Loews Corporation (L) reported its second-quarter 2010 net income of 87 cents per share, beating the Zacks Consensus Estimate of 82 cents. Results compare favorably with 78 cents per share in the prior-year quarter. Net income was $366 million compared with $340 million in second quarter 2009.
Excluding net investment gains of $1 million, net income of Loews was $365 million compared with $518 million in second quarter 2009. The prior-year quarter incurred net investment losses of $178 million.
The decrease in income before investment gains was due to lower net investment income at CNA Financial Corporation (CNA), as lower limited partnership income was partially offset by favorable prior-year development; lower earnings at Diamond Offshore Drilling (DO), due to lower dayrates and utilization; and less favorable results from the trading portfolio.
Total revenue of Loews in the quarter was $3.49 billion, down 1.4% form $3.53 billion in the prior-year quarter. Net investment gains in the quarter were $11 million compared with net investment losses of $310 million in second-quarter 2009. Results included $33 million of other-than-temporary impairment losses in the reported quarter compared with $231 million in the year-ago quarter.
CNA Financial’s net income attributable to Loews Corp. decreased to $247 million compared with $277 million in the prior-year quarter. Diamond Offshore’s earnings also dropped to $104 million from $181 million in the prior-year period.
HighMount Exploration reported earnings of $5 million, much lower than the $29 million in the year-ago quarter, reflecting the impairment charges in the year-ago period. However, Boardwalk Pipeline’s earnings improved to $21 million, up from $8 million in second-quarter 2009.
Loews Hotels improved slightly to $4 million from $3 million in the prior-year quarter, as the prior-year quarter results included impairment charges related to the write-down of Loews Hotels' entire investment in a hotel property.
Book value at June 30, 2010 was $43.53 per share, up from $41.80 at March 31, 2010 and $39.76 at December 31, 2009.
Share Repurchases
During the second quarter of 2010, Loews spent $56 million to buy back 1.5 million shares. During the first half of 2010, Loews has bought back 6.9 million shares for $253 million.
Management intends to buy back shares of the company and its subsidiaries’ stock in the open market or otherwise depending on market conditions.
Agreement with National Indemnity Company
CNA entered into an agreement with National Indemnity Company (NICO) in which CNA’s legacy asbestos and environmental pollution (A&E) liabilities will be ceded to NICO. NICO is a subsidiary of Berkshire Hathaway Inc. (BRK.B).
CNA will cede approximately $1.6 billion of net A&E liabilities to NICO under a retroactive reinsurance agreement with an aggregate limit of $4.0 billion, effective January 1, 2010. NICO will receive a reinsurance premium of $2.0 billion and the right to collect billed third party reinsurance receivables with a net book value of approximately $200 million. NICO, on the other hand, will deposit $2.2 billion in a collateral trust for CNA’s benefit.
The transaction is expected to close in the third quarter of 2010, and Loews expects to recognize a loss of approximately $340 million, after tax and non-controlling interest.
Lower earnings at the operating subsidiaries, volatile natural gas and oil prices and a challenging economic environment keep us “Underperform” on Loews. The quantitative Zacks #5 Rank (Strong Sell) for the company indicates downward directional pressure on the shares over the near term.
BERKSHIRE HTH-B (BRK.B): Free Stock Analysis Report
CNA FINL CORP (CNA): Free Stock Analysis Report
DIAMOND OFFSHOR (DO): Free Stock Analysis Report
LOEWS CORP (L): Free Stock Analysis Report
Zacks Investment Research
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The decrease in income before investment gains was due to lower net investment income at CNA Financial Corporation (CNA), as lower limited partnership income was partially offset by favorable prior-year development; lower earnings at Diamond Offshore Drilling (DO), due to lower dayrates and utilization; and less favorable results from the trading portfolio.
Total revenue of Loews in the quarter was $3.49 billion, down 1.4% form $3.53 billion in the prior-year quarter. Net investment gains in the quarter were $11 million compared with net investment losses of $310 million in second-quarter 2009. Results included $33 million of other-than-temporary impairment losses in the reported quarter compared with $231 million in the year-ago quarter.
CNA Financial’s net income attributable to Loews Corp. decreased to $247 million compared with $277 million in the prior-year quarter. Diamond Offshore’s earnings also dropped to $104 million from $181 million in the prior-year period.
HighMount Exploration reported earnings of $5 million, much lower than the $29 million in the year-ago quarter, reflecting the impairment charges in the year-ago period. However, Boardwalk Pipeline’s earnings improved to $21 million, up from $8 million in second-quarter 2009.
Loews Hotels improved slightly to $4 million from $3 million in the prior-year quarter, as the prior-year quarter results included impairment charges related to the write-down of Loews Hotels' entire investment in a hotel property.
Book value at June 30, 2010 was $43.53 per share, up from $41.80 at March 31, 2010 and $39.76 at December 31, 2009.
Share Repurchases
During the second quarter of 2010, Loews spent $56 million to buy back 1.5 million shares. During the first half of 2010, Loews has bought back 6.9 million shares for $253 million.
Management intends to buy back shares of the company and its subsidiaries’ stock in the open market or otherwise depending on market conditions.
Agreement with National Indemnity Company
CNA entered into an agreement with National Indemnity Company (NICO) in which CNA’s legacy asbestos and environmental pollution (A&E) liabilities will be ceded to NICO. NICO is a subsidiary of Berkshire Hathaway Inc. (BRK.B).
CNA will cede approximately $1.6 billion of net A&E liabilities to NICO under a retroactive reinsurance agreement with an aggregate limit of $4.0 billion, effective January 1, 2010. NICO will receive a reinsurance premium of $2.0 billion and the right to collect billed third party reinsurance receivables with a net book value of approximately $200 million. NICO, on the other hand, will deposit $2.2 billion in a collateral trust for CNA’s benefit.
The transaction is expected to close in the third quarter of 2010, and Loews expects to recognize a loss of approximately $340 million, after tax and non-controlling interest.
Lower earnings at the operating subsidiaries, volatile natural gas and oil prices and a challenging economic environment keep us “Underperform” on Loews. The quantitative Zacks #5 Rank (Strong Sell) for the company indicates downward directional pressure on the shares over the near term.
BERKSHIRE HTH-B (BRK.B): Free Stock Analysis Report
CNA FINL CORP (CNA): Free Stock Analysis Report
DIAMOND OFFSHOR (DO): Free Stock Analysis Report
LOEWS CORP (L): Free Stock Analysis Report
Zacks Investment Research
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