Marsh & McLennan Companies, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited results; comparisons are with the corresponding 2021 periods unless stated otherwise. The company provides risk, insurance, consulting, and related services through Risk and Insurance Services and Consulting.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $4.77B | $4.58B | $15.70B | $14.68B |
| Operating income | $791M | $740M | $3.60B | $3.33B |
| Operating margin | 16.6% | 16.1% | 22.9% | 22.7% |
| Net income attributable to MMC | $546M | $537M | $2.58B | $2.34B |
| Diluted EPS | $1.08 | $1.05 | $5.11 | $4.56 |
Q3 revenue rose 4% reported and 8% on an underlying basis; nine-month revenue rose 7% reported and 9% underlying. Foreign exchange reduced reported revenue growth by 5 percentage points in Q3 and 3 points year to date. Operating income increased 7% in Q3 and 8% year to date. The nine-month effective tax rate was 24.6%, versus 27.1% in 2021, which included a $100M U.K. deferred-tax remeasurement charge.
Segments: Risk and Insurance Services revenue was $2.84B in Q3 and $9.70B year to date, with operating income of $529M and $2.62B, respectively. Consulting revenue was $1.95B and $6.05B, with operating income of $350M and $1.22B. Q3 Consulting operating income declined from $404M, and its margin fell to 17.9% from 21.0%; management cited expense growth, including headcount and incentive compensation, and the prior-year benefit from JLT legal recoveries. Year-to-date segment margins were 27.0% for Risk and Insurance Services and 20.1% for Consulting.
Cash flow, balance sheet, and capital
- Nine-month operating cash flow was $1.96B, down from $2.07B. Investing activities used $363M; financing activities provided $28M.
- Cash and cash equivalents available for corporate use were $802M at September 30, 2022, versus $1.75B at December 31, 2021. Separately reported fiduciary cash of $10.61B is held for clients and is not available for corporate use. Currency effects reduced cash, including fiduciary cash, by $1.59B during the nine months.
- Total debt was approximately $11.37B: $967M short-term debt, including $600M commercial paper, and $10.40B long-term debt. The company reported no borrowings on its $2.8B revolving facility or its $250M uncommitted facility.
- Share repurchases totaled $1.60B in the first nine months; remaining authorization was approximately $4.66B at September 30. Dividends paid were $840M, and the quarterly dividend was increased 10% to $0.59 per share.
Material changes, outlook, and risks
- Revenue growth reflected demand for advice and services, new business, retention, pricing, and higher fiduciary interest income. Expenses rose with headcount, incentive compensation, and travel costs; management also cited lower depreciation and amortization as a partial offset.
- Q3 underlying revenue increased 9% in Risk and Insurance Services and 8% in Consulting. Year-to-date underlying growth was 10% and 9%, respectively. A stronger U.S. dollar materially reduced reported growth.
- Year-to-date results included a $112M gain on the sale of Mercer’s U.S. affinity business and a $52M loss on deconsolidation of the Russian businesses and related charges. The Russia exit agreement, transferring ownership to local management, remained subject to regulatory approvals. The company completed 11 acquisitions during the first nine months for total consideration of $227M.
- Restructuring costs were $96M for the first nine months. The company disclosed no specific earnings or revenue guidance in the supplied filing text. It stated that it did not expect the Inflation Reduction Act to have a significant impact when effective in 2023.
- Risks include geopolitical and macroeconomic uncertainty, inflation and recession risk, foreign-exchange exposure, cyberattacks, talent retention, competition and technological disruption, regulatory and privacy requirements, and professional-liability claims. The filing describes ongoing legal and regulatory matters, including the Greensill-related proceedings, Brazil competition inquiry, and residual JLT pension-transfer redress liability; outcomes and potential losses for certain matters cannot be estimated clearly.
Important facts for investors to verify
- Whether underlying growth and demand remain strong as foreign-exchange effects, economic conditions, and pricing trends evolve.
- Whether Consulting profitability recovers after the Q3 margin decline, and how compensation and other operating costs develop.
- Progress and regulatory approval for the Russia business exit, and any further financial effects.
- Cash generation, commercial-paper use, debt maturities, and the balance between repurchases, dividends, and investment needs.
- Developments in material litigation and regulatory contingencies, including the remaining JLT redress obligation.