Alexander & Alexander Services Inc. continued its financial rebound in the third quarter, reaping the benefits of an aggressive reorganization and cost-cutting campaign.
The New York-based insurance brokerage and consulting firm -- which has a significant presence in the Baltimore area with more than 750 employees -- reversed its poor performance in the third quarter of last year by generating net income of $17.5 million, 25 cents per share, for the period ending Sept. 30.
In the comparable quarter a year ago, Alexander & Alexander suffered a net loss of $20.8 million, or 11 cents per share. That loss was attributed primarily to a $20.9 million charge relating to discontinued operations.
Alexander & Alexander slashed operating expenses in the third quarter by $27.3 million, or more than 9 percent, after adjusting for discontinued operations.
"Although expense savings were instrumental in the year-to-year improvement,
future earnings growth will increasingly depend on building revenues through aggressive business development and selected acquisitions," Alexander & Alexander Chairman and Chief Executive Frank G. Zarb said in a statement.
Even with the improvement, the world's second-largest insurance broker failed to meet the financial estimates of several analysts, who had predicted the company's net income would be $18.8 million for the quarter.
The company, with $2.9 billion in assets and more than 300 offices in 80 countries, also acknowledged that it faces competitive pressures that will probably hamper future revenue growth. Mr. Zarb said industry consolidation, chronic weak pricing and radically changing client needs will combine to affect Alexander & Alexander and competitors such as Marsh & McLennan Inc.
"Alexander & Alexander has been cutting infrastructure, but to get improvement, they'll need to grow their revenue line," said Ira H. Malis, an Alex. Brown & Sons Inc. managing director and insurance industry analyst. "They've done a good job, but I think it will be significantly rougher sledding from here on out."
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ready arrived. Alexander & Alexander's revenues in the third quarter fell by 10 percent, to $299.7 million.
Still, the company had some highlights. Its operating income, led by gains in retail insurance services and risk management consulting, jumped more than fivefold to $27.6 million from $4.6 million for the same period a year ago.
The company also completed an acquisition of most of the U.S.
retail operations of Jardine Insurance Brokers Inc. earlier this month.
In the first nine months of 1995, Alexander & Alexander reported net earnings of $82 million, $1.42 per share, as compared with a net loss of $27.4 million, 83 cents per share, a year ago.
Revenues were $952 million, down 4 percent, while operating expenses fell by 13 percent, to $843.5 million. Operating income experienced a dramatic rise of more than 350 percent, to $108.5 million.