Alexander & Alexander posts 5.3% income dip N.Y. firm has offices in Baltimore, Owings Mills

July 27, 1996|By Abbe Gluck | Abbe Gluck,SUN STAFF

Alexander & Alexander Services Inc. reported yesterday a 5.3 percent decline in income for the second quarter because of what the New York-based company's chairman called "considerable pressure" on its North American retail operations.

Net income for the quarter that ended June 30 fell to $21.5 million, or 33 cents per share, from $22.7 million, or 36 cents per share in 1995. Operating revenue rose 2.2 percent, to $335.2 million from $328.1 million a year earlier.

The company, which provides professional risk-management and human-resources consulting, along with insurance brokerage services, has major sales and administrative operations in Baltimore and Owings Mills.

"New business development remains strong and business retention stable," said Chairman and Chief Executive Officer Frank G. Zarb. "However, operating margins -- particularly in North American retail operations -- are expected to remain under considerable pressure and are unlikely to improve for the foreseeable future."

The New York company, which earns half of its revenue outside the United States, made acquisitions in Australia, South Korea, Indonesia, Sweden and the United States this year that are expected to produce $30 million in annualized revenue, said Gary Sullivan, an Alexander & Alexander spokesman.

The report surprised Wall Street, which estimated earnings of 39 cents per share, according to an I/B/E/S survey last week of six analysts.

Analysts were also surprised last quarter, when the company reported a 68.6 percent decline in net income, saying some of its businesses were seasonal.

This quarter, "things are different," said Jay A. Cohen, an analyst at Merrill Lynch in New York. "They really are seeing a change in the market, unfortunately."

Cohen, who estimated earnings of 40 cents per share, explained, "The insurance market has grown increasingly competitive this year, and that has put downward pressure on premium rates, which directly impacts Alexander & Alexander's revenues."

Sullivan agreed, calling the competition "fierce."

Cohen said the company's acquisitions in Asia won't have a real impact in the short term but added, "They are really planting the seeds for future growth."

For the first half of the year, the company reported earnings per share of 48 cents, down from $1.06 in 1995. The 1995 figures included a pretax gain of 47 cents per share and 5 cents per share of operating income from the sale of a subsidiary.

Pub Date: 7/27/96

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