Aon’s Q3 2015 Net Income down 5%; 15% for 1st 9 Months

October 30, 2015

Aon plc’s third quarter and 1st 9 months 2015 Earnings report shows an overall decline in revenue and profits, compared to the same periods in 2014. Net income attributable to Aon shareholders was $295 million, or $1.04 per share, compared to $309 million, or $1.04 per share, for the prior year quarter, a 5 percent drop

Net income attributable to Aon shareholders for the first 9 months was $801 million, compared to $938 million for the same period in 2014, a 15 percent decrease. The earnings report attributed a good portion of the decreases to “foreign currency translation,” which it said had an “unfavorable impact on adjusted net income.”

President and CEO Greg Case commented: “In our seasonally weakest quarter, our results reflect organic revenue growth and operating margin expansion across both segments, effective capital management and significant free cash flow generation, despite the impact of unfavorable foreign currency translation and macroeconomic challenges.

“Driven by our industry-leading portfolio and investments across data and analytics, we expect a strong fourth quarter and finish to the year across each of our key metrics, further positioning the firm for free cash flow generation and shareholder value creation,” he continued.”

The report gave the following summary for Aon’s operations in the third quarter of 2015:
— Total revenue decreased 5 percent to $2.7 billion compared to the prior year quarter driven primarily by a 7 percent unfavorable impact from foreign currency translation, partially offset by 2 percent organic revenue growth.
— Total operating expenses for the third quarter decreased 5 percent to $2.3 billion compared to the prior year quarter due primarily to a $162 million favorable impact from foreign currency translation and a $12 million decrease in intangible asset amortization, partially offset by an increase in expense to support 2 percent organic revenue growth.
— Depreciation expense decreased 8 percent, or $5 million, to $56 million compared to the prior year period.
— Intangible asset amortization expense decreased 13 percent, or $12 million, to $78 million compared to the prior year quarter, consisting of a $10 million decrease in HR Solutions and a $2 million decrease in Risk Solutions.
— Foreign currency exchange rates in the third quarter had a $0.09 per share, or $30 million pretax, unfavorable impact (-$25 million in Risk Solutions and -$5 million in HR Solutions) on adjusted net income from continuing operations, if the Company were to translate prior year quarter results at current quarter foreign exchange rates.
— Effective tax rate used in the U.S. GAAP financial statements in the third quarter was 14.0 percent, compared to the prior year quarter of 19.1 percent. After adjusting to exclude the applicable tax impact associated with expenses for legacy litigation incurred in the second quarter, the adjusted effective tax rate for the third quarter of 2015 declined to 16.0 percent compared to 19.1 percent in the prior year quarter, due primarily to certain favorable discrete items. [This adjustment is more fully discussed in another section of the report]
— Average diluted shares outstanding decreased to 283.8 million in the third quarter compared to 296.1 million in the prior year quarter. The Company repurchased 6.3 million Class A Ordinary Shares for approximately $600 million in the third quarter. As of September 30, 2015, the Company had $4.5 billion of remaining authorization under its share repurchase program.
— Cash flow from operations for the first nine months of 2015 increased 22 percent, or $192 million, to $1.1 billion driven by working capital improvements and a decline in cash paid for pension contributions, taxes, and restructuring.
— Free cash flow, defined as cash flow from operations less capital expenditures, for the first nine months of 2015 increased 21 percent, or $146 million, to $850 million driven by an increase in cash flow from operations, partially offset by a $46 million increase in capital expenditures primarily due to real estate related projects. A reconciliation of free cash flow to cash flow from operations is detailed in another section of the report.

Source: Aon plc

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