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Aon plc AON reported third-quarter 2024 adjusted earnings of $2.72 per share, which beat the Zacks Consensus Estimate by 11%. The bottom line advanced 17% year over year.

Total revenues of $3.72 billion improved 26% year over year. The top line beat the consensus mark by 0.5%. It consisted of organic revenue growth of 7% and 19% growth from acquisitions.

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Aon’s strong third-quarter results were supported by strong retention in multiple segments and new business generation. Commercial Risk Solutions, Wealth Solutions and Reinsurance Solutions businesses performed robustly. The strength observed in the job market and increasing optimism about a soft landing for the U.S. economy has sustained insurance services demand in different markets. This, in turn, is pushing insurance brokers’ commission earned higher than expected earlier.

The upside was partially offset by increased operating expenses.

Aon plc Price, Consensus and EPS Surprise

Aon plc price-consensus-eps-surprise-chart | Aon plc Quote

AON’s Q3 Operations

Total operating expenses escalated 37% year over year to $3.1 billion in the third quarter. The increase was due to the addition of NFP's (an Aon-acquired company) ongoing operating expenses, charges from the Accelerating Aon United restructuring program, higher expenses tied to 6% organic revenue growth and investments aimed at long-term growth. The metric was a bit higher than our estimate of $3.08 billion.

Adjusted operating income was $915 million, which rose 28% year over year and surpassed our estimate of $897.4 million. The metric benefited from NFP impact, organic revenue growth, net restructuring savings, and higher fiduciary investment income. Adjusted operating margin improved 30 basis points year over year to 24.6%.

AON’s Revenue Lines

Commercial Risk Solutions: Organic revenues advanced 6% year over year in the third quarter, resulting from new business growth and strong retention rates. Improvements in North America operations, driven by core P&C strength and a significant increase in M&A services, aided the unit. The segment’s revenues rose 17% year over year to $1.85 billion, beating the Zacks Consensus Estimate of $1.83 billion and our estimate of $1.84 billion.

Reinsurance Solutions: Organic revenues grew 7% year over year, driven by favorable retention rates, net new business generation and solid facultative placement growth. The unit’s revenues of $503 million increased 8% year over year and beat the consensus mark of $489.6 million and our estimate of $474.3 million.

Health Solutions: Organic revenues advanced 9% year over year on the back of global expansion in core health and benefits brokerage business. Strong growth in EMEA, Asia and the Pacific, and Latin Americaregions aided the segment. It witnessed growing demand for talent analytics while growth in executive benefits slowed down. The segment recorded revenues of $870 million, which soared 58% year over year and came higher than the Zacks Consensus Estimate of $831.5 million.

Wealth Solutions: Organic revenues increased 7% year over year thanks to sustained advisory demand and project-related work associated with pension de-risking. The unit’s revenues climbed 42% year over year to $499 million, which outpaced the consensus mark of $458.1 million and our estimate of $468.2 million.

AON’s Financial Position (As of Sept. 30, 2024)

Aon exited the third quarter with cash and cash equivalents of $1.1 billion, which rose from the 2023-end level of $778 million. Total assets of $49.89 billion climbed from the $33.96 billion figure in 2023-end.

Long-term debt amounted to $17.09 billion, up from the $10 billion figure as of Dec. 31, 2023.

Aon generated cash flow from operations of $1.84 billion in the first nine months of 2024, which dropped from the prior-year comparable period’s $2.17 billion. Free cash flows were recorded at $1.67 billion in the same time frame, down 15% year over year.

Capital Deployment Update

Aon bought back 0.9 million class A ordinary shares for roughly $300 million in the third quarter. A leftover capacity of around $2.5 billion remained under its repurchase authorization as of Sept. 30, 2024. It plans to return $1 billion through share buybacks this year.

AON’s Forward View

Revenues are expected to register mid-single-digit or higher organic growth for 2024 and beyond. The company expects the adjusted operating margin to expand in 2024.

Free cash flow is projected to decline in the short term due to multiple reasons, such as restructuring, the NFP deal, and integration expenses. However, management remains optimistic about returning to its history of double-digit free cash flow growth in the long term on the back of growing operating income and continued working capital improvements.

The Aon United Restructuring program is likely to enable the company to achieve total annual run-rate savings of approximately $350 million by the end of 2026. It realized savings of $25 million in the third quarter and projects $100 million of total savings for 2024, anticipating an increase in savings as the program progresses.

At current foreign currency rates, it expects an unfavorable impact of 1 cent in the fourth quarter and 7 cents per share in 2024. Interest expenses are anticipated to be $210 million in the fourth quarter, while interest income is expected to be negligible.

Zacks Rank & Price Performance

AON currently has a Zacks Rank #3 (Hold).

Shares of AON rose 22.6% in the year-to-date period, underperforming the industry’s average of 35% but outperforming the S&P 500 Index’s 21.9% gain.

In comparison, its peers, Arthur J. Gallagher & Co. AJG, Marsh & McLennan Companies, Inc. MMC, and American International Group, Inc. AIG, have gained 27.9%, 17.4%, and 14.7%, respectively.

AON’s YTD Price Performance Comparison

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Currently, Arthur J. Gallagher and Marsh & McLennan also have a Zacks Rank #3. However, AIG presently has a Zacks Rank #4 (Sell), indicating the right time for investors to exit the stock.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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