Gallagher Announces Increase in Operating Revenues, Decline in Net Earnings in 3Q

Illinois-based Arthur J. Gallagher & Co. reported that total operating revenues grew 29% to $297.0 million in the third quarter of 2002 from $229.6 million in the same period of 2001. For the nine-month period ended September 30, 2002 total operating revenues grew 25% to $809.1 million from $649.8 million in the same period last year.

Net operating earnings, however, saw only a 1% rise to $39.2 million, while net earnings for the third quarter actually decreased by 44 percent to $23.3 million in 2002 from $41.9 million in 2001 due, the company indicated, “to a total of $28.9 million in investment write-downs,” which it described in greater detail in another portion of the report.

The company also noted that it had significantly increased its staff through acquisitions and had taken on new employees, necessitating higher compensation and bonus payments, while at the same time it shouldered the additional costs of integrating new operations and employees.

“Year-to-date 2002 net operating earnings increased 19% to $99.3 million from $83.8 million in 2001. GAAP net earnings were down 1% to $91.4 million for the first nine months of 2002 from $92.2 million in 2001 due primarily to the third quarter 2002 investment write-downs,” said the bulletin.

President and CEO J. Patrick Gallagher, Jr., stressed that the company had achieved strong operating revenue growth through the first three quarters of 2002, and that new business development and account retention were excellent in both the three and nine-month periods ended September 30.

The new employees seem to be adding significantly to the company’s growth, as it registered a 22 percent rise in commission revenues in the third quarter, and a 19 percent increase for the first 9 months of the year.

The company said that “Organic growth,” which represents the increase in revenues before the impact of the 2002 and 2001 acquisitions accounted for as purchases, “in fee revenues was 15% and 14% for the three and nine-month periods ended September 30, 2002.” The organic growth in both commission and fee revenues was “primarily generated by the Brokerage Services Division.”

The bulletin further noted that the company was optimistic about the future, seeing the p/c market remaining “extremely tight” and showing “no signs of softening in 2003, which should continue to positively impact revenues.”

Gallagher stated that “Our core business is continuing to perform very well. New business and retention levels for existing business are outstanding, we have strong expense controls in place and we expect results to improve as our new production staff becomes fully ‘validated.’ I am confident that we have made the right moves over the last 15 months to position our core brokerage business for exceptional long-term results.”

Topics Profit Loss A.J. Gallagher