Arthur J. Gallagher & Co.
CEO : Mr. J. Patrick Gallagher Jr.
Quarterly earnings growth(YoY,%)
| Period | Revenue | Operating Income | EPS | Release Date |
|---|---|---|---|---|
| 2022 Q4 | 3.3% YoY | 34.8% | 21.7% | 2023-01-26 |
Patrick Gallagher says,
Key Financial Highlights
- 16% revenue growth in Q4 2022 for Brokerage and Risk Management segments.
- 11.7% organic growth.
- GAAP earnings per share of $0.83, adjusted earnings per share of $1.86, up 24% YoY.
- Net earnings margin of 9%, adjusted EBITDAC margin of 29.6%, up 120 basis points.
Brokerage Segment Performance
- Brokerage segment organic growth in double digits.
- Full-year organic came in at 9.7%, best in decades and grew on top of the 8% organic posted in ’21.
- In US, retail business posted 8% organic, while RPS posted organic above 9% and MGA programs and binding businesses posted about 7% organic.
- In UK, retail and specialty businesses combined posted organic of 17%, Australia, and New Zealand combined posted 12% organic, while Canada was up nearly 9% organically.
- Legacy reinsurance operations saw hard-earned new business wins, with quarterly organic well into double digits.
Current P/C Market Environment
- Global Q4 renewal premiums were up more than 9%, and Q4 renewal premium changes by line of business were broadly consistent with previous quarters except for D&O, where rates were flat to down slightly.
- Reinsurance saw significant price increases, attachment points raised broadly, while casualty prices were up in the single to low double-digit range for most programs.
- Challenging reinsurance market conditions will put pricing pressure on the primary market during ’23, on top of primary carrier partners dealing with catastrophe losses in secondary perils, high replacement cost inflation, social inflation, escalating medical cost trends, and ongoing geopolitical tensions.
Mergers and Acquisitions
- Gallagher completed 17 new tuck-in brokerage mergers, representing more than $140 million of estimated annual revenues in Q4 2022 and 36 mergers, representing annualized revenue of about $250 million in 2022.
- Gallagher signed nearly 45 term sheets, representing more than $300 million of annualized revenue in its merger and acquisition pipeline.
- Gallagher announced an agreement to acquire Buck, providing retirement, HR and employee benefits consulting, and administrative services with estimated annualized revenues of $280 million.
Risk Management Segment Performance
- Gallagher Bassett posted 13.3% organic growth for 2022, benefiting from increased claim activity coming out of the pandemic and new business wins.
- Adjusted EBITDAC margin was 18.5%, and full year ’23 organic should be pushing 10% with adjusted EBITDAC margins around 19%.
Bedrock Culture
- Gallagher’s bedrock culture of teamwork, client service, and excellence, captured and celebrated in the Gallagher way, drove full-year ’22 results.
- Full-year ’22 results included 24% growth in adjusted revenues, 10% all-in organic growth, 25% growth in adjusted EBITDAC, adjusted EBITDAC margin in excess of 32%, and 20% growth in adjusted EPS.
Douglas Howell says,
Brokerage segment performance
- 11% organic revenue growth in Q4 2022, exceeding the previously forecasted 9-9.5% growth
- Annual update of 606 assumptions added about 1 point to headline organic revenue
- Expecting 7-9% organic growth in 2023 and target of 50 basis margin expansion at 6% organic
- Acquisition of Buck expected to contribute to future M&A revenues
Risk Management segment performance
- 15.6% organic growth in Q4 2022 and full year organic growth in excess of 13%
- Expecting organic revenue approaching 10% in 2023, with adjusted EBITDAC margin of around 19%
Cash and capital management
- Available cash on hand was about $325 million as of December 31, 2022
- Estimate towards $3 billion to fund potential M&A opportunities during 2023, including the acquisition of Buck
- Board of Directors approved an increase in quarterly dividend by $0.04 per share, implying an annual payout of $2.20 per share, a 7.8% increase over 2022
Clean energy investments
- Incremental cash flows from clean energy investments expected over coming years, translating into a cash flow boost to help fund M&A
- $773 million of available tax credits as of December 31, 2022, forecasted to use about $180-200 million in 2023
2023 outlook
- Not seeing a slowdown in clients’ business activity and no signs of price moderation from carriers
- Loss cost inflation and labor market imbalances expected to continue in 2023, along with sales and service culture
- Expecting lower margin expansion in Q1 2023 due to Omicron portion of the pandemic, but higher margin expansion in subsequent quarters
Q & A sessions,
Q4 2022 Financial Performance
- 16% revenue growth in the Brokerage and Risk Management segments
- 11.7% organic growth in the Brokerage segment
- GAAP earnings per share of $0.83
- Adjusted earnings per share of $1.86, up 24% YoY
- Reported net earnings margin of 9%
- Adjusted EBITDAC margin of 29.6%, up 120 basis points
- Completed 17 mergers totaling more than $140 million of estimated annualized revenues
Current P/C Market Environment
- Global renewal premiums up more than 9%
- D&O rates flat to down, but customers buying more limit
- Exposures consistent with the first three quarters of 2022
- Midterm policy endorsements and audit adjustments trending higher than last year’s level in January
Mergers and Acquisitions
- 36 mergers completed in 2022, representing annualized revenue of about $250 million
- Agreement to acquire Buck, with estimated annualized revenues of $280 million
- Nearly 45 term sheets signed or being prepared, representing more than $300 million of annualized revenue
Risk Management Segment
- Gallagher Bassett’s Q4 2022 organic growth was 15.6%
- Adjusted EBITDAC margin was 19.3%
- Full year 2023 organic expected to be pushing 10% and adjusted EBITDAC margins around 19%
Middle Market, Core Business
- Middle market, retail, property casualty benefits business doing very well
- Trucking business is very strong
- Work comp renewals in terms of payrolls are not being diminished
No bad stock 