Hilb, Rogal & Hobbs brokerage reported second-quarter net income increased 8 percent despite challenges posed by declining prices.
"We are fighting a very dramatic soft market," commented Martin L. "Mell" Vaughan III, chairman and chief executive officer, during an analyst's conference call today.
The Richmond, Va.-based insurance broker reported net income rose $1.6 million to $22 million in the quarter compared with the same period last year. Earnings per share increased three cents to 60 cents a share. Revenues grew by $22 million, or 12 percent, to $200 million.
For the first six months of this year net income increased 2 percent, or $881,000, to $47 million. Earnings per share rose one cent to $1.29. Revenues rose 10 percent, or $36 million, to $398 million.
The firm said the increase reflected acquisitions, new business production and supplemental commissions. Revenue increases were offset by the soft market and the loss of two clients. Executives emphasized during the call that HRH did not lose the business but that the businesses ended.
Core commissions and fees rose 14 percent, or $23 million, to $187 million for the quarter and were up 11 percent, or $35 million, to $346 million over the past six months compared with last year. However, organic growth increased less than 1 percent in the quarter and showed a less than 1 percent loss over the first six months.
While organic growth in commissions and fees showed a loss of less than 1 percent in the United States, HRH's international business grew 32 percent in the quarter and 14 percent for the six months.
F. Michael Crowley, president of the firm, noted that its bottom line has been helped by controls on expenses that were up less than 1 percent over the past six months.
One analyst, David Small of Bear Stearns, said in a note that the firm's earnings per share exceeded expectations. The consensus estimate was 57 cents a share, and Bear Stearns' own estimate was 55 cents. However, he noted that in Bear Stearns' analysis when revenues do not grow organically, "it is difficult to maintain profitability over a long period."
On the acquisition front, Mr. Vaughan said the pipeline is three times larger than normal in the past. Because of the possibility of making a number of acquisitions, the firm is holding off buying back stock to have cash on hand to close deals, he said.
During the conference call, Timothy J. Korman, executive vice president, finance and administration, said there are acquisition opportunities in both the United States and the United Kingdom that the firm is examining. Many of the interested parties believe with current market conditions, this is a good time to look at being acquired, he said.
The firm also announced it plans to acquire The Resource Group L.C. (TRG). Transaction terms were not released.
Founded in 1996, Overland Park, Kan.-based TRG is an employee benefits, brokerage and consulting firm. The business reported revenue of $5.1 million in 2006. The concern specializes in group health, ancillary benefits, retirement programs, executive insurance and financial services.
The staff of 37 will continue to work out of their current location. The deal is expected to close Aug. 1.
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