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

Aon plc’s (NYSE:AON) fourth-quarter 2017 adjusted operating earnings of $2.35 surpassed the Zacks Consensus Estimate by 0.4%. The bottom line also increased 18% from the year-ago quarter.

Adjusted margin, adjusted for certain items, increased 200 basis points to 27.5%.

Aon’s total revenues grew 10% year over year to $2.9 billion in the fourth quarter and surpassed the Zacks Consensus Estimate by 3.6%. The increase was supported by 6% organic revenue growth, 2% rise related to acquisitions and net of divestitures, and 2% favorable impact from foreign currency translation.

Operating expenses increased 11% to $2.4 billion in the quarter.

Full-Year 2017 Updates

For 2017, Aon’s adjusted earnings per share was $6.52, up 17% year over year. The figure was in line with the Zacks Consensus Estimate.

The company generated total revenues of $10 billion, up 6% year over year. The upside was driven by 4% organic revenue growth and a 2% acquisitions-related increase and net of divestitures.

Organic Revenue Drivers (Quarterly)

Commercial Risk Solutions: Organic revenues increased 5% year over year on the back of strong growth in U.S. retail and internationally driven by the Asia and Pacific regions, and new client wins in the captive management business.

Reinsurance Solutions: Organic revenues increased 8% from the prior-year quarter. The rise was driven by solid growth across all the major product lines, especially in treaty placements driven by new business generation and growth in both facultative placements and capital markets transactions.

Retirement Solutions: Organic revenues grew 4% from the prior-year quarter. This was driven by continued improvement in investment consulting and growth in Aon’s Talent, Rewards, and Performance practice, especially in Rewards, assessment services and investment consulting, mainly for delegated investment management.

Health Solutions: Organic revenues rose 6% year over year owing to solid growth globally in health & benefits brokerage.

Data & Analytic Services: Organic revenues climbed 12% year over year driven by strong growth across Affinity, particularly in the United States, and due to increased claims activity in the flood business pursuant to certain catastrophic events in 2017.

Aon PLC Price, Consensus and EPS Surprise

Financial Position

Cash flow from operations for 2017 decreased 63% to $669 million year over year. The decline primarily reflects cash tax payments related to the divestiture of its outsourcing businesses in the second quarter, cash restructuring charges and transaction costs related to divested business. This was partially offset by operational improvement.

Free cash flow decreased 71% to $486 million in 2017 from the prior year, reflecting a decline in cash flow from operations and a $27 million increase in capital expenditures.

Share Repurchase and Dividend Update

Weighted average diluted shares outstanding decreased 5.1% year over year to 254.5 million in the fourth quarter.

The company repurchased 18 million Class A Ordinary shares for approximately $2.4 billion in 2017.

In January 2018, the company declared a quarterly cash dividend of 36 cents per share payable on Feb 15, to shareholders on record as of Feb 1.

Zacks Rank and Performance of Other Insurers

Aon carries a Zacks Rank #5 (Strong Sell).

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

Among other players from the insurance industry that have reported fourth-quarter earnings till now, the bottom line of Brown & Brown, Inc. (NYSE:BRO) , MGIC Investment Corporation (NYSE:MTG) and The Progressive Corporation (NYSE:PGR) beat the respective Zacks Consensus Estimate.

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