Hilb Rogal & Hobbs Company reported its second quarter total revenues were $178.4 million, compared with $162.0 million in the 2005 second quarter, an increase of 10.1 percent. HRH said comissions and fees rose 8.5 percent to $171.9 million, during the quarter, compared with $158.4 million for the same period in 2005, primarily reflecting improved organic growth and acquisitions, offset by a modest overall decline in premium rates.
Net income for the quarter was $20.6 million, or $0.57 per share, compared with $15.8 million, or $0.44 per share, a year ago, an increase of 30.5 percent. Operating net income was $19.2 million, or $0.53 per share, compared with $16.5 million, or $0.46 per share, a year ago, an increase of 16.0 percent. The new accounting treatment for stock-based compensation resulted in $1.6 million ($0.03 per share) of additional compensation expense for the 2006 second quarter.
Martin L. (Mell) Vaughan, III, chairman and chief executive officer, commented, “We delivered a strong quarter marked by improved financial and operating metrics.”
For the first six months of 2006, total revenues rose 4.9 percent to $362.2 million from $345.4 million a year ago. Commissions and fees increased 4.0 percent to $352.3 million from $338.7 million last year, affected by the same drivers that influenced the second quarter, in addition to a $3.6 million reduction in contingent commissions. Net income was $46.6 million, or $1.28 per share, compared with $43.5 million, or $1.20 per share, in the same period of 2005, an increase of 7.0%. Operating net income for the period was $44.9 million, or $1.24 per share, compared with $43.6 million, or $1.20 per share, a year ago, an increase of 2.9 percent. In the 2006 year-to-date period, compensation expense was increased by $3.4 million ($0.06 per share) from the new accounting treatment for stock-based compensation.
Organic growth is defined as the change in commissions and fees before the effect of acquisitions and divestitures. Excluding contingent and override commissions, organic growth was 7.8 percent for the 2006 second quarter and 5.1 percent for the first six months of 2006.
The operating margin for the 2006 second quarter increased to 23.4% from 22.5% for the 2005 second quarter. For the six months, the operating margin was 25.9% in 2006 compared with 26.1% in 2005. The margin change for the quarter and six months was affected by the expensing of stock options and continued investment in sales and service talent, offset in part by a reduction in legal, compliance and claims expenses. In addition, the second quarter margin was favorably affected by the improved organic growth and the year-to-date margin was negatively impacted by the reduction in contingent commissions.
F. Michael Crowley, president, said, “The improvement in our organic revenue growth for the quarter reflected continued strong new business production company-wide including several very large new accounts, and a rebound in our renewal retention rates which were under pressure the past few quarters due to producer culling. All six of our retail regions and our excess & surplus lines operations generated in excess of 5.5 percent organic growth for the quarter, evidence that our sales process, which is under constant refinement, is working. “Best practices” programs, focused on continuous improvement of business processes, have now been instituted in our commercial property/casualty, personal lines and employee benefits lines of business.”
Vaughan concluded, “On the acquisition front, to date, we have announced four transactions with annualized revenues of over $35 million, including a definitive agreement to acquire Chicago-based Thilman & Filippini, L.L.C., one of the leading firms in its region. In addition, by mid-year 2006, we had repurchased $25.0 million of HRH shares, and we remain well positioned to support our future capital needs.”
Source: Hilb Rogal & Hobbs Company
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