Today's Viewpoint: A MarshBerry Publication

WLTW Announces 1Q20 Earnings

Highlights from the WLTW earnings release and analyst call

Willis Towers Watson (WLTW) reported first quarter earnings this morning, posting 4% organic growth and $3.34 in earnings per share, above analyst estimates of $3.14. As a reminder, AON plc announced its intent to acquire WLTW in early March, just prior to the escalation of the domestic pandemic closures and shutdowns. This transaction is anticipated to close in the first half of 2021 given the regulatory requirements, complexities of combining two large organizations, and other customary closing conditions. WLTW does not expect any significant delay in the closing of the transaction as a result of the COVID-19 crisis.

There were several highlights from the release and call related to the current business environment and operations, which we have summarized below:

  • WLTW cited minimal impact on first quarter results from the COVID-19 pandemic, however the Company withdrew management’s previously communicated financial “guidance” (direction on expected future performance) which speaks to the uncertainty in the outlook. Essentially this communicates to the marketplace that the company cannot predict the future performance of the business and is disclaiming anything they have said to date about what to expect in its results.
  • WLTW noted there has yet to be any significant signs of slowdown in the business through March. It is seeing higher retention in benefits business where HR departments are deprioritizing benefit plan changes but there are also offsetting impacts from increases in unemployment.
  • Contrary to other commentary in the marketplace, WLTW sees its revenue streams as mostly coincident with the economic cycle. Although employee benefits income is on somewhat of a lag, WLTW feels the majority of its business will contract and expand simultaneously with the decline and eventual recovery in GDP.
  • WLTW indicated that it is not heavily exposed to those hardest hit industries where major downturns are expected. The largest area of impact is expected to be within discretionary Human Capital projects that its customers are delaying or cancelling (e.g. compensation studies, employee surveys, wellness, etc.).
  • WLTW indicated that the way it does business is likely to change following the relaxation of travel restrictions and eventual economic recovery. There is an internal task force focused on integrating the work from home and virtual meeting strategies that have been utilized during the crisis into the way business is done on an ongoing basis. Currently 90%+ of the entire 45,000 person staff is working remotely.
  • WLTW has implemented cash conservation actions including: hiring and travel freezes, capital spending reductions and other discretionary cost cutbacks. The company feels good about its liquidity position and an undrawn credit revolver of $850M is available as a safeguard. The company is not planning compensation reductions at this time but did state that the length of the disruption and the trajectory of the recovery will impact the measures that need to be taken.

Similar to other public broker observations, WLTW seems very uncertain about the outlook, with too many variables still undetermined to forecast with any degree of confidence. With double digit declines considered an “extreme” scenario by management, WLTW appears to be reinforcing the notion that insurance distribution is likely to see less volatility than overall GDP and certainly other industries that have been harder hit by the shutdowns.

As we keep our eye firmly focused on the industry and actions within it, we are eager to know what you are experiencing. Take a quick 3-minute MarshBerry Pulse survey to help us gauge the industry’s response and outlook as the country moves towards “open for business” from the anticipated loosening of stay-at-home orders.

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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