A month has gone by since the last earnings report for Willis Towers Watson (WTW). Shares have added about 4.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Willis Towers Watson due for a pullback? 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.
Willis Towers Q4 Earnings Surpass Estimates on Higher Revenues
Willis Towers Watson delivered fourth-quarter 2024 adjusted earnings of $8.13 per share, which beat the Zacks Consensus Estimate by 1.5%. The bottom line increased 9% year over year.
The quarterly results of WTW were aided by an increase in revenues and expanded operating margins at the Health, Wealth & Career and Risk & Broking segments. Higher adjusted operating income and reduced expenses also added to the upside.
Willis Towers posted adjusted consolidated revenues of $3 billion, up 4% year over year on a reported basis. Revenues increased 5% on an organic basis and a constant currency basis. The top line missed the Zacks Consensus Estimate by 0.3%.
The total costs of providing services decreased 0.04% year over year to $2.1 billion due to lower other operating expenses, impairment, depreciation, amortization, restructuring costs, transaction and transformation, offset by higher salaries and benefits. The metric matched our estimate.
Adjusted operating income was $1 billion, which increased 10% year over year. Margin expanded 190 basis points (bps) to 36.1%.
Adjusted EBITDA was $1.1 billion, up 8.6% year over year. Adjusted EBITDA margin was 38.6%, which expanded 150 bps year over year.
Health, Wealth & Career: Total revenues of $1.8 billion rose 3% year over year (3% increase on a constant currency and an organic basis) but missed the Zacks Consensus Estimate by 1.2%. Our estimate was pegged at $1.9 billion.
Health had organic revenue growth that was led by increased project work and brokerage income in North America and the continued expansion of Global Benefits Management client portfolio in International and Europe.
Wealth generated organic revenue growth from higher levels of Retirement work globally, an increase in Investments business due to growth of LifeSight solution and capital market improvements.
Career had organic revenue growth from increased advisory services and product revenues. Benefits Delivery & Outsourcing had an organic revenue decline for the quarter as a result of deliberately moderating growth in TRANZACT.
The operating margins expanded 140 basis points from the prior-year quarter to 41.9%, primarily from Transformation savings.
Risk & Broking: Total revenues of $1.1 billion rose 6% year over year (7% increase in constant currency and on an organic basis) but missed the Zacks Consensus Estimate by 0.1%. The metric matched our estimate.
Corporate Risk & Broking had organic revenue growth driven by higher levels of new business activity and strong client retention. Insurance Consulting and Technology had organic revenue growth for the quarter due to strong software sales in Technology.
The operating margins expanded 60 basis points from the prior-year quarter to 33.5%, primarily due to operating leverage driven by organic revenue growth and disciplined expense management, as well as Transformation savings. The increases were partially offset by headwinds from book-of-business activity and foreign currency fluctuations.
As of Dec. 31, 2024, cash and cash equivalents were $1.8 billion, up 32.7% from 2023-end.
Long-term debt increased 16.2% to $5.3 billion at quarter-end from 2023-end.
Shareholders’ equity decreased 16.6% from the level on Dec. 31, 2023, to $7.9 billion as of Dec 31, 2024.
Cash flow from operations was $1.5 billion in 2024, up 12.4% from the prior-year period.
Free cash flow for 2024 increased 15.4% year over year to $1.4 billion. The increase was primarily driven by operating margin expansion, partially offset by cash outflows related to transformation and discretionary compensation payments.
Willis Towers expects share repurchases of $1.5 billion, subject to market conditions and potential capital allocation to organic and inorganic investment opportunities.
The insurer projects 100 basis points of average annual margin expansion over the next three years in Risk & Broking.
WTW expects incremental annual margin expansion at Health, Wealth & Career and enterprise levels.
The company divested the TRANZACT business and is no longer part of the business portfolio. TRANZACT business contributed $1.14 to adjusted diluted earnings per share in 2024.
Willis Towers expects cash outflows in 2025 from the settlement of accrued costs related to the Transformation program, which concluded in 2024.
Adjusted earnings of $16.93 per share beat the Zacks Consensus Estimate by 1%. The bottom line increased 17% year over year.
Total revenues rose 5% from the year-ago quarter to about $9.9 billion. The top line missed the Zacks Consensus Estimate by 0.1%.
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -8.56% due to these changes.
At this time, Willis Towers Watson has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Willis Towers Watson has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
Willis Towers Watson is part of the Zacks Insurance - Brokerage industry. Over the past month, Arthur J. Gallagher (AJG), a stock from the same industry, has gained 7.7%. The company reported its results for the quarter ended December 2024 more than a month ago.
Arthur J. Gallagher reported revenues of $2.68 billion in the last reported quarter, representing a year-over-year change of +11.8%. EPS of $2.13 for the same period compares with $1.85 a year ago.
For the current quarter, Arthur J. Gallagher is expected to post earnings of $3.44 per share, indicating a change of -1.4% from the year-ago quarter. The Zacks Consensus Estimate has changed +8% over the last 30 days.
Arthur J. Gallagher has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.
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This article originally published on Zacks Investment Research (zacks.com).
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