Marsh McLennan Earnings: Strong Start to the Year
Narrow-moat Marsh McLennan MMC delivered a good start to the year, with relatively strong growth and margin improvement. Overall revenue was up 7% year over year or 9% on an underlying basis. We are pleased to see the company extend its run of outsize growth but believe that a return to more modest growth is coming. We will maintain our $145 fair value estimate. We see shares as modestly overvalued and believe the market is overly focused on recent growth rates.
The brokerage business was the strongest performer, with year-over-year growth of 10% on a reported basis and 11% on an underlying basis. We think the company continues to benefit from a harder insurance pricing market. While pricing increases in primary lines have started to moderate, strong pricing increases in reinsurance markets now appear to be acting as a spur. While the near-term outlook on this front remains positive, this tailwind may be set to ebb.
The consulting business saw year-over-year growth of 1% on a reported basis and 5% on an underlying basis. The underlying growth rate on this side has now come back within range of our long-term expectations, and this side of the business is most exposed to a potential negative turn in the macroeconomic environment. Oliver Wyman was flat year over year on an underlying basis and appears to be leveling out following a run of strong growth.
Adjusted operating margins improved to 31.2% from 29.7% last year. The improvement was entirely on the brokerage side, presumably prompted by the strong growth. But management continues to work to identify cost savings and expects to achieve $300 million by 2024.
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