Willis Towers Q2 Earnings Beat Estimates, Improve Y/Y

Willis Towers Watson Public Limited Company WTW delivered second-quarter 2024 adjusted earnings of $2.55 per share, which beat the Zacks Consensus Estimate by 11.8%.  The bottom line increased 24% year over year.

The insurer's second-quarter results benefited from the strong revenue contribution from the Health, Wealth & Career and Risk & Broking segments, as well as expanded margin, partly offset by elevated expenses.

Operational Update

Willis Towers posted adjusted consolidated revenues of $2.26 billion, up 5% year over year on a reported basis. Revenues increased 6% on both organic basis and constant currency basis. The top line beat the Zacks Consensus Estimate by 0.04%.

The total costs of providing services increased 1.7% year over year to $2 billion due to higher salaries and benefits, transaction and transformation and other operating expenses. The metric matched our estimate.

Adjusted operating income was $385 million, which increased 22% year over year. The figure was higher than our estimate of $343 million. Margin expanded 240 basis points (bps) to 17%.

Adjusted EBITDA was $466 million, up 13% year over year. The figure was higher than our estimate of $437.4 million. Adjusted EBITDA margin expanded 160 bps to 20.6%.

Quarterly Segment Update

Health, Wealth & Career: Total revenues of $1.2 billion increased 4% year over year (4% increase on a constant currency and 5% increase on organic basis). The figure matched the Zacks Consensus Estimate as well as our estimate.

Organic revenue growth in Health was driven by increased project work in North America and strong client retention, new local appointments and the continued expansion of Global Benefits Management client portfolio in International and Europe.

Wealth businesses generated organic revenue growth from higher levels of Retirement work in North America and Europe and an increase in Investments business due to capital market improvements and growth from LifeSight solution.

Career had organic revenue growth from increased project work and product revenues in Employee Experience and Work & Rewards.

The operating margin was 21.9%, which expanded 360 bps from the prior-year quarter, primarily from operating leverage and Transformation savings.

Risk & Broking: Total revenues of $979 million increased 9% year over year (10% increase in constant currency as well as on an organic basis) and beat our estimate of $954 million and the Zacks Consensus Estimate $958 million.

Corporate Risk & Broking had organic revenue growth, primarily driven by higher levels of new business activity, strong client retention and renewal increases across all geographies. Insurance Consulting and Technology had flat organic revenue growth in the reported quarter, primarily due to tempered demand for discretionary services.

The operating margin increased 450 bps from the prior-year quarter to 20.6%, primarily due to operating leverage from strong revenue growth in CRB, Transformation savings and interest income.

Financial Update

As of Jun 30, 2024, cash and cash equivalents was $1.2 billion, down 22% year over year.

Long-term debt increased 16.2% to $5.3 billion at quarter-end from the end of 2023.

Shareholders' equity decreased 1.9% from the level on Dec 31, 2023, to $9.3 billion as of Jun 30, 2024.

Cash flow from operations was $431 million in the first half of 2024, which inched up 0.2% from the prior-year period.

Free cash flow for the first half of 2024 increased 3.1% to $361 million.

2024 Outlook

Willis Towers expects to deliver revenues of more than $9.9 billion.

The insurer projects to deliver an adjusted operating margin in the band of 23-23.5%. 

Willis Towers expects to deliver adjusted diluted earnings per share in the range of $16-$17.

WTW expects Transformation Program annual cost savings of $450 million.

The insurer expects approximately $88 million in non-cash pension income. It expects a foreign currency headwind on adjusted earnings per share of approximately 10 cents.

Zacks Rank

Willis Towers currently carries a Zacks Rank #3 (Hold).

Performance of Some Other Insurers

Brown & Brown, Inc.'s BRO second-quarter 2024 adjusted earnings of 93 cents per share beat the Zacks Consensus Estimate by 6.8%. The bottom line increased 17.7% year over year. Total revenues of $1.2 billion beat the Zacks Consensus Estimate by 3.3%. The top line improved 12.5% year over year. The upside can be primarily attributed to commission and fees, which grew 11.4% year over year to $1.1 billion. Our estimate for commission and fees growth was 7.2%.

Organic revenues improved 10% to $1 billion in the quarter under review. Investment income more than doubled year over year to $22 million. The Zacks Consensus Estimate for the metric was pegged at $18.6 million and our estimate was $23.2 million. Adjusted EBITDAC was $420 million, up 17.3% year over year. EBITDAC margin expanded 150 bps year over year to 35.7%. Our estimate for adjusted EBITDAC was $411.4 million.

Marsh & McLennan Companies, Inc. MMC reported second-quarter 2024 adjusted earnings per share of $2.41, which beat the Zacks Consensus Estimate by 0.8%. The bottom line advanced 10% year over year. Consolidated revenues rose 6% year over year to $6.2 billion. The figure also improved 6% on an underlying basis.

The top line, however, fell short of the consensus mark by 1%. Total operating expenses of $4.58 billion increased 3.6% year over year but were lower than our estimate of $4.62 billion. MMC's adjusted operating income was $1.72 billion in the second quarter, which grew 11% year over year and beat our estimate of $1.68 billion. Adjusted operating margin improved 130 bps year over year to 29%.

Selective Insurance Group, Inc. SIGI reported second-quarter 2024 operating loss of $1.10 per share against the Zacks Consensus Estimate for earnings of $1.56. The company had reported an operating income of 99 cents per share in the prior-year quarter. Total revenues of $1.2 billion increased 15% from the year-ago quarter's figure, primarily due to higher premiums earned, net investment income and net premiums written. The top line missed the Zacks Consensus Estimate by 1.3%.

On a year-over-year basis, net premium written increased 13% to $1.22 billion. The figure matched our estimate. After-tax net investment income increased 11% year over year to $86 million. After-tax net underwriting loss was $137.2 million against the year-ago underwriting income of $1.2 million. Pre-tax catastrophe losses of $91 million were narrower than a loss of $100 million reported in the year-ago quarter. The combined ratio deteriorated 1,590 bps on a year-over-year basis to 116.1.

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