Release Date: October 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Brown & Brown Inc (BRO, Financial) reported strong financial performance with nearly $1.2 billion in revenue, marking an 11% total growth and 9.5% organic growth over the third quarter of 2023.
- The company's adjusted EBIT margin improved by 30 basis points to 34.9%, and adjusted earnings per share grew by 12.3% to $0.91.
- The programs segment delivered outstanding results with organic growth of 22.8%, driven by new business and expansion of existing customers.
- Brown & Brown Inc (BRO) completed four acquisitions with estimated annual revenues of $8 million, indicating a robust M&A strategy.
- The company has a strong cash generation, with over $810 million generated in the first nine months, increasing the cash flow from operations as a percentage of revenue to 22.4%.
Negative Points
- The retail segment experienced a slowdown with organic growth of only 3.9%, impacted by moderating rates and lower growth in exposure units.
- Incentive commissions and non-recurring revenue negatively impacted the retail segment's organic growth by over 100 basis points.
- There is ongoing pressure on contingent commissions in the retail segment due to higher loss ratios, particularly in the auto lines.
- The wholesale brokerage segment faced challenges due to a decline in catastrophe property rates, affecting the pace of growth.
- The company anticipates potential impacts from hurricanes Helene and Milton, which could affect future financial results, particularly in contingent commissions.
Q & A Highlights
Q: Can you provide more detail on the factors affecting the retail segment's organic growth in the third quarter?
A: J. Powell Brown, CEO: The organic growth was impacted by lower incentive commissions and non-recurring revenue like bonds. We feel good about our retail business and do not believe one quarter creates a trend. Historically, retail grows faster in the first half of the year due to employee benefits business recorded in the first quarter.
Q: Is the wholesale segment built to sustain growth in an environment where property cat rates are flat to down 10%?
A: J. Powell Brown, CEO: Our Q3 is not heavily reliant on property, which is more significant in Q1 and Q2. We have a balanced mix between brokerage and binding authority businesses. While rate decreases can impact us, we will see how markets adhere to discipline in Q4.
Q: Could you elaborate on the impact of non-controlling interest in the programs segment?
A: R. Andrew Watts, CFO: Non-controlling interest has no impact on organic growth or margins. It is only a pretax allocation, and accounting rules require us to report it on a gross basis.
Q: What are the trends and opportunities in the employee benefits business for 2025?
A: J. Powell Brown, CEO: We have invested in capabilities to handle any size customer, providing us with growth opportunities. Every CFO is concerned about healthcare costs, and we offer solutions that can lead to positive performance. We are actively looking for additional firms to join us, but even without acquisitions, we are excited about our current business.
Q: How do you view the M&A pipeline, especially with interest rates beginning to decrease?
A: J. Powell Brown, CEO: As interest rates decrease, more private equity firms show interest. We continue to look for opportunities both domestically and internationally, focusing on cultural fit, capabilities, and financial sense. We are excited about closing Quintec in the Netherlands this quarter.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
