Aon plc reported results for the three months ended March 31, 2014, posting net income attributable to Aon shareholders of$325 million, or $1.06 per share, compared to $261 million, or $0.82 per share, for the prior year quarter.
“Net income per share attributable to Aon shareholders, adjusted for certain items, increased 15 percent to $1.28, compared to $1.11 in the prior year quarter, the report said. “Certain items that impacted first quarter results and comparisons with the prior year quarter are detailed in the “Reconciliation of Non-GAAP Measures – Operating Income and Diluted Earnings per Share.”
President and CEO Greg Case commented: “Our first quarter results reflect a solid start to the year with double-digit earnings growth, highlighted by strong performance across Risk Solutions and effective capital management. We are returning a record amount of capital to shareholders, highlighted by the repurchase of $600 million of ordinary shares in the quarter and the recently declared 43 percent increase in our quarterly cash dividend, while continuing to invest in innovative solutions across the firm to strengthen our industry-leading platform for long-term growth, strong free cash flow generation and increased financial flexibility.”
Aon listed the following summary of first quarter highlights:
- Total revenue increased 1 percent to $2.9 billion compared to the prior year quarter primarily driven by a 2 percent increase in organic revenue, partially offset by a 1 percent unfavorable impact from foreign currency translation.
- Total operating expenses for the first quarter decreased 1 percent to $2.5 billion compared to the prior year quarter due primarily to a $31 million increase in savings related to the restructuring programs, a $26 million decrease in formal restructuring costs, an $18 million favorable impact from foreign currency translation, a $17 million decrease in expenses related to acquisitions, net of divestitures, and a $13 million decrease in intangible asset amortization, partially offset by an increase in expense to support future growth in our health care exchange business and an increase in expense associated with 2 percent organic revenue growth.
- Depreciation expense increased 2 percent, or $1 million, to $60 million compared to the prior year quarter.
- Intangible asset amortization expense decreased 13 percent, or $13 million, to $86 million compared to the prior year quarter, made up of a $9 million decrease in HR Solutions and a $4 million decrease in Risk Solutions.
- Restructuring savings in the first quarter related to the Aon Hewitt restructuring program are estimated at $100 million compared to $69 million in the prior year quarter. Of the estimated savings in the first quarter, approximately $76 million were related to the HR Solutions segment compared to $56 million in the prior year quarter, and approximately $24 million were related to the Risk Solutions segment compared to $13 million in the prior year quarter.
- In HR Solutions, approximately $280 million of the expected $303 million in total cumulative savings have been achieved under the program, with the remaining $23 million of savings expected to be achieved by the end of 2014.
- In Risk Solutions, approximately $80 million of the expected $99 million in total cumulative savings have been achieved under the program, with the remaining $19 million of savings expected to be achieved by the end of 2014. The Company has incurred all remaining costs for the Aon Hewitt Plan, and the plan was closed in the fourth quarter of 2013.
- Foreign currency exchange rates in the first quarter had no material impact on adjusted net income if the Company were to translate prior year quarter results at current quarter foreign exchange rates.
- Effective tax rate on net income in the first quarter was 18.9 percent compared to 26.1 percent in the prior year quarter. The effective tax rate in the first quarter of 2014 was favorably impacted by changes in the geographic distribution of income. Potential unfavorable discrete tax adjustments in future quarters of 2014 could cause the effective tax rate for the full year 2014 to be higher than the effective tax rate reported in the first quarter of 2014.
- Average diluted shares outstanding decreased to 307.2 million in the first quarter compared to 320.0 million in the prior year quarter. The Company repurchased 7.2 million Class A Ordinary Shares for approximately $600 million in the first quarter. The Company has $2.3 billion of remaining authorization under its share repurchase program.
- Cash flow from operations decreased $65 million to a use of $11 million in the first quarter due primarily to organic growth and $64 million of timing related to certain incentive compensation and interest expense payments, partially offset by solid underlying working capital performance and a decrease in pension contributions and cash taxes in the quarter.
- Free cash flow, as defined by cash flow from operations less capital expenditures, decreased $60 million to a use of $66 million in the first quarter driven by a decrease in cash flow from operations, partially offset by a $5 million decrease in capital expenditures.
Source: Aon Plc