Marsh & McLennan Companies Inc. (MMC) on Tuesday reported financial results for the quarter ended March 31, 2005.
Consolidated revenues totaled $3.2 billion, and net income was $134 million, or $.25 per share. These results include pretax charges for restructuring, employee retention, incremental regulatory and compliance, and potential Putnam fund reimbursement expenses of approximately $225 million.
Excluding these items, earnings per share would have been $.52. In the first quarter of 2004, net income was $446 million, or $.83 per share. Prior year quarterly results include settlement expenses, insurance recoveries relating to World Trade Center losses, severance, and regulatory and compliance costs, which reduced first quarter 2004 net income by $73 million. Excluding these items, earnings per share would have been $.96 per share. Additional information on these items and their effect on operating income and earnings per share is provided in the attached supplemental schedules on pages 11 and 12.
Michael Cherkasky, president and chief executive officer of MMC, noted, “We continue to take steps across MMC to make it a stronger, more streamlined company. Marsh is executing its plan to simplify its management structure, improve efficiencies and account profitability, and increase transparency. These changes should enable Marsh to deliver profitable growth and margin expansion next year. Kroll had a strong quarter, as demand for its technology services increased significantly. Mercer Human Resource Consulting made significant progress in expanding its outsourcing capabilities and range of investment advice and services, including the combination of its existing benefits administration operations with Putnam’s defined contribution administration activities. Mercer’s specialty consulting businesses performed very well, reporting strong revenue growth. Putnam’s investment performance has continued to improve, reflecting changes made over the last 18 months. We continue to see a moderation in net redemptions.”
Risk and insurance services revenues declined 11 percent in the quarter to $1.7 billion. Underlying revenues, excluding acquisitions and foreign exchange, declined 13 percent. Market services revenues declined $179 million to $32 million in the quarter. Excluding the loss of market services revenues, underlying revenues declined 5 percent.
Marsh’s risk management and insurance broking revenues declined 19 percent to $1.2 billion due to the termination of market services agreements, the effect of reduced insurance premium rates, and a lower volume of net new business. The decline was most significant in the United States, with modest declines in the rest of the world consistent with the softening of premium pricing.
Guy Carpenter reported first quarter revenues of $282 million, unchanged from 2004. Underlying revenues declined 2 percent. Carpenter’s new business in the quarter was stronger than the prior year quarter but was offset by the effect of higher risk retentions and lower premium rates in the reinsurance marketplace.
Related insurance services revenues rose 26 percent to $294 million, an 18 percent increase on an underlying basis. This reflects strong growth in claims management as well as higher investment gains in the quarter.
As expected, restructuring and other noteworthy expenses significantly affected risk and insurance services operating income of $171 million. Approximately $65 million of savings associated with the fourth quarter restructuring were more than offset by $96 million for additional restructuring, $43 million of incremental regulatory and compliance costs, and $15 million for employee retention programs in the first quarter. Bonus accruals for the full year are being kept flat to 2004 levels to assure that the proper levels of incentives are maintained in a challenging year.
The elimination of market services revenues removed a significant seasonality factor that had a corresponding impact on bonus accruals. First quarter bonus accruals were $42 million higher than the prior year quarter. Additional restructuring charges are anticipated over the course of 2005 for severance and real estate costs.
Was this article valuable?
Here are more articles you may enjoy.