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Arthur J. Gallagher & Co. (AJG)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenues before reimbursements were $2.68B; diluted EPS was $1.12 and adjusted EPS was $2.13, with adjusted EBITDAC of $686.7M .
  • Brokerage organic revenue grew 7.1%; adjusted EBITDAC margin expanded to 33.1% (32.5% excluding ~$20M interest on AssuredPartners financing) as adjusted EBITDAC rose 17% year over year .
  • Risk Management delivered 6.0% organic fee growth and a 20.6% adjusted EBITDAC margin; total Brokerage + Risk Management adjusted EPS was $2.51 vs $2.19 in Q4 2023 .
  • Management reaffirmed FY2025 outlook: Brokerage organic 6–8% with expected margin expansion of ~50–100 bps depending on growth; Risk Management organic 6–8% with margins ~20.5%; dividend increased to $0.65 from $0.60 ahead of Q1 2025 .
  • Near-term catalysts include closing the AssuredPartners acquisition (target Q1), incremental fiduciary investment income post-integration, and continued mid-single-digit P/C renewal premium increases, especially in casualty lines .

What Went Well and What Went Wrong

What Went Well

  • Strong segment execution: “Our core brokerage and risk management segments combined to deliver our 16th consecutive quarter of double-digit revenue growth… adjusted EBITDAC grew 17%!” — J. Patrick Gallagher, Jr. .
  • Margin expansion in Brokerage: Adjusted EBITDAC margin rose to 33.1%; excluding ~$20M interest income on AssuredPartners financing proceeds, margin would be 32.5% (up 109 bps YoY) — CFO commentary echoed expectations for 2025 margin expansion .
  • Robust M&A momentum and strategic deal: 20 mergers in Q4 (48 in 2024; $387M annualized revenue) and agreement to acquire AssuredPartners ($13.45B), funded by December equity and debt raises .

What Went Wrong

  • Contingent revenues softness: Organic contingent revenues declined 10.9% YoY; management cited an approximate $7M shortfall vs October expectations, including three Canadian programs .
  • Corporate interest burden elevated: Corporate segment interest and banking costs remained high due to recent debt issuances; Q4 corporate interest pretax loss was $93.7M .
  • Risk Management opex ratio uptick: Reported operating expense ratio rose 1.2 pts YoY (technology spend, business insurance, integration and workforce-related costs) even as adjusted margin remained ~20.6% .

Financial Results

Total Company – Sequential Trend (oldest → newest)

MetricQ2 2024Q3 2024Q4 2024
Revenues Before Reimbursements ($USD Millions)$2,736.0 $2,766.5 $2,680.0
Diluted Net EPS (Reported)$1.26 $1.39 $1.12
Adjusted EPS (Total Company)$2.26 $2.26 $2.13
EBITDAC ($USD Millions)$690.3 $690.9 $686.7

Note: The CEO referenced GAAP EPS of $1.56 on the call, which corresponds to the combined Brokerage & Risk Management segments; Total Company diluted EPS was $1.12 per the press release .

Q4 Year-over-Year (Q4 2023 → Q4 2024)

MetricQ4 2023Q4 2024
Revenues Before Reimbursements ($USD Millions)$2,393.1 $2,680.0
Diluted Net EPS (Reported)($0.15) $1.12
Adjusted EPS (Total Company)$1.82 $2.13
EBITDAC ($USD Millions)$514.3 $686.7

Segment Breakdown – Q4 2024 vs Q4 2023

Segment MetricQ4 2023Q4 2024
Brokerage Revenues Before Reimbursements ($MM)$2,051.5 $2,296.2
Brokerage Adjusted EBITDAC ($MM)$641.4 $760.3
Brokerage Adjusted EBITDAC Margin (%)31.4% 33.1%
Risk Mgmt Revenues Before Reimbursements ($MM)$340.4 $369.4
Risk Mgmt Adjusted EBITDAC ($MM)$70.7 $76.2
Risk Mgmt Adjusted EBITDAC Margin (%)20.9% 20.6%
Total B&RM Adjusted EPS ($)$2.19 $2.51

KPIs

KPIQ4 2024Q4 2023
Brokerage Organic Total (Commissions/Fees/Supplemental/Contingent)7.1% —
Organic Base Commissions & Fees (Brokerage)7.8% —
Organic Supplemental Revenues (Brokerage)4.7% —
Organic Contingent Revenues (Brokerage)-10.9% —
Risk Mgmt Organic Fees6.0% —
Q4 Acquisitions Closed (Brokerage)19 13
Est. Annualized Revenue Acquired (Brokerage, $MM)$188.7 $350.7
Q4 Acquisitions Closed (Risk Mgmt)1 1
Est. Annualized Revenue Acquired (Risk Mgmt, $MM)$9.9 $59.1
Q4 Renewal Premium Changes by Line (Global)Property ~flat; Professional ~flat; WC +1%; GL +4%; Commercial Auto +9%; Umbrella +10%; Personal +9% —

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Brokerage Organic GrowthFY 20256–8% (Oct guidance) 6–8% (reaffirmed) Maintained
Brokerage Margin ExpansionFY 2025At 6% organic ~50 bps; at 8% ~100 bps Same ranges Maintained
Risk Mgmt Organic GrowthFY 20256–8% (Oct guidance) 6–8% (reaffirmed) Maintained
Risk Mgmt Adjusted EBITDAC MarginFY 2025~20.5% ~20.5% Maintained
AssuredPartners Closing TimingQ1 2025Pending Q1 close Pending Q1 close Maintained
Dividend per ShareQ4 2024 → Q1 2025$0.60 declared for Q4 2024 $0.65 declared for Q1 2025 Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024, Q3 2024)Current Period (Q4 2024)Trend
P/C Pricing & Renewal PremiumsQ2: Global renewals +5%; property moderating, casualty advancing . Q3: Little changed; hurricanes adding complexity to Jan 1 property renewals .Q4: Renewal increases consistent with prior quarters; January 2025 above 5%, driven by casualty (umbrella, commercial auto) .Steady-to-slightly higher, casualty-led.
Reinsurance MarketQ2: Disciplined underwriting with ample capacity . Q3: Complexity for Jan 1 property cat renewals .Q4: 1/1 orderly; property price declines at top of towers; reinsurers cautious on U.S. casualty .Buyer-favorable in property; caution in casualty.
Contingent RevenuesQ2 organic -5.4% ; Q3 organic +24.4% .Q4 organic -10.9%; ~$7M shortfall vs October expectations .Volatile; Q4 softer.
M&A Pipeline & AssuredPartnersQ2: >$500M pipeline . Q3: Robust pipeline .Q4: 20 mergers; AssuredPartners announced; low pipeline overlap; expected Q1 close .Accelerating tuck-ins; transformative acquisition pending.
Technology/Data/AI EnablementRisk disclosures mention AI use/costs .Service centers and standardization enable AI; scaling India operations; potential headcount growth while moving up the value chain .Increasing technology leverage and scalability.
Macro/CatastrophesQ3: Hurricanes noted .Q4: California wildfires; active client support; monitoring potential impacts .Elevated catastrophe backdrop.
Employee Benefits/Health Inflation—Health inflation likely rising in 2025; supports employee benefits consulting demand .Tailwind to benefits brokerage.

Management Commentary

  • “Our core brokerage and risk management segments combined to deliver our 16th consecutive quarter of double-digit revenue growth… adjusted EBITDAC grew 17%!” — J. Patrick Gallagher, Jr. .
  • “Excluding net interest income, [Brokerage] margins would have been 32.5%, up 109 bps… nicely above our October expectation of margin expansion in the 90–100 bps range.” — Douglas Howell .
  • “We anticipate we will receive necessary approvals and complete the [AssuredPartners] acquisition sometime here in the first quarter.” — J. Patrick Gallagher, Jr. .
  • “We continue to see full year ’25 Brokerage segment organic in the 6% to 8% range… Risk Management organic also in that 6% to 8% range with margins around 20.5%.” — Douglas Howell .
  • “January 1, 2025 reinsurance renewals were orderly… property price declines at the top end of towers… reinsurers cautious on U.S. casualty.” — J. Patrick Gallagher, Jr. .

Q&A Highlights

  • Seasonality cadence: Reinsurance skew to Q1 could lift Brokerage organic early in the year despite some pricing declines; health and welfare renewals also skew to Q1 .
  • Contingent revenue shortfall: Approx. $7M vs October expectations, broadly dispersed across hundreds of contracts plus three Canadian programs with weaker results; not viewed as systemic .
  • AssuredPartners fiduciary income optimization: Opportunity to consolidate cash management akin to Gallagher’s prior bank account centralization—expected integration within ~18 months .
  • Growth components for Brokerage 2025: Roughly half net new business; one quarter rate; one quarter exposure; no large tailwind assumed from catastrophes or casualty reserve actions .
  • India operations and AI: Scaling service centers and standardization to accelerate AI adoption; potential to add “thousands” of employees yet improve margins and service quality .

Estimates Context

  • S&P Global consensus data was unavailable at time of query due to system limits; we could not compare reported results to Wall Street estimates. Values retrieved from S&P Global were unavailable for this request.
  • Given internal commentary, Brokerage adjusted margin expansion exceeded October expectations, but this is not a proxy for sell-side consensus and should not be interpreted as a “beat” vs Street estimates .

Key Takeaways for Investors

  • Brokerage executing well with 7.1% organic growth and margin expansion; contingent revenue volatility was a modest headwind in Q4 but not a structural issue per management .
  • Casualty-led pricing strength and steady mid-single-digit renewal premium increases support 2025 organic growth; property pressure easing at the top of reinsurance towers .
  • AssuredPartners deal is the key 2025 catalyst: expect incremental fiduciary investment income and broadened tuck-in pipeline; integration discipline and timing (Q1 close targeted) matter for near-term numbers .
  • Dividend raised to $0.65 supports capital returns alongside robust M&A; elevated interest expense from recent debt issuances should normalize in consolidated context post-close .
  • Watch Risk Management opex (tech/business insurance) vs margin targets (~20.5%); execution on “elephant” wins could lift organic growth above the midpoint .
  • Near-term narrative drivers: casualty pricing firmness, California wildfire impacts on carriers (rate dynamics), and clarity from March IR Day on margin pathways and AssuredPartners integration .