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Leucadia (LUK) Earnings and Revenues Beat Estimates in Q1

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Leucadia National Corporation LUK reported relatively healthy first-quarter 2018 results with robust results from two of its largest businesses, namely Jefferies and National Beef. Net income for the reported quarter was $124.5 million or 34 cents per share compared with net income of $281.4 million or 76 cents in the year-ago quarter. The quarter’s tally beat the Zacks Consensus Estimate by a couple of cents.

Total revenues for the reported quarter amounted to $2,680.8 million, down from $2,868 million in the prior-year quarter, courtesy of solid organic growth. Revenues exceeded the Zacks Consensus Estimate of $2,467 million.

Segmental Performance

In the reported quarter, Leucadia recorded an improved performance in the debt capital market, along with a solid contribution from equity capital markets, advisory activities as well as a favorable sales and trading environment. With significant margin contribution from National Beef and other businesses, Leucadia is well-positioned to grow.

During the quarter, Jefferies’ revenues increased to $820.9 million from $797.4 million in the year-earlier quarter, primarily driven by sustained improvement in investment banking business. National Beef revenues rose to $1,785.4 million from $1,561.5 million owing to positive cattle supply environment, strong domestic and export demand due to focus on the highest quality cattle and flawless execution, despite adverse seasonality. The overall industry is likely to benefit from favorable supply and demand dynamics, with demand improving from increasing income levels and supply benefiting from the consistent growth in cattle available for processing.

Revenues from Other Financial Services businesses including FXCM, HomeFed, Leucadia Asset Management, Berkadia and Foursight Capital were a negative $27.9 million from $56.2 million. Other Merchant Banking businesses recorded revenues of $94 million compared with $445.2 million. Corporate & Other segment revenues improved to $8.4 million from $7.7 million in the year-ago quarter.


Leucadia National Corporation Price, Consensus and EPS Surprise


Leucadia National Corporation Price, Consensus and EPS Surprise | Leucadia National Corporation Quote


Other Developments

Recently, the company disclosed the divesture of its auto dealer group and a portion of its stake in its beef cattle business for roughly $1.33 billion. Specifically, Leucadia is divesting 48% of its stake in National Beef to Brazilian food processing company, Marfrig, for a consideration of about $900 million in cash. The company is selling its entire stake in its auto dealership business, Garcadia, to the Garff family for roughly $425 million. The remaining stake in National Beef (around 31%) will be deconsolidated and will be reflected as an asset of $590 million on the balance sheet. Leucadia expects to generate a pre-tax gain of up to $1.2 billion from the divestments.

The company announced the acquisition of $190 million of additional Bakken oil and gas assets by Vitesse Energy Finance. Leucadia is reorganising operations to focus on investment banking and advisory services, as it plans to capitalize on the growth opportunities in the finance field.

Leucadia is also renaming itself as Jefferies Financial Group, as part of its transformation from a holding company with disparate assets to a diversified financial services company. After receiving shareholders’ approval, the company will trade on the New York Stock Exchange under the ticker "JEF".

The company intends to continue to support growth of existing businesses as well as capitalize on new business opportunities to deploy capital smartly. At the same time, management intends to return capital to shareholders through share buybacks and dividends. The company boosted its share buyback program and received board’s approval to repurchase up to 25 million shares, which is double the amount of the previously approved buyback.

At the end of the first quarter, Leucadia repurchased 10.3 million shares at an average price of $24.40, with 14.7 million shares left which are authorized for buyback.

Zacks Rank & Stocks to Consider

Leucadia currently carries a Zacks Rank #5 (Sell).

A few better-ranked stocks in the same space include Federal Signal Corporation FSS, Raven Industries, Inc RAVN and Danaher Corporation DHR. While Federal Signal sports a Zacks Rank #1 (Strong Buy), Raven Industries and Danaher carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Federal Signal has trumped estimates in each of the trailing four quarters and generated an average beat of 16.5%.

Raven Industries has beaten estimates in three of the trailing four quarters, the average earnings surprise being 20.2%.

Danaher has generated an average earnings surprise of 4.1 in the trailing four quarters,  beating estimates all through.

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