Loews Corporation (L) reported its fourth-quarter 2010 adjusted net income of $1.18 per share, beating the Zacks Consensus Estimate of 88 cents. Results were way ahead of 83 cents earned in the prior-year quarter. Adjusted net income was $488 million, 37% higher than $357 million in fourth-quarter 2009.
The outperformance stemmed from higher net investment income from limited partnerships, coupled with favorable net prior year development at CNA and improved results from the company’s trading portfolio. However, net investment losses and lower earnings at Diamond Offshore Drilling due to lower utilization and drilling suspension in the Gulf of Mexico were partial offsets.
Including net investment losses of $22 million, Loews reported net income of $466 million or $1.12 per share, up from $403 million or 94 cents per share in the year ago quarter.
Full year 2010 adjusted net income of $1.05 per share lagged the Zacks Consensus Estimate by a substantial $1.65. Results considerably lower than $2.47 in the prior-year. Adjusted net income was $1.3 billion, 20% lower than $1.1 billion in 2009.
Including net investment gains of $27 million and loss from discontinued operations of $19 million, Loews reported net income of $1.3 billion or $3.07 per share in 2010, up from $564 million or $1.30 per share in 2009.
Operational Performance
Total revenue at Loews in the fourth quarter was $3.72 billion, down 3% from $3.82 billion in the prior-year quarter. Lower premiums and contract drilling revenues, partially offset by higher net investment income resulted in the overall decline.
Full year 2010 revenue grossed $14.6 billion, increasing 3.5% from 2009 as well as surpassing the Zacks Consensus Estimate of $13.56 billion.
Total expense in the quarter decreased 5.7% year over year to $2.77 billion. A decrease in insurance claims largely deflated the cost. Full year total expense declined 5% year over year to $11.7 billion.
CNA Financial’s revenue increased a trifle over the prior-year period to $2.34 billion in the quarter. Net loss attributable to Loews Corp. surged 63% year over year to $297 million in the quarter. Result includes CNA’s transfer of legacy asbestos and environmental pollution liabilities to National Indemnity Company.
Full year 2010 revenue declined 2% while net earnings declined 33% from 2009.
Diamond Offshore’s revenue dropped 5.4% year over year to $843 million. Earnings also declined 12% year over year to $12 million in the quarter.
Revenue in 2010 decreased 8% from 2009. Net earnings declined 31% from 2009.
High Mount Exploration revenue was $104 million, plunging 32% year over year. Reported earnings of $21 million declined 40% from the year-ago quarter. Results include impairment charges related to the carrying value of High Mount’s natural gas and oil properties.
Segment revenue in 2010 declined 27% year over year. Segment reported net earnings of $77 million, reversing the loss of $537 million in 2009.
However, Boardwalk Pipeline’s revenue increased 10% to $308 million from the prior-year level. Earnings improved 21% year over year to $34 million.
Revenue in 2010 improved 24% year over year to $1.1 billion. Net earnings were $114 million, a whopping increase of 70% from 2009.
Loews Hotels revenue increased 10% over the prior-year period to $78 million in the quarter.
Full year revenue increased 8% year over year. Segment earnings were $1 million, reversing the loss of $34 million in 2009.
Book value as of December 31, 2010, was $44.51 per share, up $39.76 as of December 31, 2009 but down from $45.31 as of September 30, 2010.
During the fourth quarter of 2010, Loews spent $68 million to buy back 1.8 million shares. For 2010, Loews bought back 11 million shares for $405 million.
In January 2011, the company spent $36 million to buy back 0.9 million shares.
Peer Comparison
The Travelers Companies (TRV), which competes with Loews, reported operating earnings of $1.89 per share in the fourth quarter 2010, surpassing the Zacks Consensus estimate by 22 cents. Operating income was $864 million, down 25% from $1.2 billion in fourth-quarter 2009. Lower underwriting gains as well as net investment income primarily induced lower operating profits.
For full year 2010, Travelers reported operating income of $3.4 billion or $6.26 per share, lower than $3.6 billion or $6.29 per share in full year 2009. Results comfortably surpassed the Zacks Consensus Estimate of $6.06.
Our Take
CNA Financial’s recent agreement with National Indemnity has helped it shed all its asbestos and environmental liabilities thus, imparting stability. Also, Boardwalk’s increased capacity and expansion projects and improved financial market conditions bode well. A strong balance sheet with low leverage and adequate cash are among other positives.
However, lower earnings at the operating subsidiaries, volatile natural gas and oil prices and a challenging economic environment keep us cautious. We maintain our Neutral recommendation on Loews over the long term. The quantitative Zacks #4 Rank (short-tem Sell rating) for the company indicates downward pressure on the shares over the near term.
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