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Today's Viewpoint: A MarshBerry Publication

Marsh & McLennan Companies, Inc. (MMC) reported second quarter 2021 results this morning, with adjusted Earnings Per Share (EPS) of $1.75 and consolidated revenue rising to $5.0 billion, up 20% compared to the second quarter of 2020. This compares to consensus analyst estimates of $1.42 in adjusted EPS and $4.5 billion revenue.

Below are notable takeaways from the quarter:

  • The company reported organic revenue growth of 13% during 2Q21. MMC noted that this was the best quarterly organic growth in two decades, driven by new business, solid retention, and a strong economic recovery in many regions.
    • Organic growth in its Risk & Insurance Services (RIS) division in the second quarter was 13% year-over-year, with its middle market segment (Marsh Inc. or Marsh & McLennan Agency) reporting 14% organic growth including 15% in the region since the company started reporting the division.
    • Organic growth in its Guy Carpenter Consulting division (primarily project-based revenue) was up 12% year-over-year in the first quarter.
  • MMC tracks rate increases through its global proprietary pricing index. This index was up 13% in 2Q21, a moderation in pace from the 18% of 1Q21. The company noted that the 13% increase is still high and reflects elevated loss activity, concerns around inflation and low interest rates. Workers’ compensation rates declined while financial and professional lines, up 34%, were the primary drivers of growth. MMC noted that steep cyber increases were drivers of the higher rates in financial and professional lines, a continued trend from 1Q21, where its average price increase doubled from its 4Q20 level. MMC expects pricing growth to continue to become more measured and moderate in the second half of 2021. The index is skewed towards large, complicated risks but MMC noted pricing is up in small to middle market placements as well, but at a more modest rate.
  • During the second quarter, MMC repaid $500 million in debt (senior notes maturing July 2021). MMC ended the quarter with $10.8 billion of total debt with its next scheduled debt maturity in January 2022 when $500 million of senior notes mature. MMC expects to deploy at least $3.5 billion of capital in 2021, with at least $3 billion going towards dividends, acquisitions and share repurchases. In July, the company raised its dividend 15%, which is the largest increase since the third quarter of 1998.
  • MMC repurchased 2.4 million shares for $322 million in 2Q21. The company indicated it will continue to use cash opportunistically and that future share repurchases will depend on its merger & acquisition (M&A) pipeline.
  • Operating margins across the company expanded 90 basis points year-over-year to 26.4%. MMC expects margins to continue to expand in 2021, though at a more moderate pace vs. 2020 as travel, hiring and other more normal spending continues to resume.
  • The company indicated that its  acquisition strategy remains consistent with a focus on high quality firms that have recurring revenue streams, high cash generation, low capital requirements, and a history of success. CEO Daniel Glaser commented on the current state of M&A: “Multiples are higher than what we would like, and we need to be very selective and very careful in our evaluation of pro forma results because most of the companies we look at are private.”

MMC leaders are optimistic about the company’s outlook based on an improving economic outlook, and opportunities around major protection gaps, including cyber risks, digitization, and emerging risks. MMC anticipates full-year organic growth to remain strong for the full year as its businesses are experiencing positive momentum, but also face more challenging comparisons. Underpinning that forecast is an assumption that the global economic rebound sustains in the second half of 2021.

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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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