Leucadia Drops on Weak Q1 Earnings

Zacks Equity Research

The share price of Leucadia National Corporation (LUK) fell nearly 1% since the company reported first-quarter 2014 results on May 9. The market’s reaction was the outcome of a 70% year-over-year fall in the net income or about 78% decline in earnings of 25 cents per share.

Revenues: Leucadia’s net revenue of $2,943.3 million in the first quarter was nearly 28.1% above the year-ago revenues of $2,297.6 million. The results were driven by approximately 5.5% year-over-year increase in revenues generated from the Beef Processing Services segment. The segment’s revenues were at $1,887.4 million and accounted for 47.9% of net revenue in the quarter.

Investment Banking & Capital Markets, the segment created after the merger with Jefferies in Mar 2013, generated $930.5 million in revenues, roughly 31.6% of net revenue.

Leucadia’s Other Operations segment, which comprises manufacturing, energy projects, asset management and real estate businesses, generated revenues of $96.6 million and represented 3.3% of net revenue. Revenues from the Corporate segment were $28.8 million, significantly down from $418.5 million in the year-ago quarter.
 
Expenses/margins: Leucadia recorded nearly 43% increase in expenses in the first-quarter 2014. Of total expenses, cost of sales accounted for 68.9% while selling, general and other expenses represented 6.8%. Compensation and benefits amounted to $565.8 million. Operating margin was at 4.1% versus 14.1% in the prior-year quarter.

Balance Sheet: Leucadia has a strong cash position with nearly $3,590.5 million at the end of the first-quarter 2014. This, however, represents an 8.1% fall from $3,907.6 million recorded at the end of the previous quarter. Long-term debt was at $8,331.3 million versus $8,180.9 million at the preceding quarter-end.

Cash Flow: Leucadia used net cash of $1,034.5 million for its operating activities versus $163.0 million used in the year-ago quarter. Capital spending on property, equipment and leasehold were $74.3 million, way above $20.8 million spend in the first-quarter 2013. Leucadia distributed cash dividends totaling $23.2 million in the quarter.

Leucadia currently has a market capitalization of $9.4 billion. The company primarily engages in beef processing, manufacturing, real estate activities and various other investment-related affairs in the U.S.
 
Other major players in the diversified operations industry include Noble Group Limited (NOBGY), Sumitomo Corporation (SSUMY) and Carlisle Companies Incorporated (CSL). While Noble Group and Sumitomo have a Zacks Rank #1 (Strong Buy), Carlisle Companies carries a Zacks Rank #2 (Buy).

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