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Loews Corporation (L - Analyst Report) reported first-quarter 2012 adjusted net income of 87 cents per share, comfortably ahead of the Zacks Consensus Estimate of 82 cents. Earnings were almost in line with prior-year quarter. Adjusted net income stood at $348 million, down 5.2% from $367 million in first-quarter 2011.

Including net investment losses of $19 million, Loews reported net income of $367 million or 92 cents per share, compared with $397 million or 92 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 - Analyst Report) and HighMount primarily resulted in the lower income. However, higher earnings at CNA Financial Corporation (CNA - Snapshot Report) and higher parent company investment income were positives.

Operational Performance

Total revenue at Loews in the quarter was $3.74 billion, up 2.1% from $3.67 billion in the prior-year quarter. Higher revenues at CNA Financial coupled with higher investment income besides investments gains aided the overall improvement of the top line.

Total expense in the quarter increased 3.2% year over year to $3.0 billion. The increase was mainly due to higher insurance claims and policyholders’ benefits and higher contract drilling expenses.

CNA Financial recorded the highest revenue growth in the quarter. Revenue increased 2.9% over the prior-year period to $2.3 billion in the quarter.

CNA Financial reported net income attributable to Loews Corp. of $207 million, improving 10.7% year over year. The improvement largely stemmed from higher investment income driven by limited partnership results and higher fixed maturity securities income and lower catastrophe losses.

Loews Hotels posted revenue of $80 million, flat with year-ago number. Net income doubled to $4 million from year-ago level.

The Boardwalk Pipeline’s revenue crept up 1% to $314 million from the prior-year level.

Earnings improved 12% year over year to $92 million in the quarter.

Diamond Offshore’s revenue decreased 1.6% year over year to $796 million.

Earnings also declined 14.7% year over year to $252 million in the quarter. The decline was attributable to lower utilization as well as higher contract drilling expense.

High Mount Exploration revenue was $76 million, down 27% year over year.

High Mount reported a loss of $22 million compared with a profit of $19 million in the year-ago quarter. The loss stemmed from non-cash impairment charge related to the carrying value of its natural gas and oil properties as natural gas prices are declining. Also, lower production volumes and prices added to the woes.

Book value as of March 31, 2012, was $48.96 per share, up 7.9% from $45.38 as of March 31, 2011.

Peer Comparison

The Travelers Companies (TRV - Analyst Report), which competes with Loews, reported operating earnings of $2.01 per share in the first quarter of 2012, outperforming the Zacks Consensus Estimate of $1.52 per share. Reported results compared favorably with $1.89 in the prior-year quarter.

Operating income in the reported quarter was $801 million, compared with $826 million in the first quarter of 2011. The year-over-year decline was primarily due to lower net investment income.

However, lower share count due to share repurchases during the quarter aided the bottom line.

We maintain our Neutral recommendation on Loews over the long term. The quantitative Zacks #2 Rank (short-tem Sell rating) for the company indicates slight boost on the shares over the near term.

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