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Today's Viewpoint: A MarshBerry Publication

Highlights from the MMC earnings release and analyst call

Marsh & McLennan Companies, Inc. (MMC) reported 4Q20 and full year 2020 results this morning, followed by a call with the investment community. MMC reported earnings per share and revenue above analyst estimates.

Below are notable takeaways from the results and conference call:

  • The company reported organic growth of 1% during 4Q, in line with its reported 2020 annual organic revenue growth of 1% as well.
    • Organic growth in its Risk & Insurance Services (RIS) division in 4Q was 3%, with its middle market segment (Marsh Inc. or Marsh & McLennan Agency) reporting 4% organic growth including 7% in the U.S./Canada.
    • Organic growth in its Consulting division (primarily project-based revenue) was down 1% organically in 4Q.
  • MMC tracks rate increases through its global proprietary pricing index. This index was up 22% in 4Q, an acceleration from up 20% in 3Q. Rate increases in some lines, such as property, are decreasing and expected to continue to moderate into 2021. However, lines like Directors & Officers (D&O) and professional liability are driving up the overall index. The company noted CAT and COVID losses, and low interest rates as accelerating the pricing increases that were happening heading into 2020. The index is skewed towards large, complicated risks but noted pricing is up in small to middle market placements as well.
  • During the 4th quarter, MMC repaid $1B in debt ($700M of matured senior notes and $300M prepaid on notes to mature in December 2021).
  • Operating margins across the company expanded by 1.2% in 2020 after cost savings efforts were implemented during the COVID pandemic. MMC expects margins to expand again in 2021 but as travel, hiring and other more normal spending resumes, margins are not expected to expand at the same rate. The company added a net 500 employees to its headcount in 4Q (roughly 1%).
  • The company completed eight acquisitions during the year, acquiring $325M in annualized revenue in total. MMC noted it continues to remain disciplined in its acquisition approach and commented that most of its acquisition targets are in exclusive or semi-exclusive negotiations.
  • Looking forward, MMA forecast organic growth in 2021 of 3-5%. Underpinning that forecast is an assumption that global economic growth returns in 2Q.

MMC’s annual results of 1% organic revenue growth and 14% operating income growth, reflect its ability to pivot internally on expense controls in an environment of uncertainty. Its exposure to project-based work, which was more impacted by COVID factors, weighed on the stronger results from its brokerage business. Looking forward, the company expects to return to low to mid-single digit growth in 2021 given the positive signs in the global environment.

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This earnings summary has been prepared by Marsh, Berry & Co., Inc. and is not intended to provide investment recommendations on any company. It is not a research report, as such term is defined by applicable laws and regulations, and it does not contain sufficient information upon which to make an investment decision. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any securities, financial instruments or to participate in any particular trading strategy. These materials are based solely on information contained in publicly available documents and Marsh, Berry & Co., Inc. has not independently attempted to investigate or to verify such information.

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