Marsh & McLennan Companies, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Marsh & McLennan is a global professional services firm operating through Risk and Insurance Services (Marsh and Guy Carpenter) and Consulting (Mercer and Oliver Wyman Group). Unless stated otherwise, amounts are U.S. dollars.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $5.876B | $5.379B | $11.800B | $10.928B |
| Operating income | $1.457B | $1.364B | $3.183B | $2.809B |
| Net income attributable to company | $1.035B | $967M | $2.270B | $2.038B |
| Diluted EPS | $2.07 | $1.91 | $4.55 | $4.01 |
| Operating margin | 24.8% | 25.4% | 27.0% | 25.7% |
- Reported revenue rose 9% in Q2 and 8% in the first half; underlying revenue growth was 11% and 10%, respectively. Management cited client retention, new and renewal business, higher insurance and reinsurance rates, and increased fiduciary interest income.
- Risk and Insurance Services revenue grew 12% in Q2 and 11% in the first half; operating income was $1.157B and $2.552B, respectively. Segment margins improved to 31.1% from 29.2% in Q2 and 33.5% from 30.4% in the first half.
- Consulting revenue increased 4% in Q2 and 3% in the first half, while operating income fell to $388M from $475M in Q2 and $799M from $867M in the first half. Segment margins declined to 17.9% from 22.8% in Q2 and 19.0% from 21.2% in the first half. Higher headcount and expenses weighed on results.
- First-half operating cash flow was $665M, versus $580M. Capital expenditures were $185M; operating cash flow less capital expenditures was $480M, versus $341M in the prior-year period.
- At June 30, cash and cash equivalents available for corporate purposes were $1.171B. An additional $11.564B was held in a fiduciary capacity and is not available for general corporate use. Total reported debt was $12.622B ($2.375B short-term and $10.247B long-term), compared with $11.495B at year-end 2022.
- First-half interest expense rose to $282M from $224M, reflecting recent debt issuance and higher rates on short-term borrowings. The effective tax rate was 24.6% for the first half, unchanged year over year.
Material changes and unusual items
- Q2 revenue growth included a sharp rise in interest earned on fiduciary funds: $108M versus $13M. First-half fiduciary interest was $199M versus $17M.
- Prior-year comparisons included a $112M gain from the sale of Mercer’s U.S. affinity business. First-half 2022 also included $52M of Russian-business deconsolidation and related charges. First-half 2023 included a $17M loss on the sale of a Canadian financial advisory business.
- Consulting results benefited in the first half from $51M of insurance and indemnity recoveries related to a legacy JLT legal matter.
- First-half share repurchases were $600M, compared with $1.1B in 2022; dividends paid were $591M, compared with $547M. The company issued $600M of 5.45% senior notes due 2053 and acquired businesses for total consideration of $340M. It also paid $139M to purchase a subsidiary’s remaining non-controlling interest.
Outlook, risks and contingencies
- The filing provides no specific revenue or earnings guidance. Management estimates total charges for restructuring initiatives at $375M–$400M, with approximately $300M incurred through June 30. Most remaining costs are expected in the rest of 2023. Estimated savings are approximately $300M by 2024, including $200M expected in 2023; plans and estimates remain subject to change.
- Risks cited include macroeconomic and geopolitical conditions, cyberattacks, talent retention, competition and technology disruption, regulatory and tax changes, foreign-exchange movements, and professional-liability claims. Management says adverse legal outcomes could materially affect future results, but cannot reasonably estimate the possible loss range for the matters described.
- The company reported pending proceedings involving, among others, a Brazilian antitrust investigation and litigation related to Greensill. It also disclosed legacy guarantees associated with insurance businesses previously owned.
- Other exposures include foreign currency and interest-rate movements. Management estimates that a 10% move in major currencies against the U.S. dollar could change full-year operating income by approximately $82M; at June 30 exchange rates, translation was estimated to reduce 2023 operating income by approximately $40M year over year.
Investor facts to verify
- How much of ongoing growth and profitability is attributable to fiduciary interest income, and how sensitive is it to interest rates?
- Whether Consulting margins recover as restructuring actions progress and expense growth moderates.
- Actual restructuring costs and savings versus the $375M–$400M cost estimate and stated savings targets.
- Debt maturities, refinancing costs, and liquidity needs; fiduciary cash is not corporate liquidity.
- Developments in the disclosed legal matters, tax exposures, and foreign-exchange outlook.