Release Date: October 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Willis Towers Watson PLC (WTW, Financial) reported a strong quarter with 6% organic revenue growth, driven by 10% growth in risk and broking and 4% in health, wealth, and career (HWC).
- The company achieved a 190 basis point expansion in adjusted operating margin to 18.1%, attributed to operating leverage, cost discipline, and transformation program success.
- Adjusted diluted earnings per share increased by 31% to $2.93 compared to the third quarter of 2023.
- WTW generated $807 million in free cash flow for the nine months ended September 30, marking a 14% year-over-year increase.
- The company announced strategic partnerships and new solutions, such as a virtual captive for employee benefits and a workforce management proposition, enhancing its market position and client offerings.
Negative Points
- The GAAP results reflected a loss due to the accounting treatment of the pending sale of the TRANZACT business.
- There was a 70 basis point headwind on organic growth at the HWC level and 50 basis points at the enterprise level due to TRANZACT.
- Benefits delivery and outsourcing experienced a 1% decline in revenue compared to the third quarter of last year.
- The company faces headwinds from a $14 million book of business activity that occurred in Q4 of last year, impacting future comparisons.
- Foreign exchange was a headwind to adjusted EPS of $0.02 for the quarter, with an expected $0.06 impact for the year.
Q & A Highlights
Q: Can you clarify the impact of the sale of TRANZACT on Q3 organic results and free cash flow?
A: Mitch, thanks for your question. In Q3, TRANZACT was a 70 basis point headwind on organic growth at the HWC level and 50 basis points at the enterprise level. For 2025, excluding TRANZACT from our results, we'll have a positive impact on our organic growth, adjusted operating margin, and the free cash flow margin profile. - Andrew Krasner, CFO
Q: Can you provide some additional color on the impact of new hires and growth and exposure units on organic growth inside risk and broking?
A: The principal drivers of growth were client retention and new business. Our new hires contributed to growth, but the majority of growth is due to all our colleagues, including the new hires. - Carl Hess, CEO
Q: You mentioned positive updates on margin guidance and tax guidance, but no change in EPS guidance. Is there conservatism built in?
A: We remain optimistic about margin guidance and see opportunities for stronger performance. For EPS, we are confident in delivering within the range, with potential outperformance starting with adjusted operating margin and greater top-line growth. - Carl Hess, CEO and Andrew Krasner, CFO
Q: How are you balancing incremental repurchase with M&A given the cash influx from TRANZACT and Gallagher?
A: We continuously evaluate our capital structure to deploy capital across share repurchases and investment opportunities. M&A is a healthy component of our growth strategy, and we will continue to take a balanced approach. - Andrew Krasner, CFO and Carl Hess, CEO
Q: What continues to drive strong performance in risk broking, and do you expect growth to be materially different in Q4?
A: We are pleased with the 10% organic growth in R&B, driven by new business and retention. We expect continued contributions from strategic investments in talent and platforms. - Carl Hess, CEO and Andrew Krasner, CFO
Q: What is the expected tax impact from the sale of TRANZACT, and are there any pressures on the tax rate for 2025?
A: The TRANZACT sale involves capital losses, which can only be offset by US-specific capital gains. We will discuss 2025 tax rate guidance in our full-year call, but we aim to manage risks around increasing tax rates. - Andrew Krasner, CFO
Q: Are you continuing the acceleration in hiring that you did post-transaction?
A: We are hiring opportunistically, focusing on talent aligned with our business strategy. We have rebuilt our talent base and are now focused on organic growth. - Carl Hess, CEO
Q: How do you see the healthcare consulting business being impacted by potential regulatory changes?
A: Generally, change or potential change is beneficial for us as clients need to navigate regulatory impacts on their benefits programs. This applies across our health, pensions, and wealth businesses. - Carl Hess, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
