NEW YORK, November 5, 2008 — Marsh & McLennan Companies, Inc. (MMC) today reported financial results for the third quarter ended September 30, 2008.
In the quarter, consolidated revenue was $2.8 billion, up 5 percent from the third quarter of 2007. Revenue growth was 2 percent on an underlying basis, which measures the change in revenue before the impact of acquisitions and dispositions, using consistent currency exchange rates. For the nine months ended September 30, consolidated revenue was $8.9 billion, an increase of 8 percent, or 3 percent on an underlying basis, from the comparable period in 2007.
Year-over-year net income comparisons were affected by MMC's gain of $1.9 billion, net of tax, on the divestiture of Putnam Investments in August 2007, reflected in discontinued operations. In the third quarter of 2008, MMC's net loss was $8 million, or $.02 per share, compared with net income of $1.9 billion, or $3.60 per share, last year. Income from continuing operations in the third quarter of 2008, net of tax, was $18 million, or $.03 per share, compared with $80 million, or $.15 per share, last year. Third quarter 2008 results include an increase in professional liability reserves of $33 million, or $.04 per share, due to a recent adverse decision affecting Marsh.
On an adjusted basis, as presented in the attached supplemental schedules, earnings per share in the third quarter of 2008 was $.21 per share, flat with last year. Adjusted earnings per share was $1.08 for the first nine months compared with $1.09 in 2007.
MMC's results for the nine months ended September 30, 2008 include the previously reported non-cash goodwill impairment charge of $540 million in the Risk Consulting and Technology segment. This resulted in a net loss of $153 million, or $.30 per share. In the comparable period of 2007, net income was $2.4 billion, or $4.31 per share, reflecting the gain on the divestiture of Putnam Investments.
Brian Duperreault, president and chief executive officer of MMC, said: "I am pleased with MMC's solid performance, not only in the third quarter but also throughout the year. Results for the quarter were driven by continued improvement at Marsh. Guy Carpenter's alignment of expenses with revenue levels enabled it to maintain profitability on a year-over-year basis. Mercer reported excellent performance, with strong revenue growth across its businesses as well as margin improvement and increased profitability. Oliver Wyman had a difficult quarter due to adverse economic and financial market conditions. Kroll's growth in profitability was driven by its risk mitigation and litigation support businesses. Looking at our progress to date, I am encouraged by MMC's operating results, and optimistic about the future."
Risk and Insurance Services
Marsh's revenue in the third quarter was $1.1 billion, an increase of 3 percent from last year, or 1 percent on an underlying basis. The strongest underlying growth was in Asia Pacific, with 11 percent growth; EMEA, with 4 percent growth; and Latin America, with 3 percent growth. Marsh's client revenue retention in the quarter improved on a year-over-year basis, continuing the trend seen throughout the year. New business remained strong in the current quarter, at levels consistent with the year-ago period. Marsh's third quarter results were achieved in an environment of continued price competition in the global commercial property and casualty insurance marketplace.
Reinsurance premium rates continued to decline globally in the third quarter across most coverages, with clients' risk retention levels remaining high. Guy Carpenter's third quarter revenue declined 9 percent to $205 million, compared with the prior year's quarter. Restructuring efforts and continuing cost discipline have better aligned revenue and expense levels, allowing Guy Carpenter's profitability on an adjusted basis to remain unchanged compared with the third quarter of 2007.
Mercer increased revenue 12 percent to $951 million in the third quarter, with strong revenue growth achieved throughout its operations. On an underlying basis, revenue increased 10 percent in the quarter. Mercer's consulting operations, with revenue of $691 million, had underlying growth of 11 percent; outsourcing, with revenue of $183 million, had 7 percent growth; and investment consulting and management, with revenue of $77 million, had 12 percent growth. Mercer's underlying revenue growth through the first nine months of the year was 9 percent.
Oliver Wyman's revenue increased 1 percent to $377 million in the third quarter and declined 5 percent on an underlying basis due to ongoing adverse global economic and financial market conditions. For the first nine months of 2008, Oliver Wyman's underlying revenue growth was 1 percent.
Risk Consulting and Technology
Kroll's revenue of $218 million in the third quarter increased 4 percent from the year-ago quarter and declined 1 percent on an underlying basis. On an underlying basis, a 12 percent increase in Kroll's risk mitigation and response business and a 3 percent increase in the litigation support and data recovery business were offset by a decline of 15 percent in background screening. Kroll's operating income increased by 14 percent in the quarter.
Revenue for the segment's corporate advisory and restructuring business was $36 million in the third quarter, a decline of 25 percent from the prior year. This led to an operating loss in the quarter.
The loss in discontinued operations, net of tax in the third quarter of 2008 primarily results from tax adjustments related to the Putnam sale. An increase in the effective tax rate in the third quarter of 2007, which resulted from the unfavorable impact of tax rate changes in the United Kingdom and Germany, affected last year's results by approximately $.04 per share.
MMC's liquidity remains strong. At the end of the third quarter of 2008, cash and cash equivalents were $1.5 billion, an increase of $300 million for the quarter. Net debt, which is total debt less cash and cash equivalents, was $2.1 billion at the end of the third quarter of 2008, compared with $2.4 billion at the end of the second quarter of 2008. MMC has no commercial paper or bank loans outstanding, and its next debt maturity is in June 2009.
This press release contains "forward-looking statements," as defined in the Private Securities Litigation Reform Act of 1995. These statements, which express management's current views concerning future events or results, use words like "anticipate," "assume," "believe," "continue," "estimate," "expect," "intend," "plan," "project" and similar terms, and future or conditional tense verbs like "could," "may," "might," "should," "will" and "would." For example, we may use forward-looking statements when addressing topics such as: changes in our business strategies and methods of generating revenue; the development and performance of our services and products; market and industry conditions, including competitive and pricing trends; changes in the composition or level of MMC's revenues; our cost structure and the outcome of cost-saving or restructuring initiatives; the outcome of contingencies; dividend policy and share repurchase programs; the expected impact of acquisitions and dispositions; pension obligations; cash flow and liquidity; future actions by regulators; the impact of changes in accounting rules; and changes in senior management.
Forward-looking statements are subject to inherent risks and uncertainties. Factors that could cause actual results to differ materially from those expressed or implied in our forward-looking statements include:
The factors identified above are not exhaustive. MMC and its subsidiaries operate in a dynamic business environment in which new risks may emerge frequently. Accordingly, MMC cautions readers not to place undue reliance on its forward-looking statements, which speak only as of the dates on which they are made. MMC undertakes no obligation to update or revise any forward-looking statement to reflect events or circumstances arising after the date on which it is made. Further information concerning MMC and its businesses, including information about factors that could materially affect our results of operations and financial condition, is contained in MMC's filings with the Securities and Exchange Commission, including the "Risk Factors" section of MMC's most recently filed Annual Report on Form 10-K.