Marsh & McLennan Cos Inc (MMC) Q4 2018 Earnings Conference Call Transcript

MMC earnings call for the period ending December 31, 2018.

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Marsh & McLennan Cos Inc  (NYSE:MMC)

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Q4 2018 Earnings Conference Call
Jan. 31, 2019, 8:30 a.m. ET

Contents:

Prepared Remarks:

Operator

Welcome to the Marsh & McLennan Companies' Conference Call. Today's call is being recorded. Fourth quarter 2018 financial results and supplemental information were issued earlier this morning. They are available on the company's website at www.mmc.com.

Please note that remarks made today may include forward-looking statements. Forward-looking statements are subject to risks and uncertainties, and a variety of factors may cause actual results to differ materially from those contemplated by such statements. For a more detailed discussion of those factors, please refer to our earnings release for this quarter and to our most recent SEC filings, including our most recent Form 10-K, all of which are available on the MMC website. During the call today, we may also discuss certain non-GAAP financial measures. For a reconciliation of these measures to the most closely comparable GAAP measures, please refer to the schedule in today's earnings release.

I'll now turn this over to Mr. Dan Glaser, President and CEO of Marsh & McLennan Companies.

Daniel S. Glaser -- President and Chief Executive Officer

Thank you, Elaine, and good morning, everybody. Thank you for joining us this morning to discuss our fourth quarter results reported earlier today. I'm Dan Glaser, President and CEO of Marsh & McLennan. Joining me on the call today is Mark McGivney, our CFO; and the CEOs of our businesses; John Doyle of Marsh; Peter Hearn of Guy Carpenter; Julio Portalatin of Mercer; and Scott McDonald of Oliver Wyman. Also with us this morning is Dan Farrell, Head of Investor Relations. Dan has had two successful years leading the IR team. Dan has had two successful years leading the IR team and will soon be transitioning to a new role. We are pleased that Sarah DeWitt has recently joined us and will take over as Head of IR. On behalf of the executive committee, I want to thank Dan for his contributions.

Our fourth quarter represented an outstanding finish to the year. Our overall revenue growth in the quarter was strong with 5% underlying growth, and all of our businesses contributing. Marsh grew 6% in the quarter on an underlying basis, the strongest quarter of underlying growth since the second quarter of 2012. Guy Carpenter also finished strong, posting 5% underlying revenue growth, the eighth consecutive quarter of 4% or better underlying growth. These results combined to lift our underlying growth in RIS to 6% for the quarter, the third consecutive quarter of underlying growth of 5% or more in RIS.

Our Consulting segment grew 3% on an underlying basis in the quarter, due to a solid finish to the year and Oliver Wyman, an improvement in DB consulting in Mercer. The fourth quarter, as expected, saw strong adjusted operating margin expansion of 180 basis points and adjusted operating income growth of 15%, excluding the impact of the new revenue standard.

For the full-year, we generated 7% overall revenue growth with 4% underlying growth. By segment, we saw underlying growth of 5% in RIS, the best full-year growth we have seen since 2012, and 3% underlying growth in Consulting.

We demonstrated top-line strength across our businesses. Marsh delivered 4% underlying growth for the year, the best result since 2014. Guy Carpenter had a terrific year with 7% underlying growth, the strongest result since 2009. Mercer achieved 3% underlying growth, despite a 4% decline in the DBA business, and Oliver Wyman grew 5% for the year, overcoming headwinds from declining bank regulatory work.

Our adjusted NOI grew 8% with overall margin expansion of 30 basis points for the year, marking the 11th consecutive year we have reported margin expansion. Adjusted EPS grew 11% for the year, another year of double-digit growth that came on top of 15% growth in 2017. Since 2009, our adjusted EPS growth has averaged 13%. We balance delivering today with positioning for tomorrow, and 2018 was a great example of strong overall execution.

In addition to our strong 2018 financial performance, we made several meaningful decisions to position us for continued long-term growth. Outside of JLT, which we will discuss shortly, we deployed $1.1 billion of capital, across 23 transactions, representing another year of significant reinvestment in building our business through acquisitions.

I'd like to highlight some of the transactions from the past year. In Mercer, we closed the acquisitions of Pavilion and Summit in the fourth quarter. These transactions add to our capabilities and scale in investments. Earlier in the year, we announced Marsh's acquisition of Wortham, combining one of the largest and best independent brokerage firms in the US with our already strong position in Texas.

MMA also had an active year, adding seven new firms in 2018. And just last week, we announced the acquisition of Bouchard Insurance. Bouchard, based in Florida, has $42 million in revenue and roughly 260 employees. As I said last quarter, we will continue to invest in Marsh & McLennan Agency, one of the finest insurance brokerage firms operating in the middle market in the US. In addition to continuing to execute our M&A strategy, we made meaningful progress in planting seeds in digital, data and analytics. Each of our businesses continues to invest in building our capabilities. I won't go through all the initiatives, but we will highlight a few examples of our progress.

In Marsh, we launched Bluestream, a digital broking platform initially focused on affinity and sharing economy businesses. Bluestream has the potential to be leveraged more broadly to seamlessly match risk and capital in the small commercial and consumer segment. It also complements other digital and small commercial strategies including Dovetail, ICAT, Torrent, and the rebranding of our managing general underwriter as Victor.

Guy Carpenter launched GC Genesis, a proprietary advisory offering on InsurTech. The new services identify InsurTech companies that will offer our clients innovative capabilities and enhance their operations and technology strategies. At Mercer, we announced a strategic alliance with Morningstar, which gives clients digital subscription access to Mercer's proprietary investment manager research, opening up a new distribution outlet for Mercer.

In Oliver Wyman, we continue to build our capabilities in digital consulting and business development through our DTA, Digital, Technology and Analytics practice, including Oliver Wyman Labs. We have a deep bench of talent throughout our firm and take succession planning seriously. We recently announced that Martine Ferland will become President and CEO of Mercer as of March 1st and will join the MMC Executive Committee. Martine has a wealth of experience across Mercer's businesses and is a proven global leader. Julio has done a great job at Mercer, successfully leading the business since 2012. Over that time, Mercer has nearly doubled its adjusted operating income and expanded assets under delegated management by five-fold. I am pleased the company will continue to benefit from Julio's advice and counsel, as a Vice Chairman of MMC.

In recent months, Julio and Martine have continued reshaping Mercer's operating model, and in the fourth quarter, we took restructuring actions with associated charges totaling $51 million. We simplified Mercer's organization by consolidating the three geographic regions into two; US-Canada and International. This aligns more closely with the regional structures in place across other businesses of Marsh & McLennan. The actions resulted in structural changes in Mercer had streamlined its operating model, creating more efficiency and enabling better execution.

Now let's take a moment to update you on the progress we have made on JLT. As we have said from the beginning, this is a combination of strength and strength and the primary focus is growth; growth in talent, capabilities, revenue and earnings. We said our approach to integration would be from the perspective of best of both and we have been true to this ideal. We have made important announcements about the leadership teams of Marsh, Mercer and Guy Carpenter after closing. And it is important to note that we will have meaningful representation of senior JLT colleagues at the executive committee level.

Our leadership team recently visited JLT's major locations around the world, including stops in Australia, Hong Kong, Singapore, many cities in the US and, of course, London. Through town halls and other interactions, we have had the opportunity to engage with colleagues representing 80% of JLT's global revenue base. The real upside for value creation is combining two successful organizations into an even more innovative and talented professional services firm. I'm encouraged by our early organizational decisions and the level of engagement and commitment we are seeing throughout Marsh & McLennan and JLT.

In terms of closing, we are still in the regulatory approval process. At this time, we continue to expect closing in the spring of 2019. Our strong performance in 2018 positions us well for the future. Our purpose is to make a difference in the moments that matter and create value for our clients, our colleagues, our shareholders and the broader community.

As we look at 2019 and beyond, our future is bright. Our revenue base continues to shift toward faster growing areas. We expect to see benefits from our investments in digital and technology, and we are confident in our ability to complete and successfully integrate JLT. Without any impact from JLT, in 2019, we expect underlying revenue growth in the 3% to 5% range, margin expansion and strong adjusted EPS growth. Additionally, in 2019, we expect to reduce our share count and deliver double-digit increase in our dividend.

With that, let me turn it over to Mark for a more detailed review of our results.

Mark McGivney -- Chief Financial Officer

Thank you, Dan, and good morning. Our fourth quarter performance represented an outstanding finish to 2018. We delivered 5% underlying revenue growth, highlighted by 6% growth in RIS and 3% in Consulting. Consolidated revenue of $3.7 billion, was up 1% or 4% excluding the impact of the new revenue standard, ASC 606.

Operating income in the quarter was $621 million, while adjusted operating income increased 7% to $731 million. Excluding the impact of the new revenue standard, adjusted operating income increased 15%. Our adjusted operating margin expanded by 180 basis points, excluding the impact of the new revenue standard with significant expansion in both segments.

Adjusted EPS increased 4% to $1.09. Excluding an $0.08 per share reduction from adopting the new revenue standard, adjusted EPS grew 11% in the quarter. For the year, consolidated revenue increased 7% to $15 billion, driven by strong underlying growth of 4% and a meaningful contribution from acquisition. Adjusted operating income increased 8% to $2.9 billion, while the adjusted operating margin increased 30 basis points to 19.7%. GAAP EPS increased 13% for the year, while our adjusted EPS increased 11% to $4.35.

Looking at Risk and Insurance Services, fourth quarter revenue was $1.9 billion, a decrease of 2%. Excluding the impact of the new revenue standard, revenue was up 5% and underlying revenue growth was 6%. Adjusted operating income for the quarter decreased 1% to $418 million. Excluding the impact of the new revenue standard, adjusted operating income grew 16% and the adjusted operating margin rose 200 basis points. For the year, revenue was $8.2 billion, an increase of 8% with strong underlying growth of 5%. Adjusted operating income for the year was up 11% and our adjusted operating margin increased 90 basis points to 23.9%.

At Marsh, revenue in the quarter rose 5% to $1.8 billion, increasing 6% on an underlying basis. Growth in the quarter was driven by strong new business and retention. The US and Canada division continued its trend of strong growth, delivering 7% underlying revenue growth in the quarter. International was up 5% with Asia Pacific and Latin America up 8%, and EMEA up 3%. For the year, revenue at Marsh was $6.9 billion, with 4% underlying growth. In the quarter, Marsh incurred an additional $12 million of restructuring charges, bringing the total to $99 million for the year.

Guy Carpenter's revenue was $102 million in the quarter, with underlying growth of 5%, a strong finish to another outstanding year for Guy Carpenter. For the year, revenue was $1.3 billion, with 7% underlying growth.

In the Consulting segment, fourth quarter revenue increased 4% to $1.8 billion or 3% excluding the impact of the new revenue standard. Underlying revenue growth was 3%. Adjusted operating income increased 16% to $359 million. Excluding the impact of the new revenue standard, adjusted operating income increased 9%, the adjusted operating margin increased 110 basis points.

For the year, revenue with $6.8 billion, an increase of 5% with underlying revenue growth of 3%. Adjusted operating income was up 3% and the adjusted operating margin declined 40 basis points to 17.2%. Mercer's revenue increased 3% in the quarter to $1.2 billion, with underlying growth of 2%. Wealth was down 1% on an underlying basis, with Investment Management and Related services up 1% and Defined Benefit Consulting and Administration down 2%.

Our revenue in Investment Management was affected by the market volatility in the fourth quarter. Despite the volatility, our overall assets under delegated management ended the year at $241 billion, up 6% from year-end 2017, reflecting continued strong asset inflows. Health increased 4% on an underlying basis in the quarter, driven by solid growth in most geographies. And Career grew 5% with continued strong growth in our strategic consulting and survey business. For the year, revenue at Mercer was $4.7 billion, with 3% underlying growth.

As Dan noted, Mercer's fourth quarter results included a restructuring charge of $51 million, which we have excluded from our adjusted result. We expect additional restructuring charges under this program of approximately $20 million to $30 million in the first half of 2019.

Oliver Wyman's revenue was $577 million in the quarter, with an underlying increase of 7%. This result was due to strong growth in North America across all business sectors. For the year, revenue was $2 billion with 5% underlying growth.

We continue to make good progress, as we work toward closing the JLT transaction. As Dan mentioned, we expect to close in the spring and would then be in a position to update our guidance. As part of the planned financing for the acquisition, earlier this month, we issued $5 billion of senior notes across six tranches of various maturities. In the fourth quarter, we entered into contracts to hedge a portion of the risk associated with changes in interest rate.

As a result, we recorded a charge of $116 million related to the change in fair value of these hedges, which were settled as part of our January issuance. With the issuance of these notes, we've completed a substantial portion of the financing required for the JLT acquisition, and currently plan to enter the markets later this quarter for the remainder. We began incurring interest expense on this new debt as of January 15th and will treat this expense as a noteworthy item, net of interest income earned until the closing of the transaction.

As we mentioned last quarter, in order to protect us from exchange rate volatility between announcement and closing, we entered into a deal-contingent foreign exchange hedging contract. As a result of entering into this contract, we recorded a non-cash charge of $225 million, reflecting the change in the fair value of the hedging instrument at the end of the quarter. The amount of this item will change as we progressed toward closing due to exchange rate volatility. Despite the volatility, we will see, from fair value accounting under GAAP, the cost of this hedge was contemplated in our estimate of overall transaction-related expense. We also incurred $27 million of interest expense in the quarter, representing the amortization of fees related to our bridge facility. This $27 million is included in interest expense in our GAAP income statement. All of these costs associated with the JLT acquisition have been treated as a noteworthy item.

As we typically do on our fourth quarter calls, I will give you a brief update on our global retirement plan. Cash contributions to our global defined benefit plans were $112 million in 2018, down from $314 million in 2017. We expect cash contributions in 2019 will be roughly in line with the level in 2018. In the fourth quarter, we recorded a $42 million settlement charge, resulting from distribution elections made by participants in our UK plan. This expense, which is similar to a charge in the fourth quarter of last year, is reflected as a noteworthy item. Excluding this charge, our other net benefit credit was $63 million in the quarter. For 2019, we anticipate our other net benefit credit will be essentially the same as in 2018, excluding the settlement charge.

Turning to investment income. On a GAAP basis, investment income with $12 million in the fourth quarter, and a $12 million loss for the full-year 2018. As we have seen throughout 2018, our GAAP investment income includes mark-to-market gains on certain equity investments, as required by recent accounting changes. Because we do not view the volatility caused by these adjustments, as reflective of our underlying performance, we have excluded them from our adjusted results and show them as noteworthy item. On an adjusted basis, we have $4 million of investment income in the quarter and $18 million for the full-year 2018. For 2019, we expect only modest investment income on an adjusted basis.

Foreign exchange was a slight headwind to EPS in the quarter. Assuming exchange rates remain at current levels, we expect FX to be a modest headwind to adjusted EPS for 2019, excluding any impact from JLT. We expect the majority of this impact in the first quarter.

Our effective adjusted tax rate in the fourth quarter was 23.6% compared with 23.4% in the fourth quarter last year. Excluding discrete items, our effective adjusted tax rate was approximately 27%. For the full-year 2018, our adjusted tax rate was 24.3%. Excluding discrete items, our adjusting tax rate was approximately 26%. When we give forward guidance around our tax rate, we do not project discrete items, which can be positive or negative. Based on the current environment, it is reasonable to assume a tax rate between 25% and 26% for 2019, excluding any impact from JLT.

In 2018, we repurchased 8.2 million shares for $675 million. As part of the capital planning relating to the JLT transaction, it is unlikely we will repurchase any stock ahead of the close of the acquisition. However, in 2019, we anticipate repurchasing enough stock to satisfy our commitment to reduce our share count each year.

Total debt at the end of 2018 was $5.8 billion compared with $5.5 billion at the end of 2017. Our next debt maturity is in September 2019 when $300 million of senior notes will mature. Our cash position at the end of the fourth quarter was $1.1 billion. Uses of cash in the fourth quarter, totaled $591 million and included $213 million for dividends and $378 million for acquisitions.

For the full year 2018, uses of cash totaled $2.6 billion and included $675 million for share repurchases, $807 million for dividends, and $1.1 billion for acquisitions. In 2018, we delivered on our capital return commitment. We reduced our share count by 4.9 million shares or 1%, and increased our dividends per share by 10%.

Before I wrap up, I want to spend a minute on our financial disclosures. Last quarter, we were asked if we were considering changing how we report adjusted earnings per share, specifically, the treatment of the deal amortization. After carefully considering our current disclosures, we have decided that we will not change how we report adjusted earnings per share. We have always included transaction amortization in our earnings and have consistently challenged ourselves to overcome that cost through value creation in our acquisition. JLT doesn't change our perspective.

That said, the integration of JLT will likely involve more adjustments to our numbers over the next two or three years than we have seen historically. So we have decided to include a full cash flow statement with our press release to provide additional information to the investment community as early as possible.

As you see in the statement of cash flows, which appears on Page 19 of our press release schedules, we had significant growth in operating cash flow in 2018. This is reflective of our strong operating performance and a reduction in pension contributions among other factors, and came despite the restructuring charges at Marsh and Mercer during the year.

We are also planning to change our calculation of adjusted operating margins to exclude transaction amortization, so investors can get a better sense of core margin performance. We envision making this change starting with our first quarter reporting.

In summary, we are proud of what we accomplished in 2018; 7% revenue growth, 4% underlying revenue growth, 8% adjusted operating income growth, 30 basis points of adjusted margin expansion and 11% adjusted EPS growth, all while enhancing our position for long-term growth with the acquisition of JLT.

With that, I'm happy to turn it back to Dan.

Daniel S. Glaser -- President and Chief Executive Officer

Thank you, Mark. And operator, we're ready to begin Q&A.


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Questions and Answers:

Operator

(Operator Instructions) We will take our first question today from Kai Pan of Morgan Stanley. Please go ahead.

Kai Pan -- Morgan Stanley, Research Division -- Analyst

Thank you, and good morning. First, I would like to thank Dan Farrell for all their help and wish -- also want to best wishes for Sarah going forward. My first question is on the organic growth. If you look at the last three years, 2016, 2017 organic growth overall 3% percent, and now step up in 2018 to 4%. I wondering if you can go through your major segment to see if that trend going to accelerate going forward?

Daniel S. Glaser -- President and Chief Executive Officer

No. It's a good question, Kai. And obviously, a lot of our focus in the company is driving organic growth in addition to overall revenue growth. We were quite pleased with the 7% growth for the overall company this year, and obviously, 4% underlying is an improvement over the last couple of years. I'll remind you, in 2015, we were 4% and, in 2014, we were 5%, as an overall company. So there's no boundary in terms of what kind of performance that we can get. Obviously, RIS was strong this year, Consulting was a bit choppy year, but when we look forward, we think, generally the trends for the last nine or 10 years, we've been bounded in that 3% to 5% organic growth area. So unless we actually perform above 5% for a period of time, we'll probably going to stay and say that 3% to 5% is the most likely outcome, and with more likely at this stage to be above that then below that, but 3% to 5% is probably where we are in 2019.

Kai Pan -- Morgan Stanley, Research Division -- Analyst

Okay. Then, on the margin front. So if you grow like 4% last year, margin expanded 30 basis points. Part of that because tough comp comparing with 2017. I'm wondering, if you grow the same pace as last year, this year, organically, will the pace of margin expansion be faster?

Daniel S. Glaser -- President and Chief Executive Officer

We would hope so. I mean, at the end, our view is that our margins this year in -- we were quite satisfied with RIS; obviously, Consulting has been a bit choppier in the last couple of years, last year with -- or in 2017 rather with 10 bps of improvement in Consulting and this year actually being negative. That's not our regular way of operating. So we would expect that to turn around and result in better margin performance. But, I'll remind everybody that in this company, we focus more on revenue growth and earnings growth than on margin expansions. I mean, margins will expand as a natural way of us running the business where we almost always grow revenues at a faster pace than we grow expenses. But when we're sitting around the conference table, we're not talking about margin expansion, we are talking about revenue growth and net operating income growth, that is what the focus of the company is.

Kai Pan -- Morgan Stanley, Research Division -- Analyst

Okay. Thank you, so much.

Daniel S. Glaser -- President and Chief Executive Officer

Sure. Next question please.

Operator

Our next question comes from Ryan Tunis of Autonomous Research. Please go ahead.

Ryan Tunis -- Autonomous Research -- Analyst

Yes, thanks. Good morning. So Dan, I didn't hear you call out an expectation for double-digit EPS growth, and I appreciate the JLT creates some challenging comparisons there. But if we just look at legacy Marsh, is it fair to expect something close to 10% plus operating earnings growth under legacy Marsh piece?

Daniel S. Glaser -- President and Chief Executive Officer

When I think about legacy, and when you say Marsh, I guess you mean Marsh & McLennan?

Ryan Tunis -- Autonomous Research -- Analyst

Yes. Sorry.

Daniel S. Glaser -- President and Chief Executive Officer

So overall, when I think about the company, we have delivered despite a great deal of skepticism over many years, a 13% CAGR since 2009, on adjusted EPS growth, with not much of a gap between our GAAP results and our reported adjusted results. So this is real delivery, and obviously, the focus on that is revenue growth and net operating income growth, with a bit of capital management, which has been relatively slight within Marsh & McLennan. And the end result of that has been double-digit performance, but that -- our level of double-digit performance in our view because our costs are largely controllable and visible. As long as we grow well on an underlying basis, we believe we will have strong performance on adjusted EPS. Now, obviously, over the next couple of years, we have the integration of JLT. So it's going to be a little messier and there will be more of a gap between our reported results and our GAAP results. And that's one of the reasons as Mark was saying that we're going to show you what's happening with cash flow, as a way to to really understand from the value being created in the business over time.

Ryan Tunis -- Autonomous Research -- Analyst

Okay. And then my follow-up just on Oliver Wyman, better than expected this quarter, wondering if that's just timing related. Also, some perspective on what you think the drivers of that are going to be next year -- I know that tends to be somewhat of an economically sensitive business. Thanks.

Daniel S. Glaser -- President and Chief Executive Officer

Sure. I'll hand off to Scott in a second. I mean, if I look over the last five years, Oliver Wyman is our fastest growing operating company, although with more volatility, and that's just part of having a business within the overall business that doesn't have much recurring revenue. And so, Oliver Wyman hit the $2 billion mark for the first time in its history, and so we're very pleased with the overall top line performance. Putting that in perspective, that's almost $2 billion of new business that gets created in a given year, and so it shows the strength of the organization. But we all have to bear -- around this table, as well as our shareholders with the notion that that result because of this non-recurring nature has more volatility and as you say, is more exposed or vulnerable to business confidence and general economic trends. But Scott, do you want to dig in a little deeper?

Scott McDonald -- President and Chief Executive Officer of Oliver Wyman Group

Yes, Ryan, just let me reinforce a few other things Dan said. I mean, because of the nature of the business, there's little guaranteed recurring revenue, and our visibility on backlog is typically somewhere between four weeks and three months depending on market conditions and the type of work we're selling. And given that, we do see volatility quarter to quarter and we can either overshoot or undershoot our best estimates of where we're going to be in the next quarter. And as Dan highlighted, for the company, this is largely a revenue rather than an NOI issue because our comp model is very tightly aligned with with revenue.

Now in the second half of 2018, and particularly in the fourth quarter, we did see much stronger demand than we'd been expecting across the entire portfolio and that led to the stronger performance you've seen. That's good news for the business, and it does suggest to us that despite the daily forecasts of gloom and doom for the global economy, individual businesses are still pursuing initiatives that require consulting support. So my view hasn't changed that, we still think this business should generate mid-to-high single digit growth over time, there's still market share for us to take, and I think we're in good shape or 2019.

Daniel S. Glaser -- President and Chief Executive Officer

Thanks Scott. Thanks, Ryan. Next question, please.

Operator

Thank you. We now move to Mike Zaremski of Credit Suisse. Please go ahead.

Michael Zaremski -- Credit Suisse -- Analyst

Hi, good morning. As a follow up to Ryan's question about adjusted EPS growth ex-JLT, if I'm understanding correctly, it sounds like directionally you're backing off the previous 13% EPS growth goal? And if that's -- if that's correct, I am just kind of wondering what's changed?

Daniel S. Glaser -- President and Chief Executive Officer

I don't know where you got that because it's not accurate. The reality is we have never had guidance around adjusted EPS growth. Our guidance that came out of our last Investor Day was that we will grow our dividend double-digit each year and we would reduce our share count each year. And we also said that our view was over long stretches of time, not particularly every year, not particularly every quarter, that we would deliver a long-term CAGR around 13% in our view. Now we've had ups and downs to that. Obviously, we've had stronger adjusted EPS performance in the early stages when we were having dramatic margin expansion, eight and seven years ago. But we have still had double-digit adjusted EPS growth, and last year was particularly strong for a variety of different reasons. And so, our remains that over a long stretch of time, we believe that adjusted EPS growth around 13% is achievable. Now it requires having better growth than 3% underlying. Now -- I mean, obviously, it becomes easier at 5% and 6% than it is at 4%. But we absolutely believe that there is a strong opportunity in the company to continue to deliver very good adjusted EPS growth. And you know -- I mean, it's just -- just take a moment and talk a little bit about the component parts because, obviously, revenue growth, margin expansion, capital management delivers adjusted EPS growth. And when you have margin expansion -- when your margins are low, then you can have pretty dramatic margin expansion, which makes double-digit adjusted EPS growth more of a layout. Now that we have very strong margins, it becomes more difficult, and it means that the top line becomes more important. So if I look back six, seven, eight years ago, it was a margin expansion story; now it becomes a top-line achievement required in order to deliver the adjusted EPS growth that we've delivered in the past.

Michael Zaremski -- Credit Suisse -- Analyst

Understood. Thank you. Yes, one follow-up. Mark did you -- do you give tax rate guidance for 2019? I believe that some of your peers are waiting for the Treasury to issue a bunch of guidance, which they issued potentially back this past December? Thanks.

Mark McGivney -- Chief Financial Officer

Yes. As I said in my script, the outlook for this year 2019 is between 25% and 26%, excluding discrete items and also without regard to any impact from JLT.

Michael Zaremski -- Credit Suisse -- Analyst

Okay. So no major changes year-over-year? Thanks.

Daniel S. Glaser -- President and Chief Executive Officer

Next question please.

Operator

Thank you. We now move to Meyer Shields of KBW. Please go ahead.

Meyer Shields -- Keefe, Bruyette, & Woods, Inc., Research Division -- Analyst

Thanks. Mark, can you quantify whether there -- or I guess discuss whether there's any impact on the individual segment margins from Foreign Exchange filings in the quarter?

Mark McGivney -- Chief Financial Officer

Overall -- as I said, FX was a modest headwind in the quarter, but it was modest. And so, the level of significance to margins in earnings by segment was relatively insignificant, which is why we didn't call it out.

Meyer Shields -- Keefe, Bruyette, & Woods, Inc., Research Division -- Analyst

Okay. That's fair. Broadly speaking, I think it's more of a question for Dan. Given the tight employment markets, do you need more organic growth now to translate into natural margin expansion that would have been the case two, three, four years ago?

Daniel S. Glaser -- President and Chief Executive Officer

Not quite sure I understand your question, Meyer. Do you want to give it another go?

Meyer Shields -- Keefe, Bruyette, & Woods, Inc., Research Division -- Analyst

Sure. I'm basically asking whether there is a higher natural upward drift in compensation expenses now than in past years just because of the domestic employment situation.

Daniel S. Glaser -- President and Chief Executive Officer

We like a lot of others have watched whether wage inflation appears. You will see in our disclosures that our compensation line from a fixed basis -- our comp and ben line is mildly lower as a percentage of revenue than it was last year. And so, it certainly is not manifesting. One of the benefits that we have is that our bonus arrangements are driven off of earnings, and so I'm pleased to say that 2018 will be the 10th consecutive year of the overall Marsh & McLennan Companies' bonus pool has increased. And so that gives us some flexibility to manage fixed cost because of the increases in our variable compensation.

Meyer Shields -- Keefe, Bruyette, & Woods, Inc., Research Division -- Analyst

Okay. Excellent. Thanks so much.

Daniel S. Glaser -- President and Chief Executive Officer

Next question please.

Operator

Thank you. We now move to Elyse Greenspan of Wells Fargo. Please go ahead.

Elyse Greenspan -- Wells Fargo Securities LLC -- Analyst

Hi, good morning. My first question kind of goes back to your organic growth outlook, the 3% to 5% range for this coming year. Dan, you know we've had some folks kind of speculating whether or not we're going to go into a recession -- this year, maybe that's something that's more 2020, I guess, just interested in a broader view, if we do go into recession on your brokerage business very economically sensitive, how do you see that playing out? And then, could you remind us if we -- you know, as we've gone into past recessions, is there a lag like how should we think about the potential for a recession to flow through into the revenue within your brokerage business?

Daniel S. Glaser -- President and Chief Executive Officer

Yes. I mean, obviously expansions and recessions are a natural part of the economic cycle, and it's interesting how basically the watch has begun for when will the next recession occur. We don't have a view about that. What we would say, you know, in the worst financial crisis, in generations, RIS was down 1% in 2009, Consulting was down around 6%, and then bounced back strongly the following year in 2010. I would say from an overall standpoint, our recurring revenue businesses are more resilient and more insulated from immediate economic impacts, and so you'd have to have deep and long recession to have a significant impact.

Oliver Wyman tends to be a little bit of our canary in the coal mine because usually in recessions companies start reducing discretionary expenses or projects related to the future because they humper down to deal with the present. And right now, as you heard from Scott, we're not seeing it. That doesn't mean that there won't be some sort of recession sometime in either the 2020, 2021, 2022 -- I was saying that on when I was interviewed in Davos, but ultimately, the impact on our business relative to other companies in the S&P 500, is far milder because of the level of requirement around many of our businesses and the advice that we give.

Elyse Greenspan -- Wells Fargo Securities LLC -- Analyst

Okay, that's helpful. And then my second question, I was hoping if we can get a little bit of an update on Marsh & McLennan Agency, MMA. So, strong growth within the US and Canada in the quarter, could you comment or just give us a little sense, usually MMA growth is faster than the rest of Marsh, is that still the case and can you just provide an update on how that business has been trending and where the revenue sits today?

Daniel S. Glaser -- President and Chief Executive Officer

Yes. I'm thrilled with the question because Mark and I are here running corporate and we've got these guys around the table who are running big businesses and have delivered a fantastic result for the year, but John you want to talk a little bit about MMA?

John Q. Doyle -- President and Chief Executive Officer of Marsh

Sure. Thanks for putting me to work, Elyse. So, terrific year again. They continue to execute well, strong underlying growth performing quite well. What I'm particularly encouraged about, you know, that Dave and his team are operating a better together campaign. So, they're working and leaning on each other within the agency, better than they ever have and leaning in to Marsh as well, grabbing resource when it can, helping Marsh in other parts of the world, develop its middle-market, value proposition and its sales strategies in other parts of the world. What I would say about their year in 2018 was, it was very consistent between P&C and benefits and really by region. So, there's a lot to feel good about, and I would remind you, as big as the business has become, we have a relatively modest market share as well. So, if we see plenty of opportunity for growth in the future.

Daniel S. Glaser -- President and Chief Executive Officer

As we mentioned before as well, just adding to John's comments, we have good acquisition pipeline within the agency and despite the commitment -- significant commitments with regard to JLT, we have provided for continuing funding for acquisitions within Marsh & McLennan Agency.

John Q. Doyle -- President and Chief Executive Officer of Marsh

I could make one other comment too, Dan, because I think Elyse asked about the comparisons to the rest of the US business. Marsh US had a very strong year, this year as well. So, certainly, ordinarily MMA's organic growth has outpaced Marsh US, but Marsh US had a terrific year, this year.

Daniel S. Glaser -- President and Chief Executive Officer

Thank you. Next question, please. Operator, next question please.

Operator

Thank you. Larry Greenberg of Janney Montgomery Scott has our next question. Please go ahead.

Larry Greenberg -- Janney Montgomery Scott -- Analyst

Thank you, and good morning. Just looking at within Marsh in the International segment, it appears that organic was trending up over the course of the year, and certainly the fourth quarter was pretty impressive. Are there any underlying trends to decipher there or is that just the episodic nature of the markets?

Daniel S. Glaser -- President and Chief Executive Officer

John?

John Q. Doyle -- President and Chief Executive Officer of Marsh

Sure. What I would say is, on the International side, we had consistent strong performance in Latin America, Asia, Continental Europe, so really broadly speaking had terrific results internationally. As I pointed out on prior calls, during the course of 2018, we're facing some headwinds in the Middle East and also in the UK, both rebounded a bit in the fourth quarter, a bit stronger performance in the Middle East and in Africa in the fourth quarter and we made some leadership changes there as we talked about in the past. Terrific team, making a difference and I expect good solid growth in the Middle East during 2019. The UK leadership changes have also taken hold and I'm seeing some good positive signs. Having said that, there are obviously some macro headwinds in the UK, so I don't expect the UK to be leading the overall growth in Marsh in 2019, but I do on the other hand think we're performing much better than we did about a year ago.

Larry Greenberg -- Janney Montgomery Scott -- Analyst

Thanks. And then just maybe some comments on your view of commercial lines market conditions; we haven't had many underwriters report to date, but there seems to be, maybe a slight bit of optimism in the year of maybe some acceleration in pricing in some areas of the marketplace, just curious of your view of where things stand?

John Q. Doyle -- President and Chief Executive Officer of Marsh

Okay. I'll give you some data rather than optimism or pessimism maybe. Pricing was up nearly 2% in the fourth quarter versus 1.4% in the third quarter. The US and UK, which as you know is a big part of our business overall, pricing was slightly up on average. Australia remains the outlier market, where prices are relatively firm on average, 10-plus percent increases across most product lines. Most other countries, pricing is right around the 1% on the increase range. Product view of casualty was down slightly, primarily due to work comp in the US, and I would say most other casualty lines are up couple of points on average, but work comp brings that average down. Property prices didn't move much in the fourth quarter, compared to earlier in 2018; they were up about 3.5% in the quarter. In financial lines, D&O pricing, the E&O pricing, prices were up over 4%, which was about 100 basis point increase from what we saw in the third quarter. I would say, before I ask maybe Peter to jump in here, the market was a bit choppier at the end of the year, there's no questions. So, I think the range of outcomes was a bit wider than what we had seen earlier in the year, although the average didn't more all that much, and capital levels do remain strong. So, I certainly wouldn't project. I would anticipate continued -- relatively stable market on average.

Daniel S. Glaser -- President and Chief Executive Officer

Peter?

Peter Hearn -- President and Chief Executive Officer of Guy Carpenter

Thank you. Larry, I would say that overall, if I look at the 1/1 renewals of the reinsurance market, they were muted and it really was a function of clients who experienced loss activity, particularly in the recessional and the property markets more than any other market that we saw. Casualty was -- pricing was relatively stable. In the United States, we saw some downturn in pricing in the European renewals, but overall, I'd say pricing was muted. We didn't see any significant increases.

Daniel S. Glaser -- President and Chief Executive Officer

Thanks. Next question please. Operator, next question please.

Operator

Thank you. Jay Cohen of Bank of America has our next question. Please go ahead.

Jay Cohen -- Bank of America -- Analyst

Thank you. I just want to echo the thoughts on Dan Farrell. He's done a great job as IR person and good luck of course to the next team coming in. So, question on the US and Canada, the organic growth there, obviously strong. If you just look at GDP growth, maybe a little bit of tailwind from pricing, but not much, you'd guess that you guys are gaining share in the US and Canada. And I'm wondering, one if that's the case? And secondly, if that is the case where is that share gain -- where is it, what products or what parts of the business?

Daniel S. Glaser -- President and Chief Executive Officer

First of all -- yes, I will hand off to John in a second, but we tend not to talk about market shares although some other do because it's not audited, there is not third party that calculates this in the US and when I look at some marketing materials here and there, it seems like everybody has got a very high share, and so ultimately, we're out there account by account in different segments of the market. I think the variety of our businesses is also very helpful because we're highly specialized, highly segmented, but John do you want to give some color into individual pockets of particular strength in the US-Canada?

John Q. Doyle -- President and Chief Executive Officer of Marsh

Sure. Jay, I talked about MMA before, so maybe I'll just focus on Marsh US. They had a terrific quarter, as I said, very strong new business in the year. Retention also picked up during the course of the year, which is a year-on-year phenomenon, so that certainly helps with the roll over into what we saw on 2018. We had good specialties performance across the board, maybe to highlight a few areas that had particularly strong growth. Our private equity group, which advices portfolio companies and PE firms had terrific growth in the year. Transaction risk, given the M&A market, an increasing penetration into adding insurance as a means to help get deals closed at very strong growth.

Cyber, of course, continues to grow and now is becoming a meaningful part of our portfolio. Marsh Risk Consulting also had a very strong year in the US and rest of world by the way, but had terrific growth advising clients on how to really bend their risk curve over time. Our underwriting operations, Victor, Torrent and ICAT, also had terrific years this year. So, all of that contributed to a really -- really since we've been reporting this way, the best year on record for Marsh in the US.

You mentioned Canada briefly. And Chris Lay, who had moved into Canada a couple of years ago and now is leading our UK operations really set the stage nicely and Sarah Robson stepped in early in 2018 to take over that operation. They had their best quarter and best year of growth in a long-long time in Canada. There's obviously a mature market there. So, some of the products in Canada that grew are the same that saw good outcomes in the United States, but yes it was a really strong performance across really most businesses in the United States.

Daniel S. Glaser -- President and Chief Executive Officer

Anything else, Jay?

Jay Cohen -- Bank of America -- Analyst

No, that's it, John. Very helpful answer as usual. Thank you.

Daniel S. Glaser -- President and Chief Executive Officer

Operator, next question please.

Operator

Our next question comes from Brian Meredith of UBS. Please go ahead.

Brian Meredith -- UBS Investment Bank, Research Division -- Analyst

Yes, thank you. First, Mark, thanks for providing the cash flow statement, it's really helpful. And a quick question on it. If I take a look at your free cash flow that you generated for the year, obviously a really, really strong part of it, a big part of it the pension drop. But even ex the pension, it looks like $350 million increase in free cash flow. Is there anything unusual kind of happening this year on the free cash flow working capital or could we expect to ex-JLT to continue to see that kind of strength in free cash flow generation?

Mark McGivney -- Chief Financial Officer

Actually, if you look down the column in 2018, there is relative stability in a lot of the balance sheet items that could swing around. So, it was pretty straightforward and pretty strong and as simple as strong operating earnings growth and the $200 million or so reduction in pension contribution. Those were the big drivers. If you look back to 2017, there was a lot geography noise with some of the accounting around tax reform. The 2018 was pretty clean and as Dan said, JLT is going to involve some noise over the next two or three years, but excluding that, our outlook would be that it's for a strong earnings growth and we would expect strong cash flow growth as well.

Brian Meredith -- UBS Investment Bank, Research Division -- Analyst

Great. And then my second question, just going to Mercer. You announced additional restructuring charge going on here, may be little behind the restructuring, is that simply because of the organic growth at Mercer just trying to keep margins stable or is that margin accretive, kind of what's the thought process behind that?

Daniel S. Glaser -- President and Chief Executive Officer

I'll start by just saying, we don't -- we're not doing restructurings, even mild restructurings with margins in mind. We do restructurings based upon how we look as a go forward business, but Julio?

Julio A. Portalatin -- President and Chief Executive Officer of Mercer

Thank you, Brian. As Dan mentioned, our ability to be able to continue to look at our business day-in and day-out and maximize opportunities, to invest where it's necessary to do so to accelerate growth, comparable growth, and also to disinvest in some of the areas of our business as well is pretty much what we're trying to do at this point with this restructuring. The investments that we've made in areas of data analytics, digital, middle-market expansion, of course our very successful investment management business, our health benefit platform, and several acquisitions that we've made or indeed experiencing accelerated growth.

As you know, we've had some challenges with some portions of our business that we've discussed in past, but today the fast-changing landscape requires that we review in our position and take action when needed to accelerate some further investments and, as I said, disinvestments, which are prudent in our business. We'll continue to do that and our earnings obviously will be positively impacted by some of the actions that we're taking and it'll continue to give us some, let's say, tailwind as we go into 2019.

Brian Meredith -- UBS Investment Bank, Research Division -- Analyst

Got you. So, if I understand correctly, it's basically to be able to invest in other areas, this is kind of the -- it will be offset with investments?

Julio A. Portalatin -- President and Chief Executive Officer of Mercer

I mean the restructured combines growth and investment with actions and improved efficiencies.

Brian Meredith -- UBS Investment Bank, Research Division -- Analyst

Okay.

Daniel S. Glaser -- President and Chief Executive Officer

So, there will be some tailwind, as Julio said, on the bottom line and on margins within consulting as a result, but it won't all drop.

Brian Meredith -- UBS Investment Bank, Research Division -- Analyst

Great. Thank you.

Daniel S. Glaser -- President and Chief Executive Officer

Operator, next question please.

Operator

David Styblo with Jefferies has our next question. Please go ahead.

David Styblo -- Jefferies LLC, Research Division -- Analyst

Sure. Thanks for taking the questions, Dan. I'll try to keep the executive team involved. My first one is, just on Guy Carpenter, the fourth quarter number is 5% that was pretty solid, especially in light of last year's tough comp, and I think maybe at least half of that 7% growth a year ago was from storm activities. So, curious to hear a little bit about the strength in the business. You guys had even talked about the fourth quarter being more tempered, so it's obviously been a really strong year and curious to hear a little bit more about the sustainability of the 7% growth that you guys have experienced for full-year?

Daniel S. Glaser -- President and Chief Executive Officer

Peter?

Peter Hearn -- President and Chief Executive Officer of Guy Carpenter

Yes, thank you, David. I mean, obviously, it was a very good year. We're very pleased with it. And we expect some quarterly volatility in the growth rates in terms of the results of the phasing of the revenue that we now have, but we continue to build the business to grow irrespective of the macro environment. And I mean, if you look at our business, our new business growth over the past two years has been significant. We have strong disciplined pipelines that we continue to manage on a monthly basis, and it's bearing the fruit that we've made the investments in people and infrastructure to create strong pipelines and strong new business growth.

David Styblo -- Jefferies LLC, Research Division -- Analyst

That's helpful thanks. And then maybe Dan coming back to you, the overall business obviously has some very strong momentum as you're exiting the year, especially in RIS, you've had like a 5% organic growth -- 5% organic growth -- 6%, I know you would like to talk about the last four quarters. I guess as you stand here and you're going forward into 2019, how -- and there are certain tailwinds that are coming, it seems like EMEA is starting to turn the corner after it was having some tough times, how sustainable is that performance, particularly in light of your earlier comments about how important it is to drive the top line more than margin expansion because margins have increased a lot over the last decade and then I will contribute as much to the bottom line now is, as the top line in organic growth. So, just thinking about the points of emphasis to making sure we have as much line of sight as possible in the top line. How do you view that sustainability of the organic growth trends that you've seen particularly in the back half?

Daniel S. Glaser -- President and Chief Executive Officer

Well, the way I look at it is, we -- all four of our businesses are run well. And have done things over a number your years to position us well for long-term growth and for improving profitability. Obviously, we exist in the world, so matter of factors impact us just like they do to everybody else, but where the