Aon 3Q earnings tumble 43 percent

CHICAGO - Insurance broker Aon Corp. said Friday that its third-quarter profit fell 43 percent, hurt by restructuring-related charges and a loss from discontinued operations.

But its earnings from continuing operations excluding items beat Wall Street expectations, and its shares rose nearly 9 percent.

For the period ended Sept. 30, the company reported net income of $117 million, or 40 cents per share, compared with $204 million, or 64 cents per share, in the year-ago period.

Results include a loss of $36 million, or 12 cents per share, from discontinued operations related to the sale of certain businesses.

Income from continuing operations rose 18 percent to $153 million, or 52 cents per share, from $130 million, or 41 cents per share, a year earlier. Excluding certain items, the company reported income from continuing operations of 69 cents per share for the third quarter, compared with 52 cents per share in the prior-year period.

Analysts polled by Thomson Reuters, on average, anticipated earnings of 63 cents per share on revenue of $1.84 billion. Analyst estimates typically exclude one-time, unusual items.

Total revenue increased 6 percent to $1.85 billion from $1.75 billion a year ago.

Revenue from the company's risk and insurance brokerage services increased 4 percent to $1.5 billion.

Operating expenses, meanwhile, rose 8 percent to $1.61 billion from $1.49 billion. The growth in expenses was driven by a $37 million increase in restructuring expenses and a $28 million negative impact from foreign currency translation, the company said.

The company said its restructuring program that began in 2005 is on track to achieve $270 million of cumulative cost savings in 2008.

Friedman, Billings, Ramsey & Co. analyst Bijan Moazami subsequently upgraded Aon shares to "Market Perform" from "Underperform" and raised his 12-month target price on the stock to $43 from $39, to reflect his higher earnings 2009 forecast.

Moazami reduced his full-year profit estimate by 5 cents to $2.40 per share, but raised his 2009 estimate to $3.55 a share from $3.

"With signs of an insurance market turnaround on the horizon, we believe that an improving pricing environment no longer warrants an 'Underperform' rating for the shares of Aon," Moazami wrote in a note to clients. While still concerned by certain issues, including the potential for more foreign exchange losses, Moazami believes much of the downside risk is already priced into the stock.

Aon shares jumped $3.40, or 8.9 percent, to $41.50 in midday trading. Shares have traded between $32.83 and $51.32 in the past 12 months.

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