Marsh & McLennan last week reported that second-quarter net income fell 63 percent compared with the same period last year, but while MMC’s CEO said the company’s overall results and direction were “excellent,” the head of its brokerage unit announced the elimination of 900 positions.
The income drop was attributed primarily to a goodwill impairment charge and loss in investment income. MMC said all lines of business had increases in organic growth, and that overall revenue was up 9 percent.
However, Daniel S. Glaser, chairman and CEO of MMC’s Marsh brokerage unit, told investors 900 positions would be cut–most of them in the United States.
He said the firm plans to outsource 200 positions and eliminate 100 through attrition. The remaining 600 would be layoffs as the broker shifts from a centralized model to a hub model, with placements made through regional offices.
The cuts will come from the corporate, back-office operations and non-client-facing areas, he said, adding that the change in the business model is expected to lower costs and Marsh’s errors and omissions exposure.
While Marsh has seen improvement in its overall performance, Mr. Glaser said, “we still have a long way to go before we can say our business is where we want it to be. The market continues to be challenging, and we still have a lot of work to create a more disciplined sales- and growth-oriented culture that will drive more consistency in our top-line results.”
The layoffs come after more than 300 positions were eliminated this year at another MMC company, reinsurance broker Guy Carpenter. Mr. Glaser said a total of 360 positions were eliminated on the brokerage side of the business in the second quarter, after 150 positions were cut in the first quarter, costing $36 million so far this year–but the action is expected to save $45 million annually.
Between Marsh, Guy Carpenter and outsourcing, MMC has eliminated at least 1,410 positions so far this year–not including the 900 additional cuts announced last week.
New York-based MMC said second-quarter net income dropped $112 million from the same period last year, to $65 million. Earnings per share dropped 18 cents a share to 13 cents. Revenues increased 9 percent, or $263 million, to $3.04 billion.
For the first half of the year, net income compared to last year is off 133 percent, or $590 million, for a loss of $145 million. Earnings per share dropped 51 cents a share, to a loss of 28 cents a share.
MMC recorded a goodwill impairment charge (an accounting revaluation of an acquired property) for its risk consulting and technology segment of $115 million in the quarter and $540 million for the first half, which adversely affected results.
The company also recorded a $16 million loss in the quarter and $8 million loss for the first half on investment income from write-downs.
Revenues at Marsh grew 8 percent in the quarter, up $87 million to $1.2 billion. The broker also said it recorded organic growth of 3 percent.
Brian Duperreault, president and chief executive officer of MMC, was upbeat during a conference call with analysts, stating that the overall results and trends were “excellent,” adding that Marsh’s recovery “is picking up speed.”
“We are excited about the future,” according to Mr. Duperreault.
Alain Karaoglan, an analyst with Bank of America Securities, said in a note to investors that Marsh beat consensus earnings per share estimates on continuing operations by 6 cents a share, rising to 41 cents a share. Revenue growth exceeded expectations, he said, crediting Mr. Duperreault with “taking the right initial steps” to improve earnings.
Among other results reported:
o MMC’s Asia Pacific segment showed the strongest performance with revenue growth of 18 percent, climbing $19 million to $124 million. MMC said the unit had 8 percent organic growth.
o Total international revenue grew $76 million, or 14 percent (5 percent organic), to $627 million.
o Slumping prices in the soft market limited U.S. and Canadian revenue growth to 2 percent, rising from $573 million to $584 million.
o Reinsurance broker Guy Carpenter saw revenues fall in the quarter by 6 percent to $204 million.
o Consulting revenues from Mercer and Oliver Wyman Group rose 13 percent–up $156 million to $1.4 billion.
o The risk consulting and technology segment, primarily Kroll, rose 13 percent, up $32 million to $281 million.