Aon 4Q profit up as Hewitt deal pays off

By Reuters
Posted Feb. 4 at 11:25 a.m.

Aon Corp. forecast continued margin improvement and posted a quarterly profit that topped Wall Street estimates, as the world’s largest insurance broker began to reap the benefits of its 2009 acquisition of Hewitt Associates.

Aon said restructuring related to the Hewitt integration was expected to help drive margin expansion.

The company was on track for its long-term risk solutions segment margin target of 25 percent, Chief Financial officer Christa Davies said on a post-earnings call.

Stiff competition and pricing pressures have limited margins for insurance brokers, including Aon and the No.2 and No. 3 players, Marsh & McLennan & Co. and Willis Group Holdings, making them cut costs and acquire companies for growth.

“While pricing remains soft, economic headwinds are subsiding,” Cliff Gallant of Keefe, Bruyette & Woods said.

Chief Executive Greg Case said the company was focussed on getting new business and new products, and would “invest like the dickens around strengthening the firm.”

“We don’t expect a lot from the external environment to help us,” Case said on the call. In July last year, in a bid to counter Marsh, Aon expanded its consulting business by buying Hewitt Associates for $4.9 billion, creating a human resources giant in the process.

However, in October, it said it would cut 1,500-1,800 jobs globally as part of its integration with Hewitt.

Aon, which has a four-year sponsorship agreement with English Premier League football club Manchester United, saw its shares rise 5 percent to touch a 52-week high of $48.25 in morning trade on Friday on the New York Stock Exchange.

The Chicago-based company, with a market value of nearly $15 billion, said revenue from its human resources solutions segment more than tripled to $1.2 billion, boosted by its acquisition of Hewitt.

Operating margin was 21.2 percent at Aon’s risk solutions segment, which includes the company’s insurance brokerage services, and recorded revenue of $1.8 billion.

The return to positive organic growth in the risk solutions segment is very positive, Alan Devlin of Atlantic Equities said.

Excluding items, Aon, with operations in over 120 countries, earned 84 cents a share, while analysts expected a profit of 82 cents.

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