HRH Posts 6.6 Percent Rise in Q3 Net to $18.4 Million

Hilb Rogal & Hobbs Company reported its the third quarter and nine months financial result yesterday, which were generally in line with its previous announcement on October 9, which had indicated they would fall short of analysts’ forecasts.

HRH noted the following for the third quarter, ended September 30, 2003: “Total revenues were $139.4 million, compared with $128.5 million a year ago, an increase of 8.5%. Commissions and fees rose 8.1% to $137.1 million during the quarter, compared with $126.8 million during the same period last year, primarily reflecting acquisitions, reduced organic growth and moderating premium rate increases.

“Net income for the quarter was $18.4 million, compared with $17.2 million a year ago, an increase of 6.6%, or $0.50 per share compared with $0.53 per share. Dilutive weighted average shares outstanding for the quarter increased 10.1% from a year ago, reflecting acquisition-related share issuances–primarily for Hobbs Group, LLC (Hobbs)–and a public offering.

“Operating net income in 2003 was $19.9 million, or $0.55 per share, compared with $17.2 million, or $0.53 per share, a year ago, an increase of 15.9%.”

The company’s first nine months financial results were given as follows: “Total revenues rose 29.9% to $420.9 million from $324.1 million a year ago. Commissions and fees increased 29.8% to $415.5 million from $320.2 million last year, reflecting the trends identified above for the quarter, in addition to the acquisition of Hobbs and higher contingent and override commissions, which are heavily weighted in the first quarter.

“Net income for the nine months was $55.5 million, or $1.53 per share, compared with $48.9 million, or $1.53 per share, in 2002, an increase of 13.6%. Operating net income for the nine months was $60.3 million, or $1.67 per share, compared with $45.0 million, or $1.41 per share, a year ago, an increase of 34.1%. The per share amount for the nine months is based on an 11.1% higher dilutive share count than the prior year for the reasons noted above for the quarter.

“Organic growth, defined as the change in commissions and fees before the effect of acquisitions and divestitures, was 3.4% for the third quarter and 6.5% for the nine months. As announced previously, the company now believes organic growth for the full year 2003 will be in the 5% to 7% range. The operating margin for 2003 was 27.7% for both the quarter and the nine months, compared with 27.0% and 26.7%, respectively, for the corresponding year-ago periods. Continued incremental margin improvement remains one of HRH’s key financial objectives.”

The company’s announcement quoted Chairman and CEO Martin L. (Mell) Vaughan, III, who stated: “We were surprised and disappointed by the third quarter results. Industry trends, including lower than expected premium increases, particularly in complex property insurance, program redesigns induced by client economic pressures, and legislative uncertainties in executive benefits, weighed on results. In addition, an unexpected productivity lull at Hobbs occurred after the earn-out. Of course, for any given quarter, revenues will vary based on the timing of net new business, policy renewals and billings.”

He stressed, however that “HRH’s strategic priorities are focused on accelerating growth regardless of industry conditions. We are melding the strengths of our combined organizations and establishing an integrated sales and sales management model, which will increasingly contribute to our performance. We believe that the changes will lead, over time, to superior client service, sustained organic growth, and, together with a strong and disciplined acquisition program, delivering targeted earnings growth. Enthusiasm for the new structure and sales model is strong throughout the company–particularly at Hobbs, which has been a source of strength and leadership for HRH.”

The announcement noted that “Robert B. Lockhart, who was named HRH’s president and chief operating officer in August, and appointed to HRH’s Board of Directors in September, will play a central role in executing HRH’s growth strategies.”

He noted that “the refined sales process, a cornerstone of Hobbs’ growth, strongly focusing on teams, tracking and accountability, was successfully implemented in the Northeast region and is now being introduced throughout the rest of the company. We are excited about the future growth benefits of this proven sales process.”

Vaughan concluded, “The integration plan is really about leveraging our network of people, products and expertise to serve our clients as a premier insurance services provider. The key tenets of the integration were developed collaboratively, approved and endorsed by the leadership, and are currently being announced and launched. While the organization has a new name and identity, we continue our commitment to our long-term goal of sustaining 15% to 20% growth in annual operating earnings per share.”