Insurance broker Arthur J. Gallagher reported net income dropped 80 percent in the fourth quarter, with its results impacted by the economic downturn and continuing price declines.
The company reported net income dropped close to $19 million to $5 million in the quarter from $23 million in the prior-year fourth quarter. Earnings per share for the quarter stood at 5 cents per share compared to 25 cents in 2007.
Revenues were up slightly by $2 million to $412 million in the quarter.
For the year, net income dropped 44 percent, or $61 million, from $139 million, or $1.43 per share, in 2007 to $77 million, or 82 cents per share, for 2008. Revenues rose 1 percent, or $21 million, to $1.65 billion.
"I believe these are the toughest headwinds we have ever been hit with," J. Patrick Gallagher Jr., the firm's chairman, president and chief executive officer, said during a financial analyst's conference call discussing the company's results.
Despite reports of rates hardening in the marketplace, he said the brokerage is still experiencing a soft market and that "business will be unbelievably tough in 2009." Customers are also buying less insurance as they too face the consequences of the economic crisis.
The company has completed its workforce reduction of 400 full-time positions and has implemented a hiring freeze. There is a wage freeze until 2010, and other targeted cost controls and consolidation of operations are continuing, management said.
The moves are expected to save $25-to-$30 million annually.
The recent acquisition of Liberty Mutual's middle-market business is considered a "shot in the arm" at the firm, but the benefits of that move won't be felt until March of this year.
Acquisition activity is expected to slow this year, Mr. Gallagher said, as the firm works to consolidate past acquisitions and the Liberty Mutual business.
Mr. Gallagher said there are no plans to reduce the firm's quarterly dividend that stands at 32 cents per share.
He said that while the firm is disappointed in the results, the focus in the coming year will be on cost control, saving money and producing new business. Customer service will be important in an economy where many are hurting, but those who do survive this crisis will excel in the future, he said, adding that Gallagher will be among the stronger players to take advantage of the upturn when it comes.
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