洛茲集團 (L) 2011 Q1 法說會逐字稿

Good morning, my name is Melissa and I will be your conference operator today. At this time I would like to welcome everyone to the Loews first-quarter 2011 earnings conference call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions).

I would now like to turn the conference over to Darren Daugherty, Director of Investor Relations. Please go ahead.

Thank you, Melissa. Good morning, everyone. Welcome to Loews Corporation's first-quarter 2010(Sic) earnings conference call.

A copy of the earnings release may be found on our website Loews.com. On the call this morning are Jim Tisch, Chief Executive Officer of Loews; and Peter Keegan, Chief Financial Officer of Loews.

Following our prepared remarks this morning, we will have a question-and-answer session. Before we begin however, I will remind you that this conference call might include statements that are forward-looking in nature.

Actual results achieved by the Company may differ materially from those projections made and any forward-looking statements. Forward-looking statements reflect circumstances at the time they are made and the Company expressly disclaims any obligation to update or revise any forward-looking statements. This disclaimer is only a brief summary of the Company's statutory forward-looking statements disclaimer which is included in the Company's 10-K and 10-Q filings with the SEC.

During the call today, we might also discuss certain non-GAAP financial measures. Please refer to our securities filings for a reconciliation to the most comparable GAAP measures. I will now turn the call over to Loews Chief Executive Officer Jim Tisch.

Thank you, Darren. Good morning, and thank you for joining us on our call today.

For the first quarter of 2011, Loews reported net income of $382 million, a decline from net income of $420 million in last year's first quarter. The decline in Loews earnings resulted primarily from lower average day rates at Diamond Offshore and a decline in earnings at CNA.

We started off 2011 with a relatively quiet first quarter but rest assured, all of our subsidiaries are working hard towards achieving their long-term strategic goals. While CNA reported solid results, net income for the quarter declined modestly versus the same period in 2010.

CNA's core property and casualty operations performed well, posting higher operating income for the quarter and increase in catastrophe losses was more than offset by higher investment income and improved underwriting results before catastrophes. CNA continues to improve the financial performance of its core property and casualty operations while seeking to grow in its focus areas.

The work that's been done over the past two years is gaining traction as evidenced by net written premium growth of 13% in CNA's specialty segment in the first quarter while rate was essentially flat. In its commercial segment, CNA gained two points of rate as we continued to push for improved pricing and risk selection. CNA has now achieved rate increases for six consecutive quarters in its commercial segment even as it works to exit lower tier less profitable business.

By now you've probably seen the announcement of CNA's definitive merger agreement with CNA Surety. This transaction offers compelling benefits for both companies.

It will allow minority shareholders of CNA Surety to monetize their investment at a substantial premium to their historical stock price and for CNA, it's an opportunity to expand further its specialty franchise. CNA expects the transaction to be completed by the end of June.

In summary, we're very pleased with CNA's results. We believe that the improvements underway over the past several quarters are taking hold and that CNA is well-positioned to continue making progress on improving its financial and operational results.

Moving on to Diamond Offshore, Diamond's income for the quarter decreased as compared to 2010 primarily due to lower revenues from a decline in average day rates and lower utilization rates for jackups. However, oil prices have improved since the beginning of 2011 and broader markets around the world appear to be stable to improving.

In the ultradeep water market, there is an upward trend in day rates with indications of strong interest from the major and national oil companies. The deepwater market shows signs of a positive trend with market strength developing while the mid-water market is relatively flat.

Diamond's exposure to the mid-water spot market is somewhat mitigated by the fact that roughly half of its mid-water fleet is working in Brazil under long-term contracts. So even though earnings at Diamond have come down from deep levels, results nonetheless represented a pretty good quarter.

Turning now to Boardwalk Pipeline Partners, today it was announced that Stan Horton has been named President of Boardwalk GP LLC effective today and later this month will assume the additional role of Chief Executive Officer. Stan's background includes 10 years as President and COO of [Shanir Energy] and a gaggle of leadership positions at several interstate pipeline companies.

Most recently he was the President of CrossCountry Energy and Panhandle Energy. He's also served as CEO of Enron Transportation Services Company. We are very pleased to have a leader of Stan's caliber and experience taking over at Boardwalk.

We would like to thank Rolf Gafvert for his 18 years of service and leadership at Boardwalk and its predecessor companies including more than four years as Chief Executive Officer. We wish him well as he steps down from his responsibility as CEO.

And finally, Loews finished the first quarter of 2011 with $4.6 billion of cash and investments. So far this year from January 1 of 2011 through April 29 we have repurchased 6.4 million shares of Loews common stock for a total cost of approximately $273 million or approximately $42.42 per share. But who's counting? And with that, I will now turn the call over to Pete Keegan, our Chief Financial Officer. Pete?

Thanks, Jim, and good morning, everyone. Loews reported first-quarter earnings of $0.92 per share versus $0.99 per share in the prior year first quarter.

CNA's contribution to Loews first-quarter net operating income declined to $190 million from $206 million in the prior year quarter. Results were impacted by increased interest expense from the use of debt to fund part of the preferred stock redemption as well as from costs associated with early retirement of senior notes.

CNA also experienced modestly higher catastrophe losses which were partially offset by a $30 million increase in net investment income primarily from limited partnership investments. Favorable net prior-year development for the quarter was flat at $35 million as compared to the prior year quarter.

In the first quarter of 2011, realized investment gains from CNA declined to $12 million from $19 million after tax and noncontrolling interest. In February 2011, CNA completed a $400 million debt offering and used the proceeds to prepay senior notes due in August.

CNA's next major maturity is not until 2014. Diamond Offshore's contribution to net income for the quarter declined to $117 million from $136 million in the first quarter 2010 primarily due to a decline in day rates earned across Diamond's fleet of rigs and a decline in utilization for Diamond's jackup rigs.

Diamond Offshore continues to feel the impact from regulatory uncertainty in the US Gulf of Mexico in the post-Macondo environment and has relocated rigs to capitalize on stronger demand in international markets. These factors were partially offset by a decrease in income tax expense.

The decrease in Diamond Offshore's effective tax rate versus the prior year quarter resulted from differences in Diamond's mix of pretax earnings and losses in various international and domestic tax jurisdictions and a tax law change. HighMount reported net income of $19 million for the first quarter versus $32 million in the prior year quarter.

HighMount's operating revenues and expenses decreased primarily due to the sale in 2010 of its assets in Michigan and Alabama. As prices for natural gas have remained low, the drilling program for the Permian Basin has been reduced since mid-2010 and resulted in HighMount's equivalent sales volume decreasing to 15.5 billion cubic feet equivalent from 16.6 billion cubic feet equivalent in the prior year quarter.

As of March 31, HighMount had hedges in place that cover approximately 72% of its estimated 2011 natural gas equivalent production at an equivalent price of $6.31 per Mcfe and 40% of estimated 2012 production at an equivalent price of $5.64 per Mcfe. For the first quarter 2011, HighMount's production volumes and realized prices are as follows.

Natural gas production was 11.6 billion cubic feet at an average realized price of $6.41 per thousand cubic feet. Natural gas liquids production was 703,000 barrels at an average realized price of $38.79 per barrel and oil production was 61,000 barrels at an average price of $87.28 per barrel.

Boardwalk Pipeline's contribution to net income for the quarter decreased to $33 million from $38 million in the prior year quarter. Results in 2011 were impacted by higher interest expense primarily from a loss recognized on the early repayment of debt and costs incurred to repair our compressor station damaged by a fire. These impacts were partially offset by higher gas transportation revenues from expansion projects completed in 2010.

In the first quarter Loews Hotels reported higher net income of $2 million versus a net loss of $1 million in the prior year quarter with the improvement primarily driven by the Orlando properties. Revenue per available room increased to $152 from $145 in the prior year first quarter. Occupancy for the quarter increased to 67.6% from 65.3% and average room rates increased to $225 from $221.

Holding company cash and investments as of March 31 totaled $4.6 billion. During the quarter we received $155 million in dividends and interest from our subsidiaries.

We purchased 4.4 million shares of Loews common stock for $187 million and we paid $26 million of dividends to our shareholders. On April 15, 2011, Loews repaid the outstanding principal amount of $175 million to retire the 8.9% debentures at maturity. From April 1 to April 29, we purchased an additional 2 million shares of Loews common stock for an aggregate cost of $86 million.

And now I will turn the call back over to Darren.

Thank you, Pete. At this time, we will open it up for questions.

(Operator Instructions) David Adelman, Morgan Stanley.

Pete, you might've said it or maybe I missed it, the total dividends to the holding company during the quarter from the subsidiaries was what?

Was $155 million.

155, okay. And then, Jim, can you comment on the relative attraction of the acquisition environment, the things that you are seeing broadly and then perhaps in natural gas in specifics?

So, broadly, what we are seeing is that the world has changed dramatically over the past 20 or 30 years. That is not a revolutionary statement, but it's one that I've really noticed.

20 and 30 years ago, there weren't a lot of LBO firms around. There were not too many conglomerates. So when something became available for sale, it was relatively easy to step in and buy it. Or even if something didn't become available for sale, it was again relatively easy to buy a business.

Today as soon as the business decides it wants to sell itself for whatever reason, the business unless they go to Warren Buffett, they go to an investment banker and there is an auction. And so there are lots of bidders with lots of sharp pencils and analysts who know how to work Excel and the prices paid are usually very, very high.

And so, what we are seeing now is the pencils are yet even sharper and the prices that are paid seem to be yet even higher in large part because I would imagine private equity firms are -- have a lot of cash that they want to invest and there's not an awful lot that is for sale. So, right now as you might imagine, we don't see a lot of opportunity in the buy-a-company world.

In terms of investments for our individual businesses, we are seeing opportunities. First of all, there is CNA that is spending a few hundred million dollars to buy a minority interest in CNA Surety.

At Diamond Offshore we've got investment opportunities on the order of $1 billion in buying two new drill ships and we have still an option to buy a third that expires later this month. And likewise, we are seeing at HighMount lots of what I would call bite-size investment opportunities, not companies as much as they are properties either producing or non-producing that are for sale that could possibly be attractive acquisitions for HighMount.

So, I would sum up by saying that there isn't -- we haven't yet found anything for Loews Corp. to do. Having said that, we are seeing plenty of opportunities for our subsidiaries.

Michael Millman, Millman Research.

(inaudible) pockets, I was kind of wondering if there is too much energy, too much concentration in those pockets. So maybe you can talk about that and maybe also what changes you would expect a new CEO to bring to Boardwalk.

So in terms of our specifying pockets and our energy investments, what we are looking for is total returns for shareholders. And right now, those opportunities happen to be in the energy area. So we are happy to take on those investments where we feel we can earn a significant return for not only the subsidiaries, but also for Loews as a shareholder in those subsidiaries.

In terms of the management change at Boardwalk, as we said, Rolf has been with Boardwalk -- Rolf Gafvert has been with Boardwalk and its predecessors for 18 years. He had expressed to us about nine months ago or so a desire to retire at some point in the future. We had an extensive search process and Stan Horton quickly bubbled to the top of that search process.

When we first got into the pipeline, the natural gas pipeline business in 03, Stan Horton was as best I could tell and recollect a legend in the industry; having run many of the Enron pipelines and put together and managed their I would say enviable position in the pipeline business. So if you remember, it was the pipeline business that was really the very strong positive cash flow generating business for Enron.

And Stan stayed on for a few years after Enron blew up and then went on to other things in the pipeline business. So when his name came forth to our search process, I was very interested.

And I think that Stan would be a great leader for Boardwalk. I think that he obviously has the experience in the business, he knows people in the business, customers and other pipeline operators.

He has a strong understanding of MLPs and value creation which is very positive. We're happy that he's coming to Boardwalk and positive about Boardwalk's prospects under his leadership.

So it sounds like you are suggesting that he should produce very well but not necessarily any specific things you see or that we on the outside are going to see in the next year or two.

No, that's right. There is nothing in specific. But in general, I'm very positive about his leadership.

(Operator Instructions) Bob Glasspiegel, Langen McAlenney.

This question may suggest otherwise, but I have a lot of respect that you know the gas business much better than I do. But it's been four years since we've taken our first step into creating HighMount and there's been a decent amount of write-off of goodwill and gas prices haven't done much in the context of a pretty favorable environment for oil.

What has to happen for your investment to pay off from a macro point of view? Does it require the US to change the infrastructure to allow more things to run on gas? You seem to be very positive about doing more of this, so clearly you're seeing something that maybe the rest of the world isn't seeing.

You're actually very generous in your question. You could have said, Jim, you bought HighMount when natural gas prices were $8 an Mcf. You looked like a hero for year as they went to $14 and now you are a bum because they are $4. So thank you for not saying that.

What happened very simply was that something happened in the gas business that we never expected which was that all of a sudden, the technology changed and gas which had been thought to be a scarce commodity all of a sudden became a plentiful commodity. Now having said that, we've taken our lumps for getting in at $8 and the price now being at $4. With the price at $4, we are seeing opportunities.

First of all we're seeing some opportunities in gas, but we're also seeing opportunities in liquids. And when I talk about liquids, I'm talking about not only crude oil, but also wet gas which includes a whole slate of natural gas liquids, a number of which trade at prices relative to oil rather than prices relative to natural gas.

As I said, we are seeing lots of opportunities in those -- in the natural gas area and also for liquids areas. And as I said before, we are seeing that in bite-size pieces. So I'm hopeful that we will be able to take advantage of some of those opportunities.

What's going on, what I think is going on in the natural gas business is that natural gas trades at what I would call a crazy ridiculous price relative to oil. Gas trades at about a ratio of 25 to 1 to oil notwithstanding the fact that gas should trade on a BTU basis at 6 to 1. So gas is trading at about 25 to 30% per BTU of what oil trades at. So gas is a very, very cheap energy commodity.

I strongly believe the statement in economics that goes, what has to happen happens. And I think that we are going to see significant increases in gas consumption just outright, but also relative to oil consumption.

I think oil consumption in the United States peaked in 06 and 07 and has been flat to declining ever since. And natural gas consumption has been increasing. And I think that will continue, I think we will see continued use of natural gas as a fuel for power plants and I think we will see more natural gas vehicles.

It is just so cheap that I think consumption will continue to increase. And I think that over the longer term, gas and liquids investments in the United States should be very attractive.

Very thoughtful answer. Just a quick follow-up. Are you with Boone Pickens that it's going to take government action to unlock that value or the private market could make it happen on its own?

You know, the private market can make it happen. If the government gets involved, it might happen three weeks sooner. But beyond that, I think it's going to happen because the economics are just so compelling.

At this time, there are no further questions. I'll now turn the call back to Darren Daugherty for closing remarks.

That concludes today's call. A replay will be available on our website in approximately two hours.

Thank you for participating in today's conference call. You may now disconnect.