Hub earnings down on Talbot acquisition

As a result of compensation paid in the acquisition of Talbot Financial, Chicago-based Hub International (TSX: HBG) is reporting earnings down for the third quarter and nine months ending September 30, 2004.The brokerage says despite revenue growth, net earnings for the third quarter were down 83% to US$1.1 million (US$0.04 per share) from US$6.8 million (US$0.22 per share) the year prior. For the nine-month period, earnings dropped 13% to US$22.4 million (US$0.68 per share) from US$25.8 million (US$0.81 per share) year-on-year.The drop was in large part due to US$6.9 million in non-cash stock based compensation for the Talbot acquisition, without which the company would have seen earnings grow 44% to US$7.6 million for the third quarter.The company did post stronger revenues in the third quarter of US$94.9 million, up 47% from the US$64.7 million reported in the third quarter of 2003. Organic growth for the quarter was 2%, including 3% decline in the U.S., offset by 9% growth in Canada more than half of which comes from foreign exchange effects.For the first nine months of 2004, revenue was up 23% to US$256.5 million from US$207.7 million the year prior. Organic growth rate was 7%.The company also made note of its ongoing involvement in the investigation of contingent commission practices by New York Attorney General Eliot Spitzer. It plans to set up an internal task force as well as conducting a review through external counsel. Along with the expenses associated with this, the company also faces costs associated with Sarbanes-Oxley compliance which have been higher than originally anticipated.At the same time, Hub chairman Martin P. Hughes notes the brokerage is feeling the impact of market softening. “Rates have declined more rapidly than anticipated earlier in the year, which is leading to a slower rate of organic growth and a more challenging earnings outlook.”Despite these challenges, the company is maintaining its 2004 earnings guidance of US$0.80-$0.84 per share, albeit on the low end of the range. However, Hub has decided not to offer earnings forecasts for 2005.