Loews Corporation (L) reported second quarter 2012 adjusted net income of 47 cents per share, substantially missing the Zacks Consensus Estimate of 72 cents. Earnings also declined 19% year over year from 57 cents per share. Adjusted net income stood at $186 million, down 22% year over year.
Including non-cash ceiling test impairment charges of $142 million and net investment gains of $12 million, Loews reported net income of $56 million or 14 cents per share, comparing unfavorably with $250 million or 61 cents per share in the year-ago quarter. The prior-year quarter includes net investment gains of $12 million.
Lower earnings at Diamond Offshore (DO) and soft results from equity and limited partnership investments at the parent company weighed on the results. Higher earnings at CNA Financial Corporation (CNA) and Boardwalk Pipeline Partners, LP were the positives.
Operational Performance
Total revenue at Loews in the quarter was $3.39 billion, down 4.3% from $3.52 billion in the prior-year quarter. Lower net investment income and contract drilling revenues led to the overall decline in top line
Total expense in the quarter increased 6% year over year to $3.17 billion. The increase was mainly due to higher contract drilling expenses and non-cash ceiling test impairment charges.
Loews Hotels posted the highest growth in revenue in the quarter, which improved 5.6% year over year to $94 million. Net income remained flat year over year at $6 million.
CNA Financial’s revenue increased 1.9% over the prior-year period to $2.2 billion in the quarter under review. CNA Financial reported net income attributable to Loews Corp. of $138 million, improving 37% year over year. The improvement largely stemmed from lower catastrophe losses and improved non-catastrophe current accident year underwriting results. However, lower net investment income due to weak limited partnership results were was a partial offset.
The Boardwalk Pipeline’s revenue increased 5.3% to $277 million from the prior-year level. Earnings improved almost 5 times to $25 million in the quarter, fueled by higher contribution from Boardwalk HP Storage Company and the prior-year impact of an impairment charge related to steel pipe materials.
Diamond Offshore’s revenue decreased 11.1% year over year to $793 million. Earnings dipped 25% year over year to $94 million, largely due to lower rig utilization, a decrease in average dayrate, and an increase in contract drilling expenses. However, gain from the sale of five jack-up rigs in the quarter was a partial offset.
High Mount’s revenue declined 30% year over year to $69 million in the quarter under review. Earnings plummeted 80% year over year to $3 million in the second quarter.
Book value as of June 30, 2012, was $49.31 per share, up 5.7% from $46.63 as of June 30, 2011.
Share repurchase
During the second quarter, Loews spent $15 million to buyback 1.3 million shares.
Peer Comparison
The Travelers Companies (TRV), reported earnings of $1.26 per share in the second quarter of 2012, lagging the Zacks Consensus Estimate of $1.38 per share. Results rebounded from the loss of 88 cents incurred in the year-ago quarter.
Travelers missed the expectation due to catastrophe losses. Cat loss incurred by the company totaled $357 million or 90 per share, arising from wind and hail storms in several regions of the United States.
Total revenue in the quarter under review was $6.4 billion, flat with the year-ago quarter, driven by the increase in premiums earned, partially offset by decrease in net investment income. Revenue surpassed the Zacks Consensus Estimate of $6.3 billion.
Zacks Rank
We maintain our Outperform recommendation on Loews over the long term. The quantitative Zacks #1 Rank (short-tem Strong Buy rating) for the company indicates slight boost on the shares over the near term.
CNA FINL CORP (CNA): Free Stock Analysis Report
DIAMOND OFFSHOR (DO): Free Stock Analysis Report
LOEWS CORP (L): Free Stock Analysis Report
TRAVELERS COS (TRV): Free Stock Analysis Report
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