Today's Viewpoint: A MarshBerry Publication

Marsh & McLennan Companies, Inc. (MMC) reported third quarter 2021 results today with adjusted Earnings Per Share (EPS) of $1.08. Consolidated revenue rose to $4.6 billion which is up 16% compared to the third quarter of 2020. This compares to consensus analyst estimates of $1.00 in adjusted EPS and $4.4 billion revenue.

Below are notable takeaways from the quarter:

  • MMC reported organic revenue growth of 13% during 3Q21, on par with 2Q21’s 13%. MMC said that it again achieved the best quarterly organic growth in two decades, driven by strong demand for its services, “impressive” execution, and the current environment.
  • 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 13% organic growth. Broad-based strength was boosted by solid new business growth and retention.
  • Organic growth in the Guy Carpenter Consulting division, primarily project-based revenue, was up 15% year-over-year in the third quarter, up from 12% growth in the second quarter of 2021.
  • MMC’s global proprietary pricing index showed price increases of 15%, compared to the increases of 13% in 2Q21 and 18% of 1Q21. It was the 16th consecutive quarter of rate increases in the commercial Property & Casualty (P&C) insurance market. “Many of the factors that drove the market to harden over the last few years continue, suggesting an inflection to a soft market is unlikely in the near term,” said CEO Daniel Glaser on the earnings call.
  • The 15% increase was boosted by global financial and professional lines increasing 32%. This was partly driven by strong cyber rates and global casualty rates and is an ongoing trend from the first half of the year. The index is skewed towards large account business, but MMC noted pricing continues to rise in small to middle market placements but at a more modest rate vs. the large accounts.
  • MMC sees moderate and measured rate increases in property casualty reinsurance continuing into year end, partly driven by concerns around real and social inflation and large individual risk losses. Social inflation could rise as courts reopen following closures during the pandemic.
  • MMC ended the quarter with $10.7 billion of total debt with its next scheduled debt maturity in January 2022 when $500 million of senior notes mature. MMC reiterated its expectation to deploy at least $3.5 billion of capital in 2021, with at least $3 billion going to dividends, acquisitions and share repurchases. The level of repurchases will depend on the developments in MMC’s merger & acquisition (M&A) pipeline. MMC repurchased 1.9 million shares for $300 million in 3Q21, vs. 2.4 million for $322 million in 2Q21.
  • Glaser commented on the current state of M&A, noting that potential changes to the U.S. tax environment were not the dominant factor driving deals: “It’s not driving a more significant level than what we’ve seen. There’s been a lot of sellers out there. I think there’s a lot of sellers out there mainly because there’s a lot of capital out there and valuations are pretty strong. It’s probably the biggest factor as to what’s driving M&A activity.”
  • Operating margins expanded 10 basis points year-over-year to 18.5% in 3Q21, down from 2Q21’s 26.4%. MMC noted that it grew its headcount year-to-date by 7% or nearly 5,000 employees, with the majority being organic adds and many client-facing roles. The company expects travel & entertainment increases to be slow and not reach 2019 levels for “quite a while.” MMC will continue to look at ways to be more efficient regarding its real estate expenses in the longer term, as it expects to potentially have a hybrid work model with some flexibility.

MMC leaders continue to be optimistic about the company’s outlook and momentum based on the company’s strong capabilities and execution. While MMC also saw positives in the current economy, it noted potential risks around inflation and supply chain issues. MMC anticipates full-year organic growth to remain strong, but also face more challenging comparisons in the fourth quarter.

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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.