Arthur J. Gallagher (AJG) Q3 Profit Matches Estimates as Organic Growth Holds at 5%

Arthur J. Gallagher (AJG) reported third-quarter adjusted earnings of $3.00 a share, up 30% from $2.31 a year earlier and in line with consensus estimates of $2.99 to $3.03, according to MarketBeat and TradingKey. Revenue of about $3.93 billion, up 18% year on year in its brokerage and risk management businesses, fell short of estimates of roughly $3.98 billion to $4.03 billion, according to MarketBeat and Chartmill. The results came out after Thursday’s close, and the stock was up 3.1% at $276.38 as of 9:31 a.m. ET on Friday.

That put the shares above their 52-week closing high of $271.99 from 24 August. Gallagher had also risen 3.0% on Thursday, to $268.20, before the report.

What stood out

Organic growth, the measure insurance brokers are judged on, held up. Gallagher, which arranges insurance for businesses and earns commissions and fees on it, grew revenue 5% in brokerage after stripping out acquisitions and currency, and 10% in Gallagher Bassett, its claims-handling arm, the release showed. Insurance Business magazine noted that 5% stood out as softer insurance prices slowed growth at rival brokers such as Brown & Brown.

Profit grew much faster than revenue. Adjusted EBITDAC, Gallagher’s measure of operating profit before interest, taxes, depreciation, amortization, and changes in earnout payables, rose 25%, the 26th straight quarter of double-digit growth, according to the release. The brokerage margin on that measure widened two points to 35.3%.

Part of the growth came from buying. AssuredPartners, a US broker Gallagher acquired, contributed $285 million of adjusted EBITDAC in the quarter, and management said on the call that AssuredPartners’ organic growth is running about 1 to 1.5 points below Gallagher’s own, which will weigh on total organic growth in 2027.

The outlook

Management still expects full-year organic growth of about 6%, according to the call coverage. It also said it has about $12 billion of capacity for acquisitions, GuruFocus reported.

The stock has moved 5% or more on just 5 of the last 252 sessions. It went into Friday up 3.6% this year.

Our take

This was a quarter of steady organic growth and wider margins, with a small revenue miss the market looked past. The risk is the insurance cycle: as premiums soften, brokers’ commissions grow more slowly. Next quarter we’d watch whether organic growth holds near 5% and how AssuredPartners is folded in.