AON Q1 Earnings Miss on Higher Costs, Wealth Solutions Shows Strength

Aon plc AON reported first-quarter 2025 adjusted earnings of $5.67 per share, which missed the Zacks Consensus Estimate by 6.1%. The bottom line, however, improved by a penny from the year-ago period.

Total revenues rose 16% year over year to $4.73 billion. However, the top line fell short of the consensus mark by 2.6%. Organic revenue growth was 5%.

The weaker-than-expected quarterly results were affected by escalating operating costs and lower margin. The negatives were partially offset by improved performance in Wealth Solutions and NFP acquisition synergies.

Aon plc Price and EPS Surprise

Aon plc price-eps-surprise | Aon plc Quote

AON’s Q1 Operations

Total operating expenses of $3.3 billion increased 25% year over year due to higher ongoing operating costs of NFP (an Aon-acquired company), higher expenses related to 5% organic revenue growth, increased intangible asset amortization from the NFP acquisition, and long-term growth investments. The metric was marginally higher than our estimate.

Adjusted operating income advanced 12% year over year to $1.8 billion, but was lower than our estimate of $1.9 billion. The metric gained on the back of benefits reaped from the NFP acquisition, organic revenue growth and net restructuring savings. However, the adjusted operating margin of 38.4% deteriorated 130 basis points year over year.

Q1 Segmental Performance

Risk Capital

Commercial Risk Solutions: Organic revenues grew 5% year over year in the first quarter, attributable to strength in core P&C operations, international growth and strong retentions. Revenues in this solution line were $2 billion, which advanced 11% year over year but missed the Zacks Consensus Estimate by 4.8%.

Reinsurance Solutions: Organic revenues improved 4% year over year on the back of a well-performing treaty business, higher facultative placements, strong retention and new business. Revenues increased 2% year over year to $1.2 billion, which missed the consensus mark by 3.6%.

Human Capital

Health Solutions: Organic revenues grew 5% year over year as a result of global expansion in the core health and benefits business. The solution line’s revenues of $1 billion climbed 40% year over year but lagged the Zacks Consensus Estimate by 1.7%. Consumer Benefits Solutions and Talent revenues witnessed a decline from the year-ago period.

Wealth Solutions: Organic revenues improved 8% year over year in the first quarter on the back of a strong Retirement business, which received an impetus from sustained advisory demand linked with pension de-risking. Revenues soared 40% year over year to $519 million, beating the consensus mark by 3.8% due to growth in NFP.

AON’s Financial Position (As of March 31, 2025)

Aon exited the first quarter with cash and cash equivalents of $964 million, which fell from the 2024-end level of $1.1 billion. Total assets of $50.3 billion increased from the $49 billion figure in 2024-end.

Long-term debt amounted to $16.28 billion, in line with the 2024-end level. Short-term debt and the current portion of long-term debt totaled $1.3 billion.

Aon generated cash flow from operations of $140 million, which slipped from $309 million a year ago. Adjusted free cash flows tumbled 68% year over year to $84 million.

Aon’s Capital Deployment Update

Aon bought back 0.6 million class A ordinary shares for roughly $250 million in the first quarter. A leftover capacity of around $2.1 billion remained under its repurchase authorization as of March 31, 2025. It increased quarterly cash dividend by 10% marking 15 straight years of dividend hikes.

AON’s Forward View Reaffirmed

Revenues are expected to register mid-single-digit or higher organic growth for 2025 and beyond. The company expects the adjusted operating margin to expand in 2025. It also estimates adjusted EPS to witness strong growth this year. Free cash flow is projected to witness double-digit growth in the long term.

The Aon United Restructuring program is likely to enable the company to achieve total annual run-rate savings of approximately $350 million by the end of 2026. It realized net savings of $40 million in the first quarter and projects to achieve $260 million in cumulative annual savings in 2025.

Zacks Rank & Key Picks

AON currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Finance space are Erie Indemnity Company ERIE, eHealth, Inc. EHTH, and MGIC Investment Corporation MTG, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Erie Indemnity’s current-year earnings is pegged at $14.34 per share, which indicates 24.9% year-over-year growth. It has witnessed one upward estimate revision against none in the opposite direction during the past 60 days. Erie Indemnity beat earnings estimates in each of the past four quarters, with an average surprise of 7.6%.

The consensus mark for eHealth’s current-year earnings indicates a 147.1% year-over-year improvement, which witnessed one upward revision in the past 60 days against no movement in the opposite direction. Furthermore, the consensus estimate for eHealth’s full-year revenues is pegged at $528.3 million.

The Zacks Consensus Estimate for MGIC Investment’s current-year earnings is pegged at $2.75 per share, which witnessed one upward estimate revision in the past month against no movement in the opposite direction. It beat earnings estimates in all the past four quarters, with an average surprise of 14.6%. Also, the consensus mark for MGIC Investment’s 2025 revenues suggests 2.9% year-over-year growth.

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This article originally published on Zacks Investment Research (zacks.com).

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