Marsh & McLennan posts loss on impairment charge

August 5, 2009 8:24:15 AM PDT
Marsh & McLennan Cos. said Wednesday it recorded a loss in the second quarter because of an impairment charge tied to the value of one of its divisions. Excluding the special charge, Marsh & McLennan was able to turn a profit that narrowly beat analysts' expectations as the New York-based insurance broker and consulting firm said profitability improved in its core risk and insurance services segment.

However, ongoing weakness in the economy continued to hurt its consulting businesses.

Overall, Marsh & McLennan lost $193 million, or 37 cents per share. It earned $65 million, or 12 cents per share, during the same quarter last year.

The quarterly loss was the result of a $315 million goodwill impairment charge taken against the value of its corporate security business, Kroll. The charge reduced results by 60 cents per share.

Marsh & McLennan took the charge after reviewing Kroll's operations amid the sale in the second quarter of Kroll Government Services, a government security clearance screening business.

Excluding the impairment charge and other one-time items, Marsh & McLennan earned 33 cents per share, topping analysts expectations by 1 cent. Analysts typically do not include special charges in their estimates.

Shares of Marsh & McLennan rose 95 cents, or 4.4 percent, to $22.45 in morning trading.

Like many other companies that have reported earnings in recent weeks, profits were helped by cutting costs and not necessarily from generating revenue.

Marsh & McLennan said its revenue fell 13 percent to $2.63 billion from $3.03 billion last year. Revenue declined in each of Marsh & McLennan's three major operating divisions; risk and insurance services, consulting and risk consulting and technology.

Analysts polled by Thomson Reuters, on average, forecast revenue of $2.76 billion.

Risk and insurance services revenue fell 5 percent to $1.34 billion primarily due to a decline in interest income. However, operating income rose sharply because of improvements at both Marsh and Guy Carpenter, its two risk and insurance services subsidiaries.

Marsh's profitability improved because of cost-cutting measures. Guy Carpenter's earnings were bolstered by an increase in business and expense reductions.

"Overall, we were pleased with the revenue levels we saw in the second quarter," Brian Duperreault, Marsh & McLennan's CEO said during a conference call about Marsh's insurance services segment. "That, coupled with expense discipline, led to marked improvement in Marsh's profitability."

Consulting revenue fell 17 percent to $1.14 billion due to steep declines at both Mercer and Oliver Wyman Group.

"For Oliver Wyman, the operating environment continues to be the most challenging one they have faced in years," Duperreault said. He noted declines in financial services consulting at Oliver Wyman, its largest practice, have moderated in 2009 after plummeting during the peak of the credit crisis late in 2008. Business at Oliver Wyman's manufacturing, transportation and energy group also slowed during the second quarter, Duperreault said.

Profitability in the consulting segment was also hurt by $30 million in liability costs, which were mostly tied to a legal settlement at Mercer. Foreign currency translation also hurt operating income in Marsh & McLennan's consulting division.

Revenue from the risk consulting and technology division, which includes Kroll, fell 40 percent to $161 million.

Despite the mixed performance of its businesses, Marsh & McLennan could be poised for growth either through expanding current businesses or acquisitions. During the conference call, Duperreault said the company has plenty of cash available, and it is interested in growing operations.

"We've spent a lot of time in the last 18 months and the last six months trying to get our company in good order to go from defense to offense," Duperreault said. "And I think we are in a position to do that."

During the second quarter, Marsh & McLennan paid off $400 million in senior notes that were due in June. The company had $1.3 billion in cash and cash equivalents sitting on its balance sheet at the end of the quarter.

More money-related links: