Arthur J. Gallagher & Co. (NYSE:AJG) has reported a robust third quarter in 2023, with a 22% revenue growth in the brokerage and risk management segments. The company also reported a 22% year-over-year increase in adjusted earnings per share. In line with the InvestingPro tip that AJG consistently increases its earnings per share, the company's basic EPS (Cont. Ops) LTM2023.Q2 stood at $5.24, according to InvestingPro data. The company has completed 12 mergers during the quarter, contributing an estimated $57 million in annualized revenue. In addition, leadership changes were announced, with Tom Gallagher set to become President and Patrick Gallagher becoming COO effective January 1, 2024.
Key takeaways from the earnings call include:
- The company expects full-year brokerage organic growth in the upper 8s, pushing towards 9%.
- Two pending mergers with Eastern Bank and Cadence Bank confirmed, with a combined pro forma annualized revenue of $275 million.
- The Risk Management segment, Gallagher Bassett, achieved 17.9% organic growth in the third quarter.
- The company anticipates fourth-quarter organic growth to approach 9%, with a forecasted 40 to 50 basis points of expansion in the fourth quarter.
- Looking ahead to 2024, the company expects organic growth in the range of 7% to 9% and margin expansion starting at 4% organic growth. This aligns with the InvestingPro tip that AJG has a strong return over the last five years.
- The reinsurance business reported 20% organic growth, with optimism expressed for the future.
- An earn-out associated with the reinsurance transaction is expected to be accounted for in 2025.
During the call, Patrick Gallagher discussed the growth expectations for the reinsurance business and the company's focus on moving upstream and targeting bigger deals generating over $125,000 to $150,000 of commission. The CEO also expressed interest in potential acquisitions of smaller entities experiencing financial stress.
The company highlighted the benefits of the acquisitions of Cadence and Eastern, expecting 7% organic growth next year, with half of that coming from net new business wins and taking share. The company also discussed its wholesale business, RPS, stating that larger insurance brokers entering the wholesale market would have no impact on Gallagher's business.
Addressing the company's M&A strategy, Patrick Gallagher noted that they focus on cultural fit when evaluating potential acquisitions. He also highlighted the competition in the market and the potential for more M&A opportunities, particularly with baby boomer-owned businesses.
The company addressed high corporate expenses in the quarter, attributing most of the increase to tax and litigation items. They expressed optimism about future organic growth, M&A opportunities, and increased productivity. An upcoming IR Day in December was also mentioned.
In terms of financial performance, AJG's adjusted market cap stood at $49.54 billion as per InvestingPro data. The company's revenue LTM2023.Q2 was reported at $8.83 billion, with a growth rate of 5.8%. The Gross Profit Margin LTM2023.Q2 was 44.19%, and the Operating Income, Adjusted LTM2023.Q2 was $1.90 billion. These figures underscore the company's strong financial position and its ability to generate consistent profits.
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