Loews Lags Q2 Earnings; Grows Y/Y

Zacks

Loews Corporation (L) reported second quarter 2013 operating net income of 71 cents per share, which lagged the Zacks Consensus Estimate of 73 cents. Earnings surged 51% year over year from 47 cents per share.

Including net investment losses of $8 million, Loews reported net income of $269 million or 69 cents per share, comparing favorably with income of $56 million or 14 cents per share in the year-ago quarter.

Higher parent company investment income drove the improvement. However, lower earnings at Diamond Offshore limited the upside.

Operational Performance

Loews’ total revenue was $3.73 billion in the reported quarter, up nearly 10% year over year. An increase in Insurance premiums, net investment income as well as contract drilling revenues aided the upside.

Total expense in the quarter inched down 0.9% year over year to $3.1 billion. The decrease was mainly due to lower contract drilling expenses.

During the reported quarter, CNA Financial’s (CNA) revenues increased 12.7% over the prior-year period to $2.51 billion in the quarter under review. It reported net income attributable to Loews Corp. of $183 million, improving 32.6% year over year. Increased net investment income attributable to increased limited partnership results along with better non-catastrophe current accident year underwriting results drove the upside. However, these positives were to some extent offset by lower favorable net prior-year development and weak results from the Life & Group Non-Core segment because of unfavorable morbidity in the long-term care business.

The Boardwalk Pipeline’s revenues improved 9.7% to $304 million from the prior-year level. Earnings declined 12% to $22 million in the quarter.

Loews Hotels’ revenues improved 7.4% year over year to $101 million. Earnings plunged 83% year over year to $1 million.

Diamond Offshore’s (DO) revenues declined 4.2% year over year to $760 million. Earnings decreased 7.4% year over year to $87 million. In the year-ago quarter, earnings benefited from the sale of five jack-up rigs. However, the reported quarter experienced higher day rates, and utilization as well as lower contract drilling expense.

HighMount’s revenues declined 4.3% year over year to $66 million in the quarter under review. Earnings surged 67% year over year to $5 million.

Book value as of Jun 30, 2013 was $49.26 per share, up 3.9% from $47.42 as of Jun 30, 2012.

Share repurchase

During the second quarter, Loews spent $85 million to buy back 1.9 million shares. Thus, the company bought back 4 million shares for $177 million in the first half of 2013. Subsequent to the second quarter, Loews repurchased another 0.8 million shares for $37 million.

Our Take

Loews remains on track to strengthen its hotel business by doubling its hotel count within the next two to four years and expects to triple the net income by 2015. Strong balance sheet with low leverage, adequate cash and strong rating scores are among the positives for Loews.

It also forayed into the natural gas liquids business with the acquisition of Louisiana Midstream. The acquisitions of HP Storage and Louisiana Midstream support its strategy to focus on diversification, which would help the company become less dependent on its base gas transportation business.

Moreover, Diamond Offshore continues to work on improving its fleet.

Loews carries a Zacks Rank #4 (Sell). Cigna Corp. (CI), another multi-line insurer with a Zacks Rank # 1 (Strong Buy), will report its result on Aug 1 before the market opens.

 

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