Leucadia Reports Net Profit – Analyst Blog

Leucadia National Corporation (LUK) reported results for the first quarter of fiscal 2010. During the quarter, the company generated net earnings of $191.5 million from associate companies compared with a loss of $140.0 million in the same quarter of 2009. EPS was 78 cents compared with a loss per share of 59 cents in the corresponding quarter of the previous year.

 

Revenue during the quarter was $374.4 million, 50% up from $250.3 million in the year-ago quarter. The increase was attributable to net securities gains at Corporate in the quarter against a loss in the first quarter of 2009.

 

Revenue from Manufacturing segment grew 25.8% year over year based on an increase in sales volume as well as selling price. Revenue from Telecommunication operations declined 25% while from Gaming Entertainment operations spiked 1.5%. Revenue from Property Management and Services segment dropped 21.9% year over year. The decrease in revenues was due to poor economic conditions.

 

Revenue from Domestic Real Estate remains flat at $4.0 million compared with $4.1 million in the year-ago quarter. However, Medical Product Developmental revenue slipped to $2,000 from $42,000 in the corresponding period of last year excluding $5 million from insurance proceeds received upon the death of Sangart’s former chief executive officer. 

 

Revenue from Other operations reached $1.9 million, a fall from $2.5 million in the first quarter of 2009. However, the company reported $5.1 million in the Corporate segment, up from $3.9 million in the same quarter of 2009 due to the increase in other income and investment.

 

The company earned revenue of $6.4 million from Contract Oil and Gas Drilling carried out by Keen.

 

Net cash of $72.0 million was used for operating activities compared to $65.8 million of net cash used by operating activities in the first quarter of fiscal 2009. The change in operating cash flows reflects a decrease in earnings from associated companies and higher income tax payments. As of March 31, 2010, net debt was $1,762.7 million, down from $1,816.36 million at the end of 2009.

 

Leucadia has largely benefited from extensive diversification into a variety of businesses. The company’s strategy to grow through acquisitions and to look for troubled companies increases its growth opportunities. However, investment in volatile materials such as base metals reduces the value of the company’s investments.

 

Leucadia faces intense competition from various companies in different industries. A lower pricing for the products and new competitors might impact both top and bottom line results. However, Leucadia depends on general market conditions, which are likely to improve in 2010 and beyond. We maintain our Neutral recommendation on the stock based on uncertain economic conditions.