Friday morning, risk and insurance brokerage service provider Aon Corp. (AOC) reported a 43% fall in profit for the third quarter, hurt by a year-ago gain from discontinued operations. The company also recorded a loss from discontinued operations in the latest quarter. However, the company's adjusted earnings per share from continuing operations for the quarter surged 33% from a year ago. Revenues increased 6%, helped by a 5% increase in commissions and fees.
Third Quarter Results
The Chicago, Illinois-based company's net income for the third quarter declined to $117 million, or $0.40 per share, from $204 million, or $0.64 per share in the year-ago period.
The company recorded an after-tax loss from discontinued operations of $36 million, or $0.12 per share, in the latest quarter, compared to an after-tax income from discontinued operations of $74 million, or $0.23 per share in the year-ago quarter.
Discontinued operations for the quarter include the results of Automobile Insurance Specialists, or AIS, and post-close adjustments related to the sale of Combined Insurance Companies of America, or CICA, and Sterling Life Insurance.
Foreign currency translation positively impacted net income by approximately $0.04 per share compared to the prior-year quarter mainly due to fluctuation in the U.S. dollar compared to the Euro and the British pound.
Net income from continuing operations for the quarter increased to $153 million, or $0.52 per share, from $130 million, or $0.41 per share, in the similar quarter last year.
Excluding items, earnings per share from continuing operations surged 33% to $0.69 from $0.52 in the prior-year quarter. On average, fourteen analysts polled by First Call/Thomson Financial expected the company to report earnings of $0.63 per share for the quarter.
Total revenue for the quarter grew 6% to $1.85 billion from $1.75 billion in the corresponding quarter a year ago. Analysts had a consensus revenue estimate for the quarter of $1.84 billion.
Peer Performance
Among the company's peers, Marsh & McLennan Companies Inc. (MMC) is slated to report its financial results for the third quarter on November 5. Analysts expect the company to report earnings of $0.32 per share on revenues of $2.88 billion.
Other Metrics
Aon's commissions, fees and other revenues increased 5% from a year ago to $1.76 billion, while investment income climbed 18% from the prior-year quarter to $91 million.
Restructuring expense more than tripled to $54 million in the third quarter from $17 million in the prior-year period.
Operating income for the quarter declined 6% to $241 million from $256 million in the previous-year quarter as an 8% increase in operating expenses offset higher revenues.
During the third quarter, Aon repurchased 9.3 million shares of common stock for $426 million, at an average price of $45.90 per share. As of September 30, the company has about $850 million of remaining share repurchase authorization.
The company estimates restructuring savings in the third quarter related to the 2005 restructuring program at $67 million compared to $61 million in the prior-year quarter. Of the estimated restructuring savings in the latest quarter, $57 million were related to the brokerage segment, primarily due to workforce reduction. The company noted that the 2005 restructuring program resulted in cumulative cost savings of approximately $225 million in 2007 and is on track to achieve $270 million of cumulative cost savings in 2008.
Meanwhile, restructuring savings in the third quarter related to the 2007 restructuring program are estimated at $29 million compared to no material savings in the prior year quarter. Of the estimated restructuring savings in the quarter, $23 million were related to the brokerage segment primarily for workforce reduction.
Aon noted that prior to any potential reinvestment of savings, the 2007 restructuring program is now expected to result in cumulative cost savings of approximately $75 million-$80 million in 2008, up from its previous expectation of cost savings of $50 million-$70 million. The company now expects cost savings of $220 million-$245 million in 2009 compared to its prior expectations of cost savings of $175 million-$200 million. For 2010, the company now expects cost savings of $300 million, up from its earlier projection of cost savings of $240 million. According to the company, the cost savings are primarily as a result of additional cost savings opportunities to streamline non-client facing support functions globally.
In August, Aon said it will acquire U.K.'s Benfield Group Ltd. (BFD.L, BFLDY.PK, BFLDF.PK) for GBP 3.50 per share, or US$6.55 per share, in cash, and will also assume Benfield's net debt of GBP 91 million, or US$170 million. The deal is expected to close by 2008 end. Following the closure of the deal, Aon plans to merge Benfield into its existing reinsurance operations, Aon Re Global. The newly created division is expected to be operated worldwide under a new brand name, Aon Benfield Re.
Segmental Results
Aon's main business, the Risk and Insurance Brokerage Services segment, reported a 4% increase in revenues from the prior- year quarter to $1.47 billion, including 2% organic revenue growth in commissions, fees and other. However, investment income declined 14% to $48 million. Reinsurance organic revenue increased 1% due primarily to growth in global facultative and treaty placements, partially offset by soft market conditions. Pretax income for the segment decreased 18% to $188 million.
The company's consulting segment reported a 4% increase in revenues for the quarter to $337 million, including 6% organic revenue growth in commissions, fees and other. Organic revenue in Consulting Services climbed 8%, reflecting growth in compensation and health and benefits consulting. Meanwhile, organic revenue in outsourcing declined 4% due to the termination of a significant outsourcing contract. Pretax income for the segment surged 37% to $52 million.
Year-To-Date Results
For the nine-month period, Aon's net income more than doubled to $1.47 billion, or $4.81 per share, from $657 million, or $2.05 per share in the prior-year period.
Income from continuing operations for the period increased to $494 million, or $1.62 per share, from $469 million, or $1.47 per share, in the year-ago period. Excluding items, adjusted earnings per share from continuing operations increased to $2.09 from $1.64 a year ago.
Total revenues for the nine months increased 7% to $5.71 billion from $5.36 billion in the same period last year.
Stock Quotes
In Friday's regular trading session, AOC is trading at $41.00, up $2.90 or 7.61% on a volume of 1.23 million shares. The stock has been trading in a range of $32.83-$51.32 in the past 52 weeks.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.