Arthur J. Gallagher & Co. (NYSE: AJG) reported 4Q2021 adjusted Earnings Per Share (EPS) of $0.98 on revenue of $1.94 billion vs. consensus estimates of adjusted EPS of $0.95 on $1.91 billion. This compares to adjusted EPS of $1.33 on revenue of $2.1 billion in the third quarter of 2021. AJG’s Brokerage and Risk Management segments once again had strong results driven by strong new business production and economic improvements.
Q4 AJG Earnings Notable Takeaways:
- AJG’s Brokerage segment reported organic growth of 11% above third quarter 2021’s 9%. The segment saw 4Q21 total revenue growth of 18% vs. 16% in 3Q21. As a result of the ongoing economic recovery, the revenue from brokerage operations were driven by “clients’ improving business conditions which increases insured exposure units (i.e., insured values, payrolls, employees, miles driven, gross receipts, etc.) and covered lives.”
- Global fourth quarter renewal premium increases came in at above 8%, similar to the increases in the first three quarters of 2021. CEO J. Patrick Gallagher commented on the earnings call: “I see difficult Property and Casualty (P&C) market conditions continuing throughout 2022. That’s because our risk-bearing partners remain cautious on rising loss costs.”
- Risk Placement services reported organic growth of 15% in 4Q21 vs. 16% in 3Q21. Fourth quarter growth included more than 30% organic in open brokerage and 5% organic in Managing General Agent (MGA) programs and binding businesses.
- For international operations in 4Q21, AJG’s U.K. segment had organic growth of 12% in 4Q21, up from 9% organic growth in 3Q21. Specialty posted growth in the high teens and retail saw 7% growth in 4Q21 which was driven by new business and retention. Australia and New Zealand increased by more than 8% combined. Canada was up over 13% benefiting from robust new business increases, renewal premium increases, and stable retention.
- The 4Q21 Employee Benefit brokerage and consulting segment was up about 7% in organic growth compared to the 5% in 3Q21. The 4Q21 result was a couple points better than the guidance at AJG’s December Investor Relations day. The company noted sequential improvement over 2021 due to the “rebound in global economy, declining U.S. unemployment and increased demand for consulting services as businesses look to grow.”
- Gallagher Bassett Services, Inc., AJG’s Risk Management segment, reported 4Q21 organic growth of 13.1%, vs. 3Q21 organic growth of 16.6% and above the guidance from AJG’s December Investor Day. AJG feels good about the business and sees strong retention and new client wins contributing to organic growth in 2022 in the high-single digits.
- In terms of mergers & acquisitions, the company completed 38 mergers during 2021, totaling over $1 billion in annual revenue. AJG stated that it has about 35 term sheets signed or being prepared which represents about $200 million in annual revenue.
- AJG completed its purchase of Willis Reinsurance brokerage operations on December 1, 2021. The company commented on the acquisition that the “integration is well underway and progressing at a good pace.”
Overall, AJG had a strong quarter, growing organically and through acquisitions, improving productivity, and continuing to focus on its culture. The company is confident that it’s well positioned for growth in 2022 and continued to be positive on its clean energy investments, which are seen potentially providing a “nice bump in cash flow” during the year. The company sees full year 2022 organic growth in a similar range to 2021.
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This earnings summary has been prepared by Marsh, Berry & Co., LLC. 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., LLC has not independently attempted to investigate or to verify such information.