Marsh & McLennan profit falls 63 percent on charge

Marsh & McLennan's second-quarter profit tumbled 63 percent as it wrote down the value of its risk consulting and technology business and incurred losses in its investment portfolio, the insurance broker said Wednesday.

Marsh & McLennan reported net income of $65 million, or 13 cents per share, in the period ended June 30. This compares with a profit of $177 million, or 31 cents per share, in the year-ago quarter.

Results include a $115 million noncash impairment charge that Marsh took to write down the value of its risk consulting and technology segment. The charge reduced earnings by 22 cents per share.

Marsh had previously determined that its corporate security firm Kroll was worth less than it was when the company bought it in 2004, warranting a goodwill impairment charge. The impairment charge in the first six months of 2008 totaled $540 million, or $1.04 per share.

Investment losses totaled $16 million, due to mark-to-market declines on private equity investments at subsidiary Risk Capital Holdings. This compares with investment gains of $34 million in the 2007 comparable quarter. The investment losses hurt earnings by 6 cents per share.

On an adjusted basis, excluding one-time items, net income was $211 million, or 41 cents per share, compared with $198 million, or 35 cents per share, in the prior-year period.

Analysts polled by Thomson Financial, on average, forecast earnings of 35 cents per share. Analyst estimates typically exclude one-time, unusual items.

Total revenue rose 9 percent to $3.05 billion from $2.79 billion during the same period last year. Analysts had expected revenue of $2.94 billion.

Revenue from the company's core risk and insurance services segment rose 5 percent to $1.42 billion. Results continue to be pressured by price competition in the global commercial property and casualty market, the company said. Additionally, reinsurance premium rates continue to decline across most coverage areas. Reinsurance is a type of insurance covering losses on other insurers' policies.

Revenue from the company's consulting segment grew 13 percent to $1.37 billion. Revenue from the risk consulting and technology segment also increased 13 percent to $281 million. Driving growth was a 20 percent increase in revenue at Kroll, due to strong demand for litigation support, data recovery and risk mitigation services.

"Marsh & McLennan reported a good quarter headlined by strong progress in margin improvements and surprising growth rates," wrote Keefe, Bruyette & Woods analyst Cliff Gallant in a note to clients.

Gallant subsequently raised his full-year profit estimate by a nickel to $1.65 per share. Analysts, on average, anticipate earnings of $1.52 per share in 2008.

He also raised his target price on the stock to $35 from $33 and maintained an "Outperform" rating on the shares.

"Marsh & McLennan posted its best quarter in years driven by revenue and margin improvement at the core Marsh unit," Citi Investment Research analyst Keith Walsh wrote in a note to clients.

Walsh reiterated a "Buy" rating on the shares and a target price of $33.

"New management coupled with a favorable macro-environment for global insurance brokers more than offsets the risk of weak property-casualty pricing," Walsh said.

Marsh & McLennan named Brian Duperreault, former ACE Ltd. and AIG executive, president and chief executive in January.

Shares jumped 73 cents, or 2.5 percent, to $30.07. Shares hit a new 52-week high of $31 earlier in the session. In the past 12 months, the stock has traded between $23.12 and $29.56.