Leucadia National (JEF -2.56%) has been grabbing the spotlight this week following the announcement that it's picking up the 70% of Jefferies (JEF) it didn't already own. Though the deal has been widely covered, little else has been said of the "mini-Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B)."
Leucadia recently released its third-quarter earnings report, which shows off the company's strong balance sheet and diverse portfolio. But, aside from Jefferies, how are the company's other holdings doing? Let's see if the quarterly report and management's conference call can tell us anything.
The report
While many companies release press statements with big, bold lettering highlighting recent accomplishments and figures, Leucadia's was typical Leucadia -- understated.
For the quarter, the company brought in nearly $117 million in income from continuing operations. This compares to a loss of almost $300 million the year before. This translated to a bottom line of $0.43 per share for this quarter, compared to a loss of $1.19 during the same quarter in 2011. While this may seem like a tremendous gain for the company, the stock price immediately sank upon the earnings release. This trend continued, by the way, after the company announced its acquisition of Jefferies.
According to the most recent 10-Q, Leucadia is in fantastic financial position, which has been often mentioned as the biggest selling point for bringing Jefferies in house. The investment bank's capital base had been called into question given its exposure to European markets, so stronger financial backing is a big win for it. As of September 30, Leucadia held nearly $800 million in cash and cash equivalents. As a whole, current assets almost cover total liabilities -- a sign of strength for a conglomerate such as this.
On a subsidiary level, results were mixed. The company's beef processing plant, which has been a good source of profit this year, brought in almost $2 billion in revenue. The company's manufacturing holdings ticked up slightly with over $66 million in revenue, up from $63 million the year before. These holdings include Idaho Timber, which was essentially unchanged from the year before, and Conwed Plastics, which brought in the bulk of the gains for the segment.
From Leucadia's Biloxi, Mississippi casino business, revenues were also slightly higher than the year before. The company did mention in its conference call that Premier Entertainment Biloxi was in the early stages of building a new tower. The building will add 154 rooms to the resort at a projected cost of $32.5 million.
One event that boosted returns back in September was the company's sale of its Mueller Industries (MLI 0.78%) holdings. Mueller initiated a 10.4 million share repurchase agreement specifically targeted at Leucadia's shares, which have delivered a decent return since Leucadia bought in. Leucadia had owned a little more than a quarter of Mueller Industries before the sale, and the buyback put over $427 million back into Leucadia's coffers.
Cash flows were perhaps the most encouraging figures for the quarter, as net cash from operating activities came in at more than $263 million compared to $23 million the year before. One should note, however, that for this quarter, net income was boosted by a $233 million deferred tax provision.
Looking ahead
While investors apparently weren't impressed by Leucadia's quarter, I am less doubtful. The company is and always has been a long-term oriented firm. Its beef processing plant, which could benefit if U.S. beef exports continue to rise, will continue to add value in the coming years along with Premier Entertainment Biloxi. I am a strong believer in the gaming business, especially when it takes place outside of Las Vegas.
Of course, the most interesting factor in Leucadia's story is Jefferies. Analysts may have doubted the company's ability to obtain adequate capital resources going forward because of its exposure to Europe's woes (which brought down MF Global), but those concerns have now been all but erased, leaving a profitable enterprise and a great CEO to take the reigns from Leucadia's current management duo. Both Cumming and Steinberg will remain close to the company through the transition and the near future.
With a price to book of only 0.82, Leucadia is an attractively priced stock. When compared to the big-boy version of itself, Berkshire, Leucadia is substantially less expensive (though less safe) than the 1.15 times book you pay for Buffett. With a smaller capital base, and therefore larger growth opportunities, I will gladly pay $0.82 on the dollar for the company's assets and sound management.
