Marsh & McLennan's chief executive officer called the company's results mixed, with challenges for parts of the business, but predicted the company would begin to see a better financial picture in 2006.
Michael G. Cherkasky, president and chief executive officer for New York-based MMC, said the company's earnings were "mixed, with challenges continuing in [Marsh]. That said, we continue to make the slow progress that 2006 will be a better year for MMC."
MMC is the parent of the insurance brokerage firm Marsh.
For the third quarter, MMC reported net income was up $44 million, or 209 percent, to $65 million, or 12 cents a share, compared with $21 million, or 4 cents a share for the same period last year. Revenues decreased 2 percent, or $52 million, going from $2.95 billion to less than $2.90 billion.
For the nine months of 2005, net income dropped $491 million, or 57 percent, from $856 million, or $1.60 per share, to $365 million, or 67 cents a share. Revenues rose less than 1 percent, or $2 million, from $9.174 billion to $9.176 billion for the period.
During an analyst conference call today, Mr. Cherkasky said Marsh continues to struggle with little consistency month to month. He contributed the struggle primarily to the soft market and a combination of the exiting of unprofitable accounts, lack of new sales and "slightly lower" retention rates.
MMC reported revenues at Marsh declined 22 percent in the quarter, or $95 million, from less than $1.5 billion to less than $1.4 billion. For the nine months, revenues are down 10 percent–$486 million–going from more than $5 billion to less than $4.6 billion.
However, revenues at Kroll, the risk consulting and technology subsidiary, and Mercer, its consulting service, increased.
Kroll's revenues were up 22 percent, or $50 million in the quarter, and 196 percent, or $529 million for the six months. Mercer's revenues increased 4 percent in the quarter and for nine months–by $39 million in the third quarter and $113 million for nine months.
MMC's investment arm, Putnam, saw a drop of 11 percent in revenues, or $44 million in the third quarter, and a 12 percent drop, or $153 million for the nine months.
Mr. Cherkasky expressed optimism about 2006, noting that Marsh has won some new accounts and that "we have endured the worst."
He said that to become better, Marsh must become more efficient and continue to provide the same level of service that clients expect from the firm.
Sandra S. Wijnberg, senior vice president and chief operating officer, noted that through the restructuring program, MMC would save $400 million annually. The restructuring has resulted in the loss of 4,900 employees at the company.
Mr. Cherkasky said it is too soon to predict how the hurricane season will affect Marsh and what direction pricing will go, other than it would probably result in some hardening.
Reaction from analysts appeared mixed.
In research notes, David Small at Bear Sterns called MMC's result strong, noting that the company beat the firm's estimates of 33 cents a share by 2 cents–when items for restructuring and related expenses are excluded.
However, Brian R. Meredith of Banc of America Securities, in his note, said MMC missed Banc's target of 33 cents a share and consensus of 38 cents a share, with an earnings per share of 12 cents for the quarter. He said excluding non-recurring items, the EPS stood at 28 cents a share. Banc noted that it has financial advisory roles with MMC.
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