Quarterly Profit Down 62% at Marsh

February 12, 2008

Quarterly profits at Marsh & McLennan dropped 62 percent, as fourth quarter and annual revenues rose 8 percent.

The giant insurance brokerage reported that fourth quarter net income dropped to $85 million, or 16 cents per share, from $226 million, or 40 cents per share, a year earlier.

In the quarter, consolidated revenue was $2.9 billion, up 8 percent from the fourth quarter of 2006.

Income from continuing operations was $90 million, or $.17 per share, compared with $168 million, or $.30 per share, in the fourth quarter of 2006.

Net income, including discontinued operations, was $85 million, or $.16 per share, compared with $226 million, or $.40 per share, last year.

The company said incremental costs associated with the departure of MMC’s former chief executive officer negatively impacted earnings per share by approximately $.02 in the fourth quarter of 2007.

For the year 2007, consolidated revenue was $11.4 billion, an increase of 8 percent from $10.5 billion in 2006, or 4 percent on an underlying basis. Income from continuing operations was $538 million, or $.99 per share, compared with $632 million, or $1.14 per share, in 2006.

Income from discontinued operations, net of tax, was $1.9 billion, or $3.54 per share, compared with $358 million, or $.62 per share, in 2006, reflecting gains on the Putnam transaction in the third quarter of 2007 and the sale of Sedgwick Claims Management Services in the first quarter of 2006. Net income in 2007 was $2.5 billion, or $4.53 per share, compared with $990 million, or $1.76 per share, in 2006.

Brian Duperreault, who joined MMC as president and chief executive officer on Jan. 29, 2008, said the firm’s “immediate focus is to improve profitability at Marsh and Kroll.”

Risk and Insurance Services
Risk and Insurance Services revenue in the fourth quarter of 2007 was $1.4 billion, unchanged from the fourth quarter of 2006. Operating income declined in the current quarter to $58 million from $127 million in the fourth quarter of 2006, primarily due to a $66 million reduction in revenue, or approximately $.08 per share, from Risk Capital Holdings.

In the quarter, Marsh’s revenue was $1.2 billion, up 6 percent from last year. Geographically, revenue included $659 million in the Americas, an increase of 3 percent from the prior year; $427 million in EMEA, up 9 percent; and $109 million in Asia Pacific, an increase of 11 percent.

Marsh said its new business production was strong, increasing 8 percent, with the strongest growth generated in the U.S. Premium rate declines in the commercial insurance marketplace continued to accelerate as 2007 progressed, continuing into the January 2008 renewals.

Guy Carpenter’s fourth quarter revenue was $167 million, a decline of 2 percent from the prior year’s quarter on a reported basis. Reinsurance premium rates continued to decline across most coverages globally, and clients continued to increase risk retentions.

For the year 2007, revenue for the Risk and Insurance Services segment was $5.6 billion, an increase of 2 percent from 2006. Marsh’s revenue in 2007 rose 3 percent to $4.5 billion, and Guy Carpenter’s revenue rose 2 percent to $902 million.

Consulting
MMC’s consulting segment revenue grew 19 percent to $1.3 billion in the fourth quarter.

Mercer increased revenue 14 percent to $882 million in the fourth quarter and 8 percent on an underlying basis. Double-digit revenue growth was achieved throughout Mercer’s operations: retirement and investment had revenue of $340 million, an increase of 16 percent; health and benefits, $188 million, or 10 percent growth; outsourcing, $197 million, grew 17 percent; and talent, $126 million, increased 14 percent.

Consulting’s profitability grew 38 percent in the fourth quarter of 2007, which was the fifth quarter in a row of double-digit earnings growth in the segment. Consulting’s margin improved 170 basis points, to 12.2 percent in the fourth quarter of 2007 from 10.5 percent in the fourth quarter of 2006.

For the year 2007, consulting generated revenue of $4.9 billion, a 16 percent increase over 2006.

Risk Consulting and Technology
Kroll’s revenue was $249 million in the fourth quarter, an increase of 3 percent from the year-ago quarter. Operating income declined to $17 million in the fourth quarter of 2007, compared with $45 million in the fourth quarter of 2006.

Revenue in Kroll’s technology operations increased 18 percent in the fourth quarter to $149 million due to an acquisition and very strong growth in background screening. Revenue in Kroll’s consulting operations decreased 13 percent to $100 million, primarily due to weakness in the corporate restructuring operation.

For the year 2007, Kroll’s revenue was $1 billion, up 2 percent. Technology revenue increased 13 percent to $569 million, while consulting revenue was down 10 percent to $426 million. The decline in consulting revenue reflects continued weak demand for Kroll’s corporate restructuring services, including lower client success fees for completed engagements in 2007 compared with 2006.

Source: Marsh & McLennan
www.mmc.com

Topics Profit Loss Marsh McLennan

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