Aon Plc’s quarterly profit beat analysts’ estimates as investments aimed at increasing margins at its human resources services unit helped boost profit, and the company said it planned a series of small acquisitions.
Aon, the world’s largest insurance broker had suffered lower margins as it invested in its HR services business, the former Hewitt Associates it bought in 2010.
Aon’s operating margin in the business rose in the quarter for the first time in eight quarters, to 17.5 percent from 16 percent on an adjusted basis.
The company has consistently said the investments in its HR solutions unit, which provides consulting and outsourcing operations for companies, would start to pay off toward the end of this year.
It is now looking at small deals to expand its businesses. Aon on Monday said it will buy Omnipoint’s workday services company to expand its HR outsourcing line.
“Our targets will tend to be smaller, more like tuck-in acquisitions that will help us improve client serving capability and we will probably use $300-$400 million a year doing this,” Aon Chief Executive Greg Case told Reuters.
Aon operates in insurance and provides HR services to companies. The insurance unit includes Aon’s retail insurance brokerage and reinsurance business, while the HR solutions unit includes its consulting and outsourcing operations.
Morningstar analyst Vincent Lui said he expects margin improvement and steady revenue growth across Aon’s business lines.
Aon, which competes with Marsh & McLennan Co. and Willis Group Holdings in its retail insurance brokerage and reinsurance businesses, said it was on track to meet its long-term targets of operating margins of 22 percent in the HR business and 26 percent in insurance.
The company also said it will launch the first multi-carrier corporate health exchange — another area it has invested in –in the current quarter.
The health exchange will help corporate employees chose their health insurance coverage and insurer from an online marketplace.
“Corporate healthcare exchange could be the next big catalyst for HR solutions,” analyst Lui added.
QUARTERLY PROFIT BEATS
Aon’s third-quarter profit rose for the first time in three quarters as net income grew to $204 million, or 62 cents per share, from continuing operations, from $198 million, or 59 cents per share, a year earlier.
Excluding items, it reported adjusted earnings of 95 cents per share. This was above consensus estimates of 89 cents per share, according to Thomson Reuters I/B/E/S.
The company’s core insurance business has benefited from favorable pricing. Aon’s reinsurance business revenue grew 7 percent in the quarter.
“Insurance pricing has, over the last year, strengthened and come to a point where it is roughly flat and we see that continuing in the future,” CEO Case said.
Shares of the company, which has a market value of $16.85 billion, have risen 12 percent in the past three months, outperforming the broader S&P 500 Index, which has risen about 7 percent during the period.
They were trading up 2 percent at $53.33 on the New York Stock Exchange in late morning trade on Friday.
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