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Aon Reports First Quarter 2020 Results

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Topics: Financial Results

First Quarter Key Metrics From Continuing Operations...

  • Total revenue increased 2% to $3.2 billion, including organic revenue growth of 5%
  • Operating margin increased to 32.1%, and operating margin, adjusted for certain items, increased 200 basis points to 35.7%
  • EPS increased to $3.29, and EPS, adjusted for certain items, increased 11% to $3.68
  • For the first three months of 2020, cash flows from operations increased $264 million to $338 million, and free cash flow increased $262 million to $279 million

First Quarter Highlights

  • Entered into a definitive agreement for an all-stock combination with Willis Towers Watson to accelerate innovation on behalf of clients
  • Repurchased 2.2 million Class A Ordinary Shares for approximately $460 million
  • Completed the acquisition of CoverWallet, expanding the Company's position in the fast-growing commercial insurance market for small and medium-sized businesses, as well as the opportunity to leverage CoverWallet's platform to develop and scale innovative digital client experiences
  • Subsequent to the close of the quarter, the Company completed the move of the jurisdiction of incorporation for the firm's parent company to Ireland

Aon plc (NYSE: AON) today reported results for the three months ended March 31, 2020.

Net income from continuing operations attributable to Aon shareholders was $773 million, or $3.29 per share, compared to $659 million, or $2.70 per share, in the prior year period. Net income per share from continuing operations attributable to Aon shareholders, adjusted for certain items, increased 11% to $3.68, including an unfavorable impact of $0.03 per share if the Company were to translate prior year period results at current period foreign exchange rates ("foreign currency translation"), compared to $3.31 in the prior year period. Certain items that impacted first quarter results and comparisons with the prior year period are detailed in the "Reconciliation of Non-GAAP Measures - Operating Income from Continuing Operations and Diluted Earnings Per Share" on page 10 of this press release.

"We are fortunate to operate from a position of strength, as demonstrated by the strong results our team delivered in the first quarter, including 5% organic revenue growth and substantial operating margin expansion of 200 basis points. I want to thank our 50,000 colleagues around the world for their remarkable support of each other and our clients as we navigate through this humanitarian and economic crisis," said Greg Case, Chief Executive Officer. "Our Aon United Strategy and pending combination with Willis Towers Watson are more important than ever as we focus on accelerating innovation to bring the best of our firm to clients during this time of unprecedented volatility."

FIRST QUARTER 2020 FINANCIAL SUMMARY

The first quarter 2020 financial results discussed herein represent performance from continuing operations unless otherwise noted. The first quarter 2020 financial results are not necessarily indicative of results that may be expected for the full year or any future period, particularly in light of the continuing effect of the COVID-19 outbreak.

Total revenue in the first quarter increased 2% to $3.2 billion compared to the prior year period driven by 5% organic revenue growth, partially offset by a 2% unfavorable impact from foreign currency translation and a 1% unfavorable impact from divestitures, net of acquisitions.

Total operating expenses in the first quarter decreased 4% to $2.2 billion compared to the prior year period due primarily to a $91 million decrease in restructuring charges, a $40 million favorable impact from foreign currency translation, and the preemptive reduction and deferral of certain discretionary expenses in an effort to proactively manage liquidity due to uncertainties surrounding COVID-19 and its impact on the Company, partially offset by $18 million of transaction costs related to the pending combination with Willis Towers Watson, an increase in investments supporting growth initiatives and Aon Business Services, and an increase in expense associated with 5% organic revenue growth.

Foreign currency exchange rates in the first quarter had an $8 million, or $0.03 per share, unfavorable impact on both U.S. GAAP net income and adjusted net income if the Company were to translate prior year period results at current quarter foreign exchange rates. If currency were to remain stable at today's rates, the Company would expect an unfavorable impact of approximately $0.03 per share in the second quarter of 2020, an unfavorable impact of approximately $0.04 per share in the third quarter of 2020, and an unfavorable impact of approximately $0.06 per share in the fourth quarter of 2020.

Effective tax rate used in the Company's U.S. GAAP financial statements in the first quarter was 19.3%, compared to 15.7% in the prior year period. After adjusting to exclude the applicable tax impact associated with certain non-GAAP adjustments, the adjusted effective tax rate for the first quarter of 2020 increased to 19.3% compared to 16.9% in the prior year period, primarily driven by changes in the geographical distribution of income and a net favorable impact from discrete items. The adjusted effective tax rate in the prior year period included a net favorable impact from discrete items.

Weighted average diluted shares outstanding decreased to 234.5 million in the first quarter compared to 243.7 million in the prior year period. The Company repurchased 2.2 million Class A Ordinary Shares for approximately $460 million in the quarter. As of March 31, 2020, the Company had $1.6 billion of remaining authorization under its share repurchase program.

YEAR TO DATE 2020 CASH FLOW SUMMARY

Cash flows provided by operations for the first three months of 2020 increased $264 million to $338 million compared to the prior year period, primarily reflecting strong operational improvement and near-term actions taken to improve working capital in an effort to proactively manage liquidity due to uncertainties surrounding COVID-19 and its impact on the Company. The prior year period included approximately $85 million of net cash payments related to legacy litigation.

Free cash flow, defined as cash flows from operations less capital expenditures, increased $262 million, to $279 million for the first three months of 2020 compared to the prior year period, reflecting an increase in cash flows from operations, partially offset by a $2 million increase in capital expenditures.

 

To view full results, click here.

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