Today's Viewpoint: A MarshBerry Publication

AON Announces 2Q20 Earnings

Highlights from the AON earnings release and analyst call

This morning, AON plc. (AON) reported 2Q20 earnings and had a conference call with investors. Highlights from the call are below:

  • Overall company organic revenue declined 1% during 2Q20. Commercial Risk Solutions was up 1% organically as discretionary portions of the book declined and pricing/retention offset, with “modest” growth in the U.S. Reinsurance solutions saw the most significant organic growth in the quarter at 9%. Significant declines were experienced in the company’s Health Solutions and other project-based divisions (Human Capital and Data & Analytics).
  • Looking forward, Q3 and Q4 revenue pressures are expected to be similar if the economic environment remains similar, but formal guidance was not given as the outlook continues to be uncertain. Discretionary type project work is starting to come back in some areas, but it’s likely to be an uneven recovery, according to management.
  • AON restored and repaid salary reductions (in some cases with bonus), as confidence that the “worst case scenario” is less likely than it was in March. Operating expenses are likely to return to more normal levels in the second half of the year, with targeted investments resuming.
  • The company reduced debt by $100M during the quarter and will take a conservative position on leverage in the near term. However, AON is considering resuming share buybacks in the second half of the year dependent upon macroeconomic conditions and cash flow.
  • Much of the discussion on the call centered around the merger between AON and Willis Towers Watson Public Limited Company (WLTW). AON commented that the merger is proceeding as expected in terms of timing and integration. Closing is still planned for the first half of 2021. Management indicated that the process and collaboration between the two companies so far has only reinforced the complementary nature of the businesses and strengthened the confidence in the decision to merge.
  • Similar to other public brokers that have reported this week, AON seems more confident than 90 days ago that a “worst case” global economic crisis is not likely to transpire. This is evidenced by its reinstatement of pay reductions and plans to return to targeted investments that were previously put on hold.

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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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