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Aon (AON) Q1 Earnings Beat Estimates as Expenses Decline

Aon plc’s AON first-quarter 2016 operating earnings of $1.35 per share beat the Zacks Consensus Estimate by 2 cents. Earnings however decreased 1.5% from the year-ago quarter.

The earnings beat was attributed to a decline in total operating expense and a lower share count resulting from Aon's share repurchases during the quarter.

Aon’s total revenue was $2,792 million, down 2% year over year. The decline was due to a 3% unfavorable impact from foreign currency translation and a 2% decrease in commissions and fees. However, 3% organic revenue growth limited the downside. Revenues missed the Zacks Consensus Estimate of $2,875 million.

Operating expenses decreased 3% year over year to $2,342 million due to favorable forex, decrease in expenses related to net divestitures and decrease in intangible asset amortization. Operating margin expanded 20 basis points to 18.5%.

Segmental Update

Risk Solutions: Total revenue came in at $1.9 billion, down 1% year over year due to lower commissions and fees.

Operating income increased 3% year over year to $453 million, while adjusted operating margin increased 100 basis points (bps) to 24.2% during the quarter.

Organic revenues at the Retail sub-segment increased 4% year over year. Growth came on the back of higher organic revenues from the Americas business (up 4%) and the International business (up 4%). Growth in the Americas business was led mainly by record new business generation in US Retail, sturdy improvement in Affinity, and strong management of the renewal book portfolio in Latin America. International growth was largely driven by growth across Asia and in New Zealand, as well as improvement in continental Europe as both new business generation and management of the renewal book portfolio performed well.

Organic revenues at the Reinsurance sub-segment were up 1% mainly due to growth in facultative placements, decent demand in treaty placements and new business generation.

HR Solutions: Total revenue of $930 million reflected a 4% year-over-year decline owing to lower commissions and fees. Operating earnings were $110 million, down 14%. Adjusted operating margin was 11.8%, down 140 bps year over year.

Organic revenues at Consulting Services increased 3% year over year. This was primarily owing to solid growth in investment consulting, as well in core pension solutions and communications consulting.

Organic revenues at Outsourcing appreciated 1% largely due to the sustained increase in HR BPO for cloud-based solutions.

Financial Position

As of Mar 31, 2016, cash and cash equivalents of Aon were $465 million, up from $384 million as of Dec 31, 2015. Total assets of Aon as of Mar 31, 2016 were $26.8 million, down from $27.1 billion at year-end 2015.

Long-term debt was $5.9 billion as of Mar 31, 2016, up from $5.1 billion as of Dec 31, 2015.

Cash flow from operations decreased 8% to $273 million. Free cash flow decreased 6% to $221 million.

Dividend and Share Repurchase Update

On Apr 18, the board of directors of Aon approved a 10% increase in its quarterly dividend.

Aon bought back 7.7 million shares during the quarter for nearly $750 million.

Zacks Rank

Aon carries a Zacks Rank # 3 (Hold).

Performance of Other Insurance Brokers

The bottom line at Brown & Brown Inc. BRO, Marsh & McLennan Companies, Inc. MMC and Arthur J Gallagher & Co. AJG outperformed their respective Zacks Consensus Estimate in the first quarter.

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MARSH &MCLENNAN (MMC): Free Stock Analysis Report
 
AON PLC (AON): Free Stock Analysis Report
 
BROWN & BROWN (BRO): Free Stock Analysis Report
 
GALLAGHER ARTHU (AJG): Free Stock Analysis Report
 
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