Chicago-based Hub International announced that it anticipates 2002 earnings per share will be in a range of US$1.04-1.06 per share, slightly higher than the US$1.03-1.05 estimate disclosed last month. The company also reaffirmed that it anticipates earnings per share will be in a range of US$1.08-1.17 in 2003.
Speaking to members of the New York Society of Security Analysts, Hub’s chairman and CEO, Martin Hughes, said the company’s growth plans are being implemented effectively throughout the organization, while cost control and efficiency programs are advancing at the corporate office.
“Year-end reviews with each of our major operating units indicate that we will continue to generate organic growth in a challenging environment,” Hughes said in prepared remarks. “We believe we can maintain a solid internal growth rate in the coming year.”
Hughes noted that Hub’s primary focus on middle-market corporate clients has proved timely in the past year. As insurance underwriting became increasingly selective, Hub’s access to major insurers and its expertise in risk assessment have increased the company’s importance to its corporate clients.
“The largest driver of organic growth over the past year, for us and many other brokers, has been premium rates,” Hughes noted. “Higher rates – the cost per dollar of coverage – have forced many clients to raise their deductibles or change coverage levels, increasing their own risk levels. As the economy improves, it is likely these clients will take advantage of the opportunity to reduce their risk by increasing coverage or reducing deductibles.”
Hughes added that an economic recovery also increases headcount, payroll and revenue of client companies, leading to higher insurance premiums for specific plans, such as employee benefits or general liability. He noted that broker commissions are a percentage of the premium dollar.
Hughes also anticipates increased benefits from some of the consolidation and coordination efforts undertaken at the corporate level during the past year. These included expanded meetings of Hub’s executive committee, small task forces of staff members from different subsidiaries who deal in the same types of products, national vendor contracts and creation of a unified training program, Hub Academy.
“In a decentralized organization like ours, we benefit from the local insight and empowered management teams that drive our subsidiaries,” Hughes said. “At the same time, we can gain added efficiencies and margin by developing best practices and controlling administrative expense. Gains in these areas do not move in a straight line, and they can take years to implement fully,” he added, “but we gained traction in 2002 and look forward to additional progress in 2003.”
Regarding the company’s earnings guidance, Hughes noted that net income is expected to increase faster than earnings per share. In 2002, shares outstanding increased by 32% when the company issued 6.9 million shares in its initial U.S. IPO. As a result of this offering and the issuance of shares in connection with acquisitions, the weighted average number of shares outstanding will be higher in 2003.
He also explained that 2002 earnings included a second-quarter gain of approximately nine cents per share from the sale of Old Lyme Insurance. He said non-recurring charges and gains could impact 2003 results, but that the company’s 2003 estimate includes an expectation that some such charges and gains will occur.
“We will comment on our earnings guidance each time we announce quarterly results this year,” Hughes continued. “However, we will not be providing estimates of quarterly results, simply because our business is somewhat seasonal and an individual quarter can be affected significantly by the timing of a single transaction. Such near-term variations are not truly meaningful in relation to our long-term growth strategy. As we grow the business, any of these charges or gains will generate a relatively smaller impact on earnings.”