NEW YORK, NEW YORK, August 3, 2006 - Marsh & McLennan Companies, Inc. (MMC) today reported financial results for the second quarter and six months ended June 30, 2006. Consolidated revenues for the quarter were $3 billion, unchanged from the 2005 second quarter. Net income was $172 million, or $.31 per share, compared with $166 million, or $.31 per share, last year. Income from continuing operations was $173 million, or $.31 per share, compared with $160 million, or $.30 per share, in the second quarter of 2005. Stock option expense was $27 million, or $.03 per share, in the second quarter of 2006. Stock option expense was not recorded in the first half of 2005 due to MMC's adoption of SFAS No. 123(R) entitled "Share-Based Payment" on July 1, 2005.
For the first six months of 2006, consolidated revenues of $6 billion were essentially flat, compared with last year. Net income was $588 million, or $1.05 per share, compared with $300 million, or $.56 per share, in 2005. Results from discontinued operations, net of tax, were $177 million, or $.32 per share, compared with $11 million, or $.02 per share, in 2005. Income from continuing operations was $411 million, or $.73 per share, compared with $289 million, or $.54 per share, last year. Stock option expense for the first six months of 2006 was $67 million, or $.08 per share.
A number of noteworthy items affected second quarter and six months results in 2006 and 2005. Second quarter 2006 noteworthy items totaled $46 million, or $.05 per share. These items included restructuring and related costs; legal and regulatory costs primarily related to market service agreements; and other items indicated in the attached supplemental schedules. For the first six months of 2006, these noteworthy items totaled $109 million, or $.12 per share. In the second quarter of 2005 and first six months of the year, noteworthy items reduced earnings per share from continuing operations by $.12 and $.39, respectively.
Michael G. Cherkasky, president and chief executive officer of MMC, said: "Results for the quarter were mixed. Marsh achieved significant improvement in both operating margin and new business development, particularly in North America, which had improved retention rates from last year. However, underlying revenues in Europe did not meet expectations, due primarily to lower client retention levels. Guy Carpenter, Kroll, and Mercer Specialty Consulting all reported excellent results, with double-digit growth in revenues and profitability. Mercer Human Resource Consulting increased revenues, but profitability was disappointing. Putnam performed as expected. We are encouraged about the positive trends in all of our businesses, except for profitability in Mercer HR, which we are addressing."
Risk and Insurance Services
Operating income increased markedly throughout the first half of the year, primarily reflecting expense savings from previously announced restructuring efforts. The operating margin for the first half of 2006 improved to 14.4 percent from 7.4 percent last year. Adjusting for the impact of noteworthy items and 2006 stock option expense, segment operating margin was 18.5 percent in the first half of 2006, compared with 15.7 percent in the same period of 2005. Please see the attached supplemental schedules for a reconciliation of these non-GAAP financial measures to reported GAAP results.
Marsh revenues declined 6 percent in the second quarter to $1.1 billion, or 4 percent on an underlying basis. Marsh's new business grew 8 percent globally, led by 18 percent growth in the United States. In Europe, new business development was essentially flat, compared with last year's strong second quarter. European underlying revenues declined, primarily in Continental Europe. Despite the sharp increase in U.S. property insurance rates in coastal areas, overall property and casualty insurance rates continued to decline in the quarter.
Guy Carpenter revenues rose to $214 million in the second quarter, an increase of 12 percent. This reflected strong new business levels in the quarter, continuing the performance of the first quarter. The substantial increase in U.S. coastal property catastrophe premium rates was offset by limited market capacity and higher risk retention by clients.
Risk Consulting and Technology
Mercer Specialty Consulting revenues grew 17 percent to $297 million in the second quarter, reflecting continued excellent performance in all businesses. Mercer Oliver Wyman's financial services and risk consulting increased underlying revenues 19 percent, Mercer Management Consulting's strategy and operations grew revenues 11 percent, and economic consulting rose 14 percent. Based on this strong revenue growth, Mercer Specialty Consulting reported a marked increase in profitability.
MMC's consolidated effective tax rate in the second quarter was 35.3 percent, compared with 29.9 percent in the second quarter of 2005. The rate in last year's second quarter reflected the favorable resolution of certain tax return audit issues.
MMC is a global professional services firm with annual revenues of approximately $12 billion. It is the parent company of Marsh, the world's leading risk and insurance services firm; Guy Carpenter, the world's leading risk and reinsurance specialist; Kroll, the world's leading risk consulting company; Mercer, a major global provider of human resource and specialty consulting services; and Putnam Investments, one of the largest investment management companies in the United States. Approximately 55,000 employees provide analysis, advice, and transactional capabilities to clients in over 100 countries. Its stock (ticker symbol: MMC) is listed on the New York, Chicago, Pacific, and London stock exchanges. MMC's website address is www.mmc.com.
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," "should," "will" and "would." For example, we may use forward-looking statements when addressing topics such as: future actions by our management or regulators; the outcome of contingencies; changes in our business strategy; changes in our business practices 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; the impact of acquisitions and dispositions; and MMC's cash flow and liquidity.
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.
MMC and its operating companies use their websites to convey meaningful information about their businesses, including the anticipated release of quarterly financial results and the posting of updates of assets under management at Putnam. Monthly updates of total assets under management at Putnam will be posted to the MMC website the first business day following the end of each month. Putnam posts mutual fund and performance data to its website regularly. Assets for most Putnam retail mutual funds are posted approximately two weeks after each month-end. Mutual fund net asset value (NAV) is posted daily. Historical performance and Lipper rankings are also provided. Investors can link to MMC and its operating company websites through www.mmc.com.