February 12, 2008 / 12:32 PM / 12 years ago

Marsh & McLennan profit off, new CEO vows shake-up

NEW YORK (Reuters) - Marsh & McLennan Cos Inc, one of the largest insurance brokerages, posted a bigger-than-expected drop in quarterly profit on Tuesday as it digested higher costs and hefty restructuring charges.

The company’s profit fell far short of Wall Street’s expectations, but Chief Executive Brian Duperreault — who joined the company a fortnight ago — told investors on a quarterly conference call that he was there to shake things up, and did not rule out spinning off parts of the company.

“It’s obvious that the company on a whole is underperforming, and there are problems that must be addressed,” Duperreault said. “If that weren’t the case, I wouldn’t be here today.”

Marsh & McLennan shares were up 65 cents or 2.6 percent at $25.95 in early afternoon trade on the New York Stock Exchange.

For the quarter, net income fell 62 percent to $85 million, or 16 cents per share, compared with $226 million, or 40 cents per share, a year earlier.

Income from continuing operations fell 46 percent to $90 million, or 17 cents a share, from $168 million, or 31 cents a share.

Analysts had on average expected net income per share of 31 cents per share for the fourth quarter.

While revenue rose 8 percent to $2.9 billion, beating Wall Street expectations by about $100 million, Marsh & McLennan’s costs grew at twice that rate.

Total expense rose 15 percent to $2.76 billion, the company said.

One-time charges also took a bite, with Marsh & McLennan posting $44 million in restructuring charges in the quarter, and $13 million for legal fees arising from a 2004 lawsuit filed by then-New York Attorney General Eliot Spitzer, that was later settled.

One-time items reduced profit by about 8 cents a share, according to an investor note from Goldman Sachs analyst Tom Cholnoky, titled “Weak margins and corporate expenses drive notable 4Q miss.”

Marsh’s & McLennan’s operating margins — the price customers pay for its brokerage and consulting services versus the cost of providing those services — shrunk at insurance broker and risk adviser Marsh and risk consulting unit Kroll.

However, operating margin rose within the company’s consulting units, it said.

On a consolidated basis, Marsh’s operating margin was more than halved to 5.6 percent, compared with the year-ago period.

TURNING A NEW LEAF

Marsh & McLennan, one of the world’s largest insurance brokerages, has gone through three CEOs in about as many years.

Duperreault was brought in late last month to replace Michael Cherkasky, who was recruited in 2005 to replace Jeffrey Greenberg.

While Cherkasky had successfully brokered a costly settlement with then-New York Attorney General Spitzer related to a lawsuit that charged Marsh & McLennan with accepting a type of kick-back payment from insurers called “contingent commissions,” he failed to help the company turn a financial corner.

Duperreault said he was in an “assessment phase” and was looking at where things were working well, and where things could improve.

He did not rule out spinning off units, including Kroll, that do not fit into his vision for the company.

“We need to dramatically improve the cost structure, and we need to simplify how we work,” Duperreault told investors.

“If you’re looking at a portfolio of assets, you’re constantly looking to see whether they collectively make sense. And things that might have made sense in the past, (may not) going forward ... You never should be hesitant to prune the portfolio.”

Editing by Gerald E. McCormick and Dave Zimmerman

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