Business context and reporting period
Marsh & McLennan Companies, Inc. (MMC) is a global professional services firm operating through Risk and Insurance Services (Marsh and Guy Carpenter) and Consulting (Mercer and Oliver Wyman). This unaudited Form 10-Q covers the three and nine months ended September 30, 2021; comparisons are with the same 2020 periods unless otherwise noted. Amounts are U.S. dollars.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $4.583B | $3.968B | $14.683B | $12.808B |
| Operating income | $740M | $540M | $3.326B | $2.495B |
| Operating margin | 16.1% | 13.6% | 22.7% | 19.5% |
| Net income attributable to MMC | $537M | $316M | $2.340B | $1.642B |
| Diluted EPS | $1.05 | $0.62 | $4.56 | $3.21 |
| Cash from operations | — | $2.074B | $1.999B |
Q3 revenue rose 16% (13% underlying); nine-month revenue rose 15% (10% underlying). Operating income increased 37% in Q3 and 33% year to date. Management attributed growth to strong demand as economies recovered, with higher incentive compensation and salaries contributing to expense growth. Q3 effective tax rate was 24.2% versus 30.3%; the nine-month rate was 27.1% versus 26.0%.
Segment results
| Segment | Q3 revenue / operating income | Nine-month revenue / operating income |
|---|---|---|
| Risk and Insurance Services | $2.670B / $403M; margin 15.1% | $9.036B / $2.413B; margin 26.7% |
| Consulting | $1.925B / $404M; margin 21.0% | $5.690B / $1.109B; margin 19.5% |
Underlying revenue increased 13% for Risk and Insurance Services and 12% for Consulting in Q3; nine-month underlying growth was 11% and 9%, respectively. Oliver Wyman revenue growth was particularly strong, at 25% underlying in Q3 and 21% year to date.
Cash, debt and liquidity
At September 30, 2021, cash and cash equivalents were $1.398B, down from $2.089B at December 31, 2020. Total debt was approximately $10.744B, including $516M current debt, compared with $11.313B at year-end. MMC had no commercial paper outstanding and no borrowings under its $2.8B revolving credit facility; it also had a $2.0B commercial paper program. Cash from operations was $2.074B, while financing used $2.046B and investing used $589M. Financing outflows included $750M of dividends and $734M of share repurchases. Fiduciary assets are segregated and unavailable for corporate use.
Material changes and unusual items
- MMC recorded an approximately $100M second-quarter tax charge to remeasure U.K. deferred tax balances following legislation raising the U.K. corporate tax rate from 19% to 25% effective April 1, 2023.
- Nine-month results included a $50M net gain on dispositions, primarily the sale of a U.K. commercial networks business.
- Q3 included a $63M benefit from reducing the legacy JLT errors-and-omissions (E&O) provision and related indemnity and insurance recoveries.
- JLT integration and restructuring costs were $61M for the first nine months, down from $181M. MMC reported at least $425M in annualized savings, exceeding its initial $350M target, and expected about $77M of remaining costs substantially in 2021.
- MMC completed three Risk and Insurance Services acquisitions in the first nine months, with total consideration of $546M. Acquisition-related goodwill was $374M.
- Foreign currency translation reduced equity by $413M in the first nine months.
Outlook, risks and contingencies
The filing provides no specific earnings or revenue guidance. Management said demand remained strong and businesses had been resilient, but noted continued uncertainty around COVID-19 variants, possible renewed restrictions or mandates, and vaccine uptake. Most colleagues were still working remotely, with a gradual return to offices subject to local conditions.
MMC expects to complete the U.K. pension-transfer advice review and make substantially all related redress payments by the end of Q4 2021. The recorded liability was £25M (approximately $34M) at September 30, down from £155M ($210M) at year-end 2020; contractual indemnities and insurance are expected to offset part of the exposure. The company also described ongoing Brazil antitrust proceedings, investigations and litigation connected with Greensill, and other professional-liability and regulatory matters. It said outcomes and potential losses for many matters could not be reasonably estimated; adverse outcomes could materially affect future results, financial condition or cash flows.
Other key risks include cyberattacks and data privacy, regulatory compliance, competition and technology disruption, talent retention, tax-law changes, investment-management risks, and the effects of foreign exchange and interest-rate movements.
Important facts for investors to verify
- Whether underlying growth and segment margins remain durable as compensation costs rise and pandemic-related comparisons normalize.
- Progress and final cash cost of JLT integration, restructuring, and the U.K. pension-transfer redress review, including recoveries under indemnities and insurance.
- Cash conversion and working-capital trends, given the decline in cash balances and higher receivables.
- Debt maturities, liquidity availability, and capital allocation among dividends, repurchases, and acquisitions.
- Potential effects of tax changes, foreign exchange, litigation or regulatory matters, and COVID-19 developments; the filing does not quantify a clear aggregate exposure for several contingencies.