- Revenue Growth: 14% overall growth.
- Organic Growth: 7.7%.
- Net Earnings Margin Expansion: 35 basis points.
- Adjusted EBITDA Margin Expansion: 102 basis points to 31.4%.
- GAAP Earnings Per Share (EPS): $1.70, up 15% year over year.
- Adjusted Earnings Per Share (EPS): $2.68, up 19% year over year.
- Mergers: 12 new mergers totaling $72 million of estimated annualized revenue.
- Brokerage Segment Revenue Growth: 14%.
- Brokerage Segment Organic Growth: 7.7%.
- Brokerage Segment Adjusted EBITDA Margin Expansion: 98 basis points.
- PC Retail Operations Organic Growth: 6% in the US and Canada, 7% in the UK, Australia, and New Zealand.
- Global Employee Benefit Brokerage and Consulting Organic Growth: 3% (would have been 5% without timing impact).
- Reinsurance, Wholesale, and Specialty Businesses Organic Growth: 12%.
- Gallagher Re Organic Growth: 13%.
- UK Specialty Organic Growth: 10%.
- US Wholesale Organic Growth: 11%.
- Global Second Quarter Renewal Premiums: Up about 5%.
- Property Renewal Premiums: Up 2% to 4%.
- General Liability Renewal Premiums: Up 5% to 7%.
- Umbrella and Commercial Auto Renewal Premiums: Up 8% to 10%.
- Workers' Compensation Renewal Premiums: Up 1% to 3%.
- Personal Lines Renewal Premiums: Up over 10%.
- Risk Management Segment Revenue Growth: 13%.
- Risk Management Segment Organic Growth: 7.7%.
- Risk Management Segment Adjusted EBITDA Margins: 20.6%, up 120 basis points.
- Cash on Hand: Approaching $700 million.
- Estimated Funds for M&A Opportunities: $3.5 billion for 2024, $4 billion for 2025.
Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Arthur J. Gallagher & Co (AJG, Financial) posted 14% growth in revenue and 7.7% organic growth in the second quarter.
- The company completed 12 new mergers totaling $72 million of estimated annualized revenue.
- Reported net earnings margin expanded by 35 basis points, and adjusted EBITDA margin expanded by 102 basis points to 31.4%.
- GAAP earnings per share increased by 15% year-over-year, and adjusted earnings per share rose by 19% year-over-year.
- The Risk Management segment saw revenue growth of 13%, including 7.7% organic growth, with adjusted EBITDA margins at 20.6%, up 120 basis points from last year.
Negative Points
- The company noted some timing impacts from lumpy Lifecare sales, which affected the Global Employee Benefit brokerage and consulting business organic growth.
- There were modest price declines in property reinsurance renewals due to increased capacity from traditional reinsurers and the ILS market.
- The company faced some headwinds from contingents that adversely impacted organic growth by about 25 basis points.
- The adjusted comp ratio noted savings related to headcount controls, indicating potential constraints on hiring or workforce adjustments.
- The company acknowledged uncertainties related to the upcoming election, interest rates, and hurricane season, which could impact future performance.
Q & A Highlights
Q: On the wholesale organic growth, you mentioned it came in at 11% for the quarter, which was higher than the IR Day guidance of 7-9%. What changed relative to that guidance?
A: We had a terrific finish to the US at the end of June, with submissions up 31% during that period. There is clearly a high continued use of wholesalers, and we are not seeing any significant shift back to the primary market.
Q: You mentioned that next year feels a lot like 2024. Can you confirm if the 7-9% organic growth in brokerage remains the assumption? And would the margin expansion be similar to this year's 80 basis points without the bulk in M&A noise?
A: Yes, we reaffirm that next year could be very similar. There are some unknowns like hurricane season, casualty rates, interest rates, and the election. But in a 7-9% organic environment, you could see margins pop in the 75 to 100 basis point range.
Q: How much did you spend on M&A in the first half of the year, and does it feel like there might be some buyback this year?
A: We spent around $700 million thus far this year. We have some commitments out there, and there is a lot of uncertainty on M&A flow that revolves around potential actions. We have a great shot of using it all, and if not, we'll consider share repurchases.
Q: How is the pricing environment interchanging with your organic growth, especially with the PC rate decelerating to around 5%?
A: There is always a delta between rate and exposure and our organic growth. Buyers tend to opt out of coverages when prices go up and opt back in when prices moderate. This behavior impacts our organic growth numbers.
Q: Can you provide more color on how the quarter shaped up in terms of net new business wins compared to last year?
A: Year-to-date, we've expanded the spread between new and lost business by 4.9%. Our nonrecurring revenues are now in line with our recurring business, leading to an expansion of our spread between new and lost business.
Q: Is there further potential for margin improvement through offshoring to help drive some margin expansion?
A: Yes, our centers of excellence are an integral part of our team and will continue to grow. We have standardized our operations, which will allow us to deploy AI into that environment, making our operations more efficient.
Q: Can you provide more color on the July RPC acceleration? Is it due to property moderation pausing or casualty generation?
A: We saw a slight tick-up in property rates in July, and casualty rates are showing some advancement. Our daily indications show a tick-up in both property and casualty.
Q: What is your appetite for additional acquisitions in personal lines, particularly within high net worth?
A: We are very interested in high net worth personal lines as it requires an advisor. We are not looking to acquire pure auto writers but are excited about opportunities in high net worth personal lines.
Q: Can you update us on the progress with your integrated approach to market with multiple businesses?
A: We are seeing good program development that combines our businesses. Our integrated approach is working well, and we are seeing nice wins by leveraging our various capabilities.
Q: Can you provide an overview of your appetite for additional acquisitions in personal lines, particularly within high net worth?
A: We are very interested in high net worth personal lines as it requires an advisor. We are not looking to acquire pure auto writers but are excited about opportunities in high net worth personal lines.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
