Zacks_Analysts' Blog : Willis Group Reports In Line - Analyst Blog

Reported net income from continuing operations was $87 million or $0.52 per diluted share, compared with $39 million or $0.27 per diluted share, in the prior-year period.

Willis continues to drive three main programs of activity across the Group. These programs – Growth, Shaping Our Future, and Right-sizing Willis – combined with HRH integration synergies continue to deliver organic revenue growth. At the same time, these help achieve cost reduction and margin improvement in its underlying business performance.

Total quarterly sales were $784 million, up 19% from the year-ago period, reflecting the HRH acquisition. Organic growth in commission and fees was 1%, reflecting 4% net new business won which was partially offset by a negative 3% impact from declining premium rates, higher commission rates, changes in limits and exposures and higher insured values.

Results reflected growth in Global operations (7% organic growth) and International (5%), partly offset by a fall in organic commissions and fees in North America (down 8%). Weak insurance markets coupled with the deepening U.S. economic crisis led to a decline in the North American segment’s commissions and fees. The Reinsurance business posted double-digit growth, stemming from strong growth in International and North America reinsurance.

Adjusted operating margin was 21.2% in the quarter compared with 21.0% in the prior-year period. This reflected steady operating performances, HRH integration synergies and expense management initiatives.

Recently, Willis and one of its subsidiaries have been sued in Texas and Florida by Mexican and South American investors in Stanford Financial Group who are jointly seeking about $1 billion in damages after losing money in the Stanford Financial scandal. A Willis employee has also been named in the Texas suit.

Willis said it will defend itself against the claims. The company does not suspect any employee of being involved in fraudulent activities and will start its own investigation.

While we expect Willis to benefit from the rate stabilization in the reinsurance segment, we anticipate top line growth to be curtailed as a result of the overall less-than-robust economic environment. The company’s efforts to streamline its business and save costs should deliver strong financial performance over the next several years. However, these initiatives will come for a price. As such our Hold recommendation on the shares of WSH remains in place.