Why Is Aon (AON) Down 1% Since Last Earnings Report?

It has been about a month since the last earnings report for Aon (AON). Shares have lost about 1% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Aon due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Aon Q1 Earnings Meet Estimates & Rise Y/Y, Revenues Up

Aon plc’s first-quarter 2019 operating earnings of $3.31 came in line with the Zacks Consensus Estimate. Moreover, the metric improved 11.4% year over year on the back of solid revenue growth.

Total revenues inched up 2% to $3.1 billion including 6% organic revenue growth. However, the metric’s uptick was partially offset by a 4% unfavorable impact from foreign currency translation.

Adjusted operating margin expanded 190 basis points to 33.7%.

Total operating expenses dipped 1% to $2.3 billion, primarily owing to a favorable impact from foreign currency movement, incremental savings from restructuring and other operational improvement initiatives plus reduction in divestiture costs.

The adjusted effective tax rate on a comparable basis for the first quarter was 16.9% compared with 16.5% in the prior-year quarter. This upside was primarily driven by a net unfavorable impact from discrete items.

Organic Revenue Catalysts   

Commercial Risk Solutions: Organic revenues rose 6% on the back of strong growth across every major geography, which reflects solid global new business generation in the United States and management of renewal book portfolio along with strong growth in Latin and North America and Asia. The segment witnessed 6% decline in total revenues year over year to $1.1 billion.

Reinsurance Solutions: Organic revenues improved 9%, driven by a constant net new business generation in treaty along with a sturdy uptick across the globe. Moreover, market impact was modestly favorable to first-quarter results. However, total revenues for the segment climbed6% year over year to $788 million.

Retirement Solutions: Organic revenues rose 2% year over year, aided by solid growth in investment consulting and solutions. Total revenues in this segment slipped 1% year over year to $420 million.

Health Solutions: Organic revenues were up 5% year over year, led by solid international growth in health and benefits brokerage, especially boosted by a robust uptrend internationally along with a double-digit rise in China. Total revenues of the segment rose 8% to $486 million.

Data & Analytic Services: Organic revenues at this segment grew 5% year over year owing to prosperity in Affinity business, particularly in the United States and EMEA across both business and consumer solutions. Total revenues of the segment increased 14% to $336 million.

Financial Position

The company’s cash flow from operations plunged 47% year over year to $74 million.

Also, free cash flow slumped 82% year over year.

The company exited the first quarter with total assets worth$29 billion, up 10.3% from the level on Dec 31, 2018.

As of Mar 31, 2019, the company’s long-term debt stands at $5.9 billion, down 1% year over year.

Share Repurchase and Dividend Update

The company bought back Class An Ordinary shares for nearly $100 million in the quarter under review

The company also announced a 10% hike to its quarterly cash dividend, subsequent to the close of the quarter.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, Aon has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Aon has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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