total Brokerage & Risk Management, as adjusted


$  619.3

$  554.3

12%


$  144.6

$  122.7

18%


$    0.52

$    0.49

6%



















 (1 of 11)

Nine Months Ended September 30








Diluted Net Earnings 





Revenues



EBITDAC



(Loss) Per Share

Segment


9 Mths 12

9 Mths 11

Chg


9 Mths 12

9 Mths 11

Chg


9 Mths 12

9 Mths 11

Chg




















(in millions)



(in millions)





















Brokerage, as adjusted


$ 1,337.1

$ 1,138.7

17%


$    309.8

$    253.9

22%


$      1.07

$      0.97

10%


Gains on book sales 


1.4

4.4



1.4

4.4



0.01

0.02



Heath Lambert integration 


-

-



(12.3)

(8.5)



(0.06)

(0.04)



Workforce & lease termination


-

-



(4.7)

(2.2)



(0.02)

(0.01)



Acquisition related adjustments


-

-



-

(6.4)



0.03

0.03

















Brokerage, as reported


1,338.5

1,143.1



294.2

241.2



1.03

0.97

















Risk Management, as adjusted


419.3

389.6

8%


67.3

59.8

13%


0.27

0.26

4%


New Zealand earthquake claims administration


7.6

13.5



1.5

3.6



0.01

0.02



GAB Robins integration 


-

-



-

(11.3)



-

(0.06)



Workforce & lease termination


-

-



(0.1)

(5.2)



-

(0.03)

















Risk Management, as reported


426.9

403.1



68.7

46.9



0.28

0.19

















Total Brokerage & Risk Management, as reported


1,765.4

1,546.2



362.9

288.1



1.31

1.16

















Corporate, as reported


81.7

10.1



(26.2)

(22.0)



0.02

(0.23)

















Total Company, as reported


$ 1,847.1

$ 1,556.3



$    336.7

$    266.1



$      1.33

$      0.93

















Total Brokerage & Risk Management, as adjusted


$ 1,756.4

$ 1,528.3

15%


$    377.1

$    313.7

20%


$      1.34

$      1.23

9%
















Brokerage Segment Third Quarter Highlights - The following tables provide non-GAAP information that management believes is helpful when comparing certain 2012 financial information with the same periods in 2011 (in millions): 

Organic Revenues (Non-GAAP)


3rd Q 12


3rd Q 11


9 Mths 12


9 Mths 11












Base Commissions and Fees









Commissions as reported


$ 346.0


$ 308.0


$   962.7


$   829.7

Fees as reported


106.8


86.8


281.4


227.7

Less commissions and fees from acquisitions 


(45.0)


-


(153.7)


-

Less disposed of operations


-


(1.5)


-


(7.2)

Levelized foreign currency translation


-


(1.0)


-


(3.0)












Organic base commissions and fees


$ 407.8


$ 392.3


$1,090.4


$1,047.2












Organic change in base commissions and fees


4.0%


2.2%


4.1%


2.0%












Supplemental Commissions









Supplemental commissions as reported


$   16.6


$   14.5


$     50.3


$     42.0

Less supplemental commissions from acquisitions


(2.8)


-


(8.3)


-

Less disposed of operations


-


(0.1)


-


(0.5)












Organic supplemental commissions


$   13.8


$   14.4


$     42.0


$     41.5












Organic change in supplemental commissions


-4.2%


13.7%


1.2%


12.9%












Contingent Commissions









Contingent commissions as reported


$     7.7


$     9.9


$     37.0


$     34.6

Less contingent commissions from acquisitions


(1.3)


-


(4.7)


-












Organic contingent commissions


$     6.4


$     9.9


$     32.3


$     34.6












Organic change in contingent commissions


-35.4%


0.0%


-6.7%


-7.1%












(2 of 11)

Brokerage Segment Third Quarter Highlights (continued)  

Adjusted Compensation Expense and Ratio (non-GAAP)

3rd Q 12


3rd Q 11


9 Mths 12


9 Mths 11









Reported amounts

$ 282.7


$ 251.9


$   814.7


$   701.1









Heath Lambert integration

(2.3)


(3.3)


(7.1)


(4.5)

Earnout related compensation charge

-


(0.6)


-


(6.4)

Workforce and lease termination related charges

(1.1)


(0.3)


(4.7)


(2.2)









Adjusted amounts

$ 279.3


$ 247.7


$   802.9


$   688.0









Adjusted ratios using adjusted revenues on pages 1 and 2

*

58.3%


58.8%


60.1%


60.4%














*

Adjusted third quarter compensation ratio was 0.5 pts lower than the same period in 2011. This ratio was primarily impacted by headcount controls of 1.6 pts, partially offset by increased incentive compensation of 1.1 pts.



Adjusted Operating Expense and Ratio (non-GAAP)


3rd Q 12


3rd Q 11


9 Mths 12


9 Mths 11










Reported amounts


$   79.6


$   74.3


$   229.6


$   200.8










Heath Lambert integration


(1.9)


(2.2)


(5.2)


(4.0)










Adjusted amounts


$   77.7


$   72.1


$   224.4


$   196.8










Adjusted ratios using adjusted revenues on pages 1 and 2

*

16.2%


17.1%


16.8%


17.3%












*

Adjusted third quarter operating expense ratio was 0.9 pts lower than the same period in 2011. This ratio was primarily impacted by rent savings of 0.6 pts and a reduction in travel and entertainment of 0.2 pts.



Adjusted EBITDAC (non-GAAP)



3rd Q 12


3rd Q 11


9 Mths 12


9 Mths 11












Total EBITDAC - see page 9 for computation



$ 117.4


$   95.7


$   294.2


$   241.2