Leucadia Posts Weak 3Q Results - Analyst Blog

Leucadia National Corporation (LUK) reported its financial results for the third quarter of 2010. The company generated net income from continuing operations of $263.2 million, or $1.07 per share during the quarter compared with $341.8 million or $1.38 per share in the third quarter of 2009. Sequentially, the results improved from a net loss of $0.97 per share.

The decline in net results was attributable to higher expenses in the quarter that more than offset higher revenues. Also, the company disposed of few of its operating assets in the quarter.

Revenue

Revenue increased 29.6% year over year to $185.9 million while registered a sequential decline of 54.9%. The improvement was attributable to increase in Gaming Entertainment revenue, gains from corporate sources and other operations, and contributions from Oil and Gas Drilling Services.

Revenue from the Manufacturing segment was roughly stable at $37.8 million and accounted for 33.0% of total revenue. The Oil and Gas Drilling segment accounted for 17.1% of revenue and totaled $31.6 million.

Revenue generated from Gaming Entertainment operations was roughly 16.7% of total revenue, and increased 15.2% to $31.2 million, while revenue of $4.9 million from Domestic Real Estate segment accounted for 2.7% of total revenue.

Revenue from Medical Product Developmental segment slipped to $6,000 from $53,000 in the year-ago quarter. Proceeds from Other operations were $14.3 million, up 7.8% year over year and accounted for 7.7% of total revenue, while corporate segment revenue of $42.5 million accounted for 22.8% of revenue and climbed 15.3% year over year.

In the quarter, the company disposed its operating retail shopping center in Long Island, New York, which was accounted under the Domestic Real Estate segment. The company also sold ResortQuest (Property Management and Services)and STi Prepaid (Telecommunications).

Margins

Cost of sales, as a percentage of revenue, dipped 930 basis points year over year to 28.6% in the quarter while direct operating expenses increased 12.3% basis points to 26.6%. Selling, general and other expenses increased from 23.7% in the year-ago quarter to 37.2% in the third quarter of 2010. Interest expenses were $31.4 million, flat year over year.

Balance Sheet

Exiting the third quarter, Leucadia's cash and cash equivalents went up 30.3% sequentially to $323.3 million while its long-term debt dipped by 1% to $1,608.4 million compared with $1,625.1 million in the previous quarter.

Cash Flow

Cash flow from operating activities was a net inflow of $103.5 million versus a net outflow of $59.3 million in the year-ago quarter. Capital expenditure was $7.5 million compared with $6.6 million in the third quarter of 2010.

We currently maintain our Neutral recommendation on Leucadia.