Loews Reports Weak Second Quarter

Loews Corporation (L - Analyst Report) 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 - Analyst Report) and soft results from equity and limited partnership investments at the parent company weighed on the results. Higher earnings at CNA Financial Corporation (CNA - Snapshot Report) 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 - Analyst Report), 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.