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Will Rising Costs Hurt Marsh & McLennan's (MMC) Q1 Earnings?

Marsh & McLennan Companies, Inc. MMC is set to report its first-quarter 2024 results on Apr 18, before the closing bell.

What Do the Estimates Say?

The Zacks Consensus Estimate for first-quarter earnings per share (EPS) of $2.78 is indicative of a 9.9% increase from the year-ago quarter’s reported earnings of $2.53 per share. The consensus estimate for revenues is pegged at $6.4 billion, suggesting a rise of 7.6% from the year-ago quarter’s reported figure.

Marsh & McLennan’s earnings beat estimates in all the trailing four quarters, the average surprise being 6.5%. This is depicted in the graph below.

Marsh & McLennan Companies, Inc. Price and EPS Surprise

Marsh & McLennan Companies, Inc. Price and EPS Surprise
Marsh & McLennan Companies, Inc. Price and EPS Surprise

Marsh & McLennan Companies, Inc. price-eps-surprise | Marsh & McLennan Companies, Inc. Quote

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Before we get into what to expect for the to-be-reported quarter in detail, it is worth looking at MMC’s fourth-quarter performance.

Q4 Earnings Rewind

In the last reported quarter, this globally leading insurance broker company’s adjusted EPS of $1.68 beat the Zacks Consensus Estimate by 5%, primarily on the back of strong contributions from the Risk and Insurance Services and Consulting segments. While strong international operations aided the Marsh business, growing Wealth and Health revenues benefited the Consulting unit’s performance. However, the upside was partly offset by an increase in compensation and benefits expenses.

Now, let us see how things have shaped up prior to the first-quarter earnings announcement.

Q1 Factors to Note

Rising expenses, decreasing rates in Workers’ compensation and financial and professional liability rates are likely to have affected MMC’s first-quarter results. We expect total operating expenses to have increased 8.3% year over year in the first quarter of 2024. Moderating inflation, the P&C market and the rebounding economy are expected to have acted as a headwind in the first quarter of 2024. MMC’s high growth Consulting segment might have acted as a headwind, given its comparatively high macro sensitivity than P&C brokerage.

However, Marsh & McLennan’s first-quarter revenues are expected to have been boosted by robust performance in its Risk and Insurance Services and Consulting segments. The Risk and Insurance Services segment is expected to have benefitted from solid contributions from its Marsh and Guy Carpenter sub-divisions. MMC's performance in the first quarter is expected to have received a significant boost from robust operations in the international market, with a particular focus on Latin America and Asia. Strong retention and new business generation should boost Marsh & McLennan’s results in the first quarter.

The Zacks Consensus Estimate for revenues from the Risk and Insurance Services segment indicates a rise of 7.9% from the prior-year quarter’s level of $3.9 billion. Our estimate suggests a 6.7% jump. Also, the consensus mark for the segment’s adjusted operating income suggests an almost 8.3% increase from the prior-year quarter’s figure of $1.4 billion.

The Consulting segment of Marsh & McLennan is anticipated to have gained momentum in the first quarter, driven by the impressive performance of its sub-unit, Oliver Wyman. The performance of the Oliver Wyman sub-unit is likely to have been bolstered by several strategic acquisitions aimed at enhancing its capabilities and expanding its geographic presence. Also, sequentially improving returns from Wealth and Health operations are likely to have aided the Mercer (another sub-unit of the Consulting segment) business in the to-be-reported quarter. We expect positive net flows and improving assets under management to benefit the Wealth business.

The Zacks Consensus Estimate for revenues of the Mercer sub-division indicates a 6.1% increase from the prior-year quarter’s level of $1.3 billion, while the same for the Oliver Wyman business' revenues indicates 8.3% growth.

The Zacks Consensus Estimate for the overall Consulting segment’s revenues indicates growth of approximately 6.9% from the prior-year quarter’s $2 billion, whereas our estimate for the metric suggests a 5.3% rise. Also, the consensus mark for the segment’s adjusted operating income is pegged at $483.5 million, indicating 19.1% growth from the year-ago quarter’s reported number. The factors stated above are expected to have positioned the company well for the first quarter of 2024.

What the Quantitative Model Suggests

Our proven model does not conclusively predict an earnings beat for Marsh & McLennan this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat, which is not the case here.

Earnings ESP: Marsh & McLennan has an Earnings ESP of +1.48%. This is because the Most Accurate Estimate is currently pegged at $2.83 per share, higher than the Zacks Consensus Estimate of $2.78 per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Marsh & McLennan currently has a Zacks Rank #4 (Sell).

Stocks to Consider

While an earnings beat looks uncertain for Marsh & McLennan, here are some companies from the broader Finance space that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:

Mr. Cooper Group Inc. COOP has an Earnings ESP of +1.9% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Mr. Cooper Group’s bottom line for the to-be-reported quarter is pegged at $2.11 per share, indicating 80.3% year-over-year growth. The estimate grew by 6 cents in the past month. The consensus estimate for COOP’s revenues is pegged at $493.9 million, suggesting a 49.7% increase from a year ago.

SLM Corporation SLM has an Earnings ESP of +6.44% and a Zacks Rank of 3.

The Zacks Consensus Estimate for SLM Corporation’s bottom line for the to-be-reported quarter is pegged at $1 per share, suggesting a 112.8% year-over-year increase. The estimate increased by three cents over the past week. The consensus estimate for SLM’s revenues is pegged at $376.2 million.

Regional Management Corp. RM has an Earnings ESP of +1.15% and a Zacks Rank of 3.

The Zacks Consensus Estimate for Regional Management’s bottom line for the to-be-reported quarter is pegged at 87 cents per share. The consensus estimate for its revenues is pegged at $140 million, predicting a 3.4% increase from a year ago. RM beat earnings estimates in each of the past four quarters, with an average of 41.2%.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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