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Loews Corporation Posts Net Loss on Subsidiary Write-Downs

By Demitri Kalogeropoulos - Feb 8, 2016 at 5:07PM

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The holding company was hurt by a $500 million charge taken at its Diamond Offshore subsidiary.

Holding company Loews (L 1.50%) posted fourth-quarter earnings results on Monday, Feb. 8, that were swamped by huge write-downs in its insurance and rig drilling businesses.

Here's a look at how the headline results compared against the prior-year period.

 

Q4 2015 Actuals

Q4 2014 Actuals

Growth (YOY)

Revenue

$3.3 billion

$3.5 billion

-5%

Net Income (Loss)

$(201) million

$208 million

N/A

Earnings Per Share (Loss)

$(0.58)

$0.55

N/A

Data source: Loews' financial filings.

What happened with Loews this quarter?
Loews' was hit with two major charges this quarter -- one in the CNA Financial (CNA 0.47%) unit and one in the Diamond Offshore (DO) division -- that totaled $359 million. Those write-downs, plus declining overall operating results, produced significant losses for Loews in the fourth quarter. Here are the main highlights of the quarter:

  • CNA Financial's revenue and profit both fell. Sales slipped to $2.3 billion from $2.4 billion and operating income swung to a $46 million loss from a $186 million gain last year.
  • Diamond Offshore's revenue and profit slumped as its industry contracted sharply. Sales fell 17% and operating income dove from $47 million a year ago to a net loss of $122 million this quarter. The company took a massive $500 million charge.
  • The Boardwalk Pipeline (BWP) segment posted a solid uptick as it generated $19 million of profit.
  • Management ramped up stock buyback spending, allocating $632 million on buybacks compared to $568 million over the prior three quarters combined.
  • Cash balances fell to $4.3 billion from $5.1 billion.
  • Book value per share improved to $52.72, up from $50.95 a year ago.

What management had to say
Diamond Offshore CEO Marc Edwards said that there doesn't seem to be a quick rebound in the cards for the industry. In fact, the company suspended its dividend today in a bid to strengthen its cash position. "Given the severe and prolonged downturn in industry fundamentals, we believe it is prudent to bolster our already strong balance sheet," he said.

In contrast, executives CNA Financial, Loews' other key subsidiary, were encouraged by strong underlying operating trends, including a loss ratio that ticked up to 62% from 61%. "This sustained progress in our property and casual business, as well as our strong capital position," CEO Tom Motamed said, "gave the Board of Directors the confidence to declare a special dividend for the third consecutive year." CNA announced a $2 dividend for fiscal 2015, which was the same sized special payout it made in 2014.

Looking forward
Backing out the unusual charges, Loews' profit fell by 31%, but was solidly positive ($183 million). That suggests the holding company may not accrue higher income or dividends from its major subsidiaries this year.

Cash balance and outstanding share count. Data source: Loews' investor presentation.

But executives can still use that operating lull as an opportunity to aggressively buy back stock. They've been doing just that: Loews' outstanding share count fell by 9% to 340 million last year, after ticking down by less than 4% in 2014.

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Stocks Mentioned

Loews Corporation Stock Quote
Loews Corporation
L
$60.15 (1.50%) $0.89
Diamond Offshore Drilling, Inc. Stock Quote
Diamond Offshore Drilling, Inc.
DO
CNA Financial Corporation Stock Quote
CNA Financial Corporation
CNA
$45.11 (0.47%) $0.21
Boardwalk Pipeline Partners Stock Quote
Boardwalk Pipeline Partners
BWP

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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