Virginia-based Hilb Rogal & Hobbs Company reported financial results for the fourth quarter and year ended Dec. 31, 2003.
For the fourth quarter, total revenues were $142.7 million, compared with $128.7 million a year ago, an increase of 10.9 percent. Commissions and fees rose 10.9 percent to $140.2 million during the quarter, compared with $126.5 million during the same period of 2002, primarily reflecting acquisitions, organic growth and moderating premium rate increases. Net income for the quarter was $19.4 million, or $0.53 per share, compared with $16.2 million a year ago, or $0.48 per share, an increase of 19.5 percent. The quarter benefited from a reduction in the annual effective tax rate from 40.8 percent, which was utilized through Sept. 30, 2003, to 40.0 percent, a rate that is expected to continue. Diluted weighted average shares outstanding for the quarter increased 8.4 percent from a year ago, reflecting acquisition-related share issuances and a late 2002 public offering, partially offset by the company’s repurchase of 1.1 million shares during 2003. Operating net income increased 25.0 percent to $20.1 million, or $0.55 per share, compared with $16.0 million, or $0.48 per share, a year ago.
For the year ended Dec. 31, 2003, total revenues rose 24.5 percent to $563.6 million from $452.7 million a year ago. Commissions and fees increased 24.4 percent to $555.7 million from $446.7 million last year, reflecting acquisitions and organic growth. Net income for the year was $75.0 million, or $2.06 per share, compared with $65.1 million, or $2.01 per share, in 2002, an increase of 15.1 percent. Operating net income was $80.4 million, or $2.21 per share, compared with $61.0 million, or $1.89 per share, a year ago, an increase of 31.7 percent. The per share amount for the year is based on a 10.4 percent higher diluted share count than the prior year as noted above.
Organic growth, defined as the change in commissions and fees before the effect of acquisitions and divestitures, was 2.7 percent for the fourth quarter and 5.5 percent for the year. The operating margin for the quarter was 26.5 percent, compared with 25.4 percent in the prior year, and 27.4 percent for the year, compared with 26.3 percent for 2002. The integration of Hobbs and continued improvement in sales productivity and operating efficiency will be the principal contributors to margin improvement in 2004.
Commenting on the results, Martin (Mell) Vaughan, III, chairman and CEO said, “Our fourth quarter capped another year of growth that met our long-term growth goal in annual operating earnings per share, and our revised 2003 annual organic growth expectations. Although some of the issues that pressured the third quarter were not fully resolved in the fourth quarter, we believe they are now largely behind us. Bright spots in the fourth quarter were an effective transition to the new sales model led by our recently augmented executive team, and the announcement and initial implementation of the integration plan for the combined company. We are excited about the opportunities before us in 2004, and remain committed to our long-term growth rate in operating earnings per share of between 15 percent and 20 percent.”
Robert Lockhart, president and chief operating officer, added, “During the quarter, we completed the plan for our integrated sales model and officially launched it throughout the company on January 1, 2004. New producer-led teams drive the sales process, and provide a focal point for risk management, marketing, claims and other client services. Through increased productivity, discipline and accountability, the new process is designed to win and retain major accounts, while reinforcing our sales and service commitment to all of our business lines, including our core middle-market clients. Based on the energy and momentum coming out of our January national sales meeting, we are confident the new model will generate a sustained flow of new opportunities.”
Vaughan concluded, “In 2003, as planned, acquisitions accelerated our entry into excess and surplus lines and reinsurance brokerage markets, both of which give us the ability to directly place business that we have outsourced in the past, and strengthened our agency presence in selected markets. While we continue to be selective and disciplined, we expect 2004 to be another active year for acquisitions. Our pipeline continues to be robust and, despite increased competition, we are confident that we will be able to attract new business partners during 2004 that will generate annualized revenues of between $30 million and $60 million.”
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