Hewitt buy drags on Aon margins, shares slide

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(Global Markets) - Aon Corp (AON.N), the world's largest insurance broker, posted a rise in quarterly profit, but missed analysts' expectations as higher costs squeezed margins at its human resources solutions business.

Aon last year bought HR specialist Hewitt Associates Inc HEW.N for $4.9 billion in a bid to create the world's largest HR services company.

But costs of more than $1 billion at the expanded business in the third quarter almost entirely canceled out incoming commissions and fees. The HR Solutions division's operating margins fell 590 basis points to 11.2 percent.

On a post earnings conference call, Aon said it was still on track to save about $242 million related to the Aon-Hewitt restructuring, and expects to achieve its long-term operating margin of 20 percent in HR solutions.

Sandler O'Neill analyst Paul Newsome said, "The core issue is that they made an acquisition which was controversial to begin with, and is not going as well as we would like it to go."

Shares in Chicago-based Aon fell as much as 10 percent in early Friday trading from a 3-month closing high of $50.94.

Revenue from its brokerage unit rose 9 percent in July-September, with reinsurance revenue up 1 percent to $365 million, and retail revenue up 12 percent as new business grew in Canada, and generally strong growth in Asia and New Zealand.

Unlike in developed markets, insurance has significant growth potential in emerging markets as faster-growing economies and rising disposable income feed demand for vehicle, home and life coverage.

July-September net income attributable to common shareholders rose to $198 million, or 59 cents a share, from $144 million, or 51 cents a share, a year ago. Excluding items, earnings from continuing operations were 69 cents a share.

Analysts had forecast earnings of 73 cents a share, according to Thomson Global Markets I/B/E/S. (Reporting by Aditi Sharma and Aman Shah in Bangalore, Editing by Ian Geoghegan and Gopakumar Warrier)