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Lower-than-Expected Earnings for Loews

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Loews Corporation (L - Free Report) reported first-quarter 2013 operating net income of 81 cents per share, which lagged the Zacks Consensus Estimate of 84 cents. Earnings dropped 14.7% year over year from 95 cents per share.

Including non-cash ceiling test impairment charges of $92 million and net investment gains of $14 million, Loews reported net income of $242 million or 62 cents per share, comparing unfavorably with income of 367 million or 92 cents per share in the year-ago quarter.

Lower parent company investment income as a result of a weak performance in the trading portfolio induced lower income.

Operational Performance

Loews’ total revenue was $3.73 billion in the reported quarter, down 0.3% year over year. Lower net investment income and contract drilling revenues, led to the overall decline in top line.

Total expense in the quarter increased 7.9% year over year to $3.2 billion. The increase was mainly due to higher insurance claims & policyholders’ benefits, which was partly offset by lower contract drilling expenses.

Loews Hotels posted the highest growth in revenues in the quarter, improving 17.5% year over year to $94 million.

CNA Financial’s (CNA - Free Report) revenues increased 4.6% over the prior-year period to $2.45 billion in the quarter under review. It reported net income attributable to Loews Corp. of $212 million, improving 2.4% year over year. Improved current year non-catastrophe underwriting results, to some extent offset by lower investment income, higher catastrophe losses and decreased net favorable prior-year development attributed to the increase.

The Boardwalk Pipeline’s revenues improved 4.8% to $329 million from the prior-year level. Earnings improved 7.6% to $99 million in the quarter.

Diamond Offshore’s (DO - Free Report) revenues declined 8% year over year to $732 million. Earnings decreased 18.7% year over year to $205 million, largely due to increased rig surveys lowering utilization and thus reducing revenue-earning days.

HighMount’s revenues declined 10.5% year over year to $68 million in the quarter under review. Earnings plunged 40% year over year to $6 million. The company also recorded a ceiling test impairment charge of $145 million.

Book value as of Mar 31, 2013, was $49.93 per share, up 4.9% from $48.96 as of Mar 31, 2012.

Share repurchase

During the first quarter, Loews spent $92 million to buyback 2.1 million shares.

Our Take

Loews remains on track to strengthen its hotel business by doubling its hotel count within the next three to five years and expects to triple the net income by 2015. The company’s total number of hotels stands at 21.

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. Strong balance sheet with low leverage and adequate cash and strong rating scores are among the positives for Loews.

Loews carries a Zacks Rank #3 (Hold). FBL Financial Group Inc. (FFG - Free Report) , another multi-line insurer with a Zacks Rank # 1 (Strong Buy), will report its result on Mar 2 after the market closes.

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