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Arthur J. Gallagher & Co. (AJG)·Q1 2025 Earnings Summary

Executive Summary

  • AJG delivered a strong Q1 2025: combined Brokerage and Risk Management revenues rose 14% YoY with 9% organic growth; adjusted EPS was $3.67 and adjusted EBITDAC margin reached 41.1% driven by cost controls and interest income on AssuredPartners (AP) financing .
  • Versus consensus, AJG posted a beat on EPS and a miss on S&P Global revenue: EPS $3.67 vs $3.58 consensus; revenue $3.44B vs $3.68B consensus. Company-reported revenues before reimbursements were $3.69B; definitional differences likely explain the S&P revenue gap .
  • Guidance was maintained: Brokerage organic growth 6–8% for FY25; Risk Management organic growth 6–8% and margins ~20.5%; underlying Brokerage margin expansion of ~60–100 bps for FY25 .
  • Regulatory: AJG received a Second Request under HSR for AP; expects closing in H2’25. M&A remains active: 11 tuck-ins ($100M annualized) in Q1 and Woodruff Sawyer ($250M annual revenue) closed in April, adding scale and specialty capabilities .

What Went Well and What Went Wrong

What Went Well

  • Broad-based growth and margin expansion: “We had a fantastic first quarter… 14% revenue growth, 9% organic… adjusted EBITDAC margin increased 338 bps to 41.1%” (CEO). Brokerage adjusted EBITDAC margin was 43.4%, with underlying expansion and AP financing interest income contributing ~260 bps .
  • Reinsurance outperformance: Gallagher Re delivered ~20% organic growth, with more than half from new business wins (15 clients >$1M each), plus increased renewal premiums and some timing benefit (CFO/CEO) .
  • Accretive M&A and pipeline: 11 tuck-ins ($100M annualized) in Q1; Woodruff Sawyer ($250M) closed in April; AP remains on track for H2’25; >40 term sheets signed or being prepared representing >$450M annualized revenue (CEO/CFO) .

What Went Wrong

  • Revenue miss on S&P Global measure despite strong company-reported growth: S&P revenue actual $3.44B vs $3.68B consensus (miss) while company “Revenues before reimbursements” were $3.69B; highlights definitional mismatch between S&P and company reporting .
  • Risk Management segment cost pressure: Adjusted compensation expense ratio rose 0.8 pts YoY; organic fee growth (3.9%) lagged expectation due to slower new business revenue recognition (CFO) .
  • Higher corporate interest and banking costs tied to increased borrowings to fund AP; corporate segment reported net loss widened YoY, reflecting higher debt service (8.7% effective tax benefit offset) .

Financial Results

Consolidated Performance vs Prior Quarters

MetricQ3 2024Q4 2024Q1 2025
Revenues Before Reimbursements ($USD Billions)$2.77 $2.68 $3.69
Total Revenues ($USD Billions)$2.81 $2.72 $3.73
Diluted EPS (GAAP) ($USD)$1.39 $1.12 $2.72
Adjusted EPS ($USD)$2.26 $2.13 $3.67
EBITDAC ($USD Billions)$0.69 $0.69 $1.30

Segment Breakdown – Q1 2025 vs Q1 2024

SegmentRevenues (as reported, $USD Millions)Adjusted EBITDAC ($USD Millions)Adjusted EBITDAC Margin (%)
Brokerage$3,314.6 vs $2,864.9 $1,436.6 vs $1,123.8 43.4% vs 39.8%
Risk Management (rev before reimbursements)$373.4 vs $352.8 $76.5 vs $72.7 20.5% vs 20.7%

KPIs and Operating Drivers

KPIQ1 2025Q1 2024 / Commentary
Total organic commissions, fees, supplementals & contingents (Brokerage)+9.5% +—
Risk Management organic fees+3.9% +—
Brokerage adjusted compensation expense ratio46.6% vs 49.0% (–2.4 pts) Benefited from interest income on AP financing and headcount controls
Brokerage adjusted operating expense ratio9.9% vs 11.1% (–1.2 pts) Lower T&E, technology, integration, and real estate savings; AP interest income tailwind
Pricing environment (renewal premium changes)Property –2%; Casualty +8%; Umbrella +11%; GL +5%; Commercial Auto +6%; D&O –3%; Workers’ Comp +5%; Personal +8% “Rational” P/C market; bifurcation by account size

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Brokerage Organic GrowthFY 20256–8% (March IR Day) 6–8% Maintained
Risk Management Organic GrowthFY 20256–8% (March IR Day) 6–8% Maintained
Risk Management Adj. EBITDAC MarginFY 2025~20.5% (March IR Day) ~20.5% Maintained
Brokerage Underlying Margin ExpansionFY 2025~60–100 bps (at 6–8% organic) ~60–100 bps Maintained
Corporate adjusted after-tax expense cadenceQ2–Q4 2025—+$1M per quarter (timing normalization) New detail
DividendQ2 2025Prior declared $0.60 (Q4 2024) $0.65 per share declared Apr 30, 2025 Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
Primary market pricingQ3: Renewal increases steady; positive exposures . Q4: Renewals consistent; Jan 2025 reinsurance buyers favored .Property –2%, casualty +8%; umbrella +11%; rational market .Property moderation; casualty firming.
Reinsurance marketQ4: Jan 1 renewals orderly; favored buyers .Gallagher Re +20% organic; strong capacity and new wins .Strengthening execution, cross-sell synergies.
AI/tech/dataRisk factor emphasis in filings .New reinsurance and benefits systems improve timing visibility .Ongoing investment in systems and analytics.
Macro/tariffsFilings note tariff/geopolitical risks .No meaningful client activity change from tariffs; monitoring closely .Watchful but stable client activity.
Regional trends—International organic ~4%; ANZ seasonality; UK retail holding .Stable to modest growth across regions.
Regulatory/legal—AP HSR Second Request; H2’25 close expected .Process advances; timeline reiterated.

Management Commentary

  • CEO: “We had a fantastic first quarter… our first quarter net earnings margin increased 175 basis points to 23.0%, our adjusted EBITDAC margin increased 338 basis points to 41.1%, and adjusted EBITDAC grew year-over-year by 26%” .
  • Market view: “Global P/C insurance market continues to behave rationally… property declining 2% and casualty increasing 8% during first quarter 2025” .
  • M&A momentum: “Completed 11 new mergers… ~$100 million annualized revenue… completed Woodruff Sawyer… adding more than $250 million annual revenue” .
  • CFO margin bridge: Brokerage adjusted EBITDAC margin of 43.4% included ~260 bps from interest income on AP financing; underlying margins up ~100 bps; second quarter expansion ~300 bps expected; underlying FY margin expansion still ~60–100 bps .

Q&A Highlights

  • Reinsurance growth drivers: >50% from new business (15 wins >$1M each), ~5% from increased renewal premiums, residual timing effects; still upper-teens organic ex-timing .
  • AP transaction process/timing: Responding to DOJ Second Request; clock starts upon certification; H2’25 close expected; AP turnover and organic profile supportive .
  • Pricing bifurcation by account size: Larger accounts (fees) more insulated; smaller accounts see higher rate increases due to less negotiating power .
  • Workers’ comp uptick: +5% reflects exposure growth and medical inflation; carriers acting proactively .
  • Specialty performance: Binding mid-teens growth; open brokerage mid-single digits; supplementals strong with more carrier relationships .

Estimates Context

PeriodEPS Consensus Mean ($)EPS Actual ($)Revenue Consensus Mean ($USD Billions)Revenue Actual ($USD Billions)# EPS Est.# Rev Est.
Q3 20242.273*2.26 2.797*2.631*16*4*
Q4 20242.029*2.13 2.702*2.534*15*5*
Q1 20253.580*3.67 3.682*3.441*12*3*

Values retrieved from S&P Global. Company-reported “Revenues before reimbursements” for Q1 2025 were $3.688B , indicating definitional differences vs S&P revenue.

  • Q1 2025: EPS beat (+$0.09 vs consensus), revenue miss (–$0.24B vs consensus). Prior quarter EPS also beat; revenue missed both in Q3 and Q4 on S&P’s definition .

Key Takeaways for Investors

  • AJG’s Q1 strength was broad-based with outsized reinsurance growth and disciplined cost management; underlying margin expansion persists even excluding AP interest income tailwind .
  • EPS beat reflects margin expansion, lower comp/opex ratios, and AP financing interest income; revenue miss is largely a definitional matter versus S&P, while company-reported revenues grew strongly .
  • Guidance intact: expect 6–8% organic growth (Brokerage and Risk Management) and ~20.5% Risk Management margins; underlying Brokerage margin expansion ~60–100 bps for FY25 .
  • M&A runway remains robust (>$2B capacity in 2025; >$5B in 2026) and pipeline is active; Woodruff Sawyer adds specialty scale; AP close in H2’25 is a 2025 catalyst .
  • Pricing backdrop: property easing, casualty firming; fee-heavy large accounts offer relative revenue resilience; watch weather risk and casualty reserve development into H2 .
  • Corporate interest costs elevated given debt raised for AP; credit facility extended to 2030 and upsized to $2.5B, supporting liquidity and deal capacity .
  • Dividend increased to $0.65 and maintained for Q2 2025, signaling cash flow strength and confidence .

Notes

  • Non-GAAP adjustments materially impacted results, notably intangible amortization, acquisition-related items, workforce/lease termination costs, and foreign currency levelizing. See detailed reconciliations in the earnings materials .
  • Effective tax rate was 18.8% in Q1 2025 .
  • Segment commentary: Brokerage interest income from AP financing contributed ~260 bps to margin; excluding this, adjusted Brokerage margin would be ~40.9% .
  • Regulatory update: AP HSR Second Request; AJG expects close in H2’25 .