Persistent 3Q Revenue Weakness at Brown

Insurance brokerage Brown & Brown BRO reported persistent further weakness in internal revenue in the third quarter. Overall revenue fell 1% from the year-ago quarter, while internal revenue (excluding acquisitions) fell 5%. The internal growth result was a modestly larger decline than the average for the previous four quarters and certainly below our longer-term expectations for the historically rapidly growing firm. We think Brown has performed well in managing expenses this year; its pretax margin has stabilized and even improved modestly in recent quarters on a sequential basis, after discounting normal seasonal trends. Economic weakness, particularly in Florida and the Southeast United States, certainly plays an important role in Brown's growth results, but we are looking for better results in the fourth quarter. Internal growth as well as acquisition progress bear watching. Our fair value estimate is unchanged.