MMC Celebrates Return To Profitability

Marsh & McLennan Companies Inc. reported third-quarter net income of $221 million despite declining revenues in most segments, with its CEO citing the work of top executives to generate new business in a tough economy while tightening expense controls.

The third-quarter profit, coming out to 41 cents per share, represents a stark turnaround from a net loss for the same period last year of $8 million, or 2 cents per share.

The third-quarter profit was posted despite an 11 percent drop in revenues, which fell $296 million to $2.5 billion.

“MMC's third-quarter performance was very strong,” said Brian Duperreault, the company's president and chief executive officer, during a conference call with financial analysts.

“While the economic environment continues to be challenging, MMC's results reflect the effective management actions taken by our business leaders over the past year, including significant expense reduction,” according to Mr. Duperreault.

For the first nine months, net income has turned around from a net loss last year of $153 million (30 cents per share), to net income this year of $204 million (38 cents per share). Revenues for the first three quarters dropped 13 percent, down $1.12 billion to $7.76 billion.

Looking at the firm's various segments:

o The Marsh brokerage unit saw revenues decline in the third quarter by 5 percent, down $51 million to $989 million. For the first nine months, revenues were off 7 percent, down $251 million to $3.2 billion.

o The Guy Carpenter reinsurance brokerage unit posted the best performance in the company, reporting third-quarter revenue gains of 13 percent–up $26 million to $223 million. Nine-month revenues rose 11 percent, up $74 million to $731 million.

o MMC's Consulting segment, which includes Mercer, saw revenues fall 14 percent, down $184 million to $1.14 billion for the quarter, and shrink by 16 percent, or $627 million, to $3.37 billion for the first nine months.

“The consulting segment continued to be affected by the difficult economic environment,” according to Mr. Duperreault, while adding that “Mercer's decline in underlying expenses matched the percentage decline in its revenue.”

o MMC's Risk Consulting and Technology unit, which includes its Kroll subsidiary, saw revenue drop 27 percent, down $65 million to $170 million for the quarter, and down 33 percent for the first nine months, dropping $245 million to $498 million.

However, “Kroll reported its best quarter of the year, with sequential increases in both revenue and profitability,” according to Mr. Duperreault. “The improvement was driven primarily by Kroll's largest business–litigation support and data recovery–which reported a modest increase in underlying revenue.”

Overall, Mr. Duperreault said Marsh was able to accomplish a return to profitability despite a tough economy and declining revenues because management at Marsh has improved efficiency, brought in “strong new business and improved colleague morale.” At Guy Carpenter, he added, management has improved retentions, brought in new business and paid great attention to expense management.

The performance at Marsh, where the operating margin has improved to more than 18 percent, is all the more impressive in the face of the current economic crisis and soft market, he said.

On the acquisition front, Mr. Duperreault said the company will continue to make deals when it deems them to be favorable and advantageous to the company.

He said Marsh & McLennan Agencies–its mid-market brokerage arm–is gearing up to announce several acquisitions near year's end to create a “hub and spoke” operation in select geographic regions.

The agencies will provide commercial property and casualty insurance, directors and officers liability, surety, employee benefits and personal lines products through a dedicated line and service force, he added.

Marsh & McLennan Agencies, established last year, has taken this long to announce acquisitions because of “the measured approach we have taken to build” the unit, Mr. Duperreault said, making sure the acquisition candidates meet MMC's requirements regarding “quality, cultural compatibility, consistent business approach and, lastly, pricing.”