Loews Lags Bottom-Line Estimate

Zacks

Loews Corporation (L) reported fourth-quarter 2012 operating net income of 18 cents per share, which lagged the Zacks Consensus Estimate of 29 cents by a significant margin. Earnings plummeted 77% year over year from 78 cents per share.

Loews reported a net loss of $32 million or 8 cents per share, comparing unfavorably with income of $271 million or 68 cents per share in the year-ago quarter. Reported numbers include catastrophe losses of $171 million, non-cash ceiling test impairment charges of $97 million and net investment loss of $2 million. Adjusting for these figures, Loews reported adjusted income of $236 million (60 cents per share) in the quarter under review.

Lower earnings at Diamond Offshore Drilling Inc. (DO) and CNA Financial Corporation (CNA) along with lower parent company investment income weighed on the results. However, higher earnings at Boardwalk Pipeline were a partial offset.

Full Year Highlights

Operating net income was 82 cents, lower than the Zacks Consensus Estimate of $1.73 as well as $2.70 earned in 2011.

Reported income came in at $1.43 per share, declining 45% over 2011. This includes catastrophe losses of $243 million and ceiling test impairment charges of $433 million. Adjusting for these numbers, Loews reported adjusted income of $1.2 billion ($3.00 per share) in 2012.

Revenue improved nearly 3% year over year to $14.5 billion, ahead of the Zacks Consensus estimate of $13.9 billion.

Quarterly Operational Performance

In the quarter under review, total revenue was $3.71 billion, up 4.5% year over year. Higher insurance premiums coupled with an increase in net investment income and contract drilling revenues, led to the overall improvement in top line.

Total expense in the quarter jumped 22% year over year to $3.7 billion. The increase was mainly due to higher insurance claims & policyholders’ benefits, which was partly offset by lower contract drilling expenses.

Loews Hotels posted the highest growth in revenue in the quarter, improving 45.3% year over year to $125 million. Net loss amounted to $2 million compared with income of $5 million.

CNA Financial’s revenue increased 6.2% over the prior-year period to $2.4 billion in the quarter under review. It reported net loss attributable to Loews Corp. of $5 million, deteriorating from an income of $195 million from the year-ago quarter. The deterioration largely stemmed from catastrophe losses and lower level of favorable net prior-year development. However, better performances at the limited partnership investments were a partial offset.

The Boardwalk Pipeline’s revenue improved 8% to $325 million from the prior-year level. Earnings improved 47.6% to $31 million in the quarter, driven by contributions from the recent acquisitions and lower general and administrative expenses.

Diamond Offshore’s revenue crawled up 0.1% year over year to $753 million. Earnings decreased 17% year over year to $73 million, largely due to lower average daily revenue and impairment charge associated with the carrying value of three semi-submersible rigs.

HighMount’s revenue declined 16.1% year over year to $78 million in the quarter under review. Earnings plunged 25% year over year to $9 million. The company also recorded a ceiling test impairment charge of $97 million.

Book value as of Dec 31, 2012, was $49.67 per share, up 4.9% from $47.33 as of Dec 31, 2011.

Share Repurchase

During the fourth quarter, Loews spent $83 million to buyback 2.1 million shares, taking the full year tally to 5.6 million shares bought back for $222 million.

Our Take

Loews remains on track to strengthen its hotel business by doubling its hotel count within the next three to five years and expects to triple the net income by 2015. It acquired two hotels in 2012 and one more in Jan 2013, and has two more under construction. The company’s total number of hotels stands at 21.

It also forayed into the natural gas liquids business with the acquisition of PL Midstream.

Moreover, Diamond Offshore continues to work on improving its fleet. Strong balance sheet with low leverage and adequate cash and strong rating scores are among the positives.

Loews carries a Zacks Rank #3 (Hold). CNO Financial Group, Inc. (CNO), another multi-line insurer with a Zacks Rank # 2 (Buy), will report its result today after the market closes.

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