Aon Corp , the world's largest insurance brokerage, reported a market-beating quarterly profit, driven by recent acquisitions that offset a drop in commissions.
The company said commissions and fees from core operations fell 1 percent but recent acquisitions, mainly Allied North America that Aon bought in December, pushed up revenue by 2 percent.
In its brokerage unit, Latin America and Asia Pacific posted a growth in organic revenue but Europe, Middle East and Africa reported a 3 percent drop.
Organic revenue is a key industry measure that assesses growth before acquisitions, divestitures and foreign currency translation.
Fragile economic conditions will continue to make results across the entire region lumpy on a quarterly basis, but we would expect modest improvement in the second half of the year, Chief Executive Greg Case said on a conference call.
Aon said its brokerage operating margin rose to 19.2 percent from 12.7 percent a year ago. Operating margin is defined as part of a company's revenue left over after paying for variable costs of production such as wages and raw materials.
It was a good evidence of the efforts they have made to bring the costs in line and improve margins, RBC Capital Markets analyst Mark Dwelle said.
As part of a 2007 restructuring program, Aon saved about $113 million mainly through cutting jobs in the brokerage unit, compared with $51 million, a year ago, the company said.
For the restructuring program for Benfield Group, a reinsurance broker Aon bought in 2008, the company recorded $6 million in charges for the quarter and expects a majority of the remaining $30 million charges in the second half of the year.
PROFIT TOPS STREET
Aon, which competes with its next-largest rival Marsh & McLennan Cos Inc in helping businesses find insurance, said total revenue rose 1 percent to $1.90 billion.
Revenue from insurance brokerage services, which accounts for more than 80 percent of its total revenue, rose 1 percent to $1.59 billion.
Consulting unit revenue -- which posted positive organic revenue for the first time since first quarter of 2009 -- rose 6 percent to $317 million in the second quarter.
As economic conditions stabilize around the globe on average, we would expect to see continued modest growth driven by an encouraging pipeline in compensation consulting, CEO Case said.
Aon, which is looking to grow its consulting business, agreed to buy Hewitt Associates Inc for $4.9 billion on July 12 to create the world's largest human resource services company.
Aon plans to integrate Hewitt with its existing consulting and outsourcing operation and sees the deal to add to 2011 and 2012 earnings.
Second-quarter net income attributable to common shareholders was $153 million, or 63 cents a share, compared with $149 million, or 50 cents a share, in the year-ago period.
Excluding items, the company earned 81 cents a share.
Analysts on average had expected the company to earn 75 cents a share, excluding items, on revenue of $1.87 billion, according to Thomson Reuters I/B/E/S.
Aon shares were up 3 percent at $37.84 in late morning trade Friday on the New York Stock Exchange.
(Reporting by Supantha Mukherjee; Editing by Gopakumar Warrier)