洛茲集團 (L) 2013 Q3 法說會逐字稿

Good morning, my name is Jackie and I will be your conference operator today. At this time I would like to welcome everyone to the Loews third-quarter 2013 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks will be a question-and-answer session. (Operator Instructions). Thank you. I would now like to turn the call over to Mary Skafidas, VP of Investor and Public Relations. Please go ahead.

Thank you, Jackie, and good morning, everyone. Welcome to the Loews third-quarter 2013 earnings conference call. A copy of our earnings release and earnings snapshot may be found on our website, Loews.com. On this call the morning we have our Chief Executive Officer, Jim Tisch, and our Chief Financial Officer, Peter Keegan. Following our prepared remarks this point 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 in any forward-looking statement.

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 filings with the SEC.

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

Thank you, Mary. Good morning and thank you for joining us on our call today. Loews had net income of $282 million or $0.73 per share for the third quarter of 2013 as compared to $177 million or $0.45 per share for the same quarter last year. Net income for this year's quarter includes an after-tax non-cash ceiling test impairment charge of $42 million at HighMount as compared to charges in the third quarter of last year of $166 million. Pete will go into more details on these charges later in the call.

Now let's take a closer look at each of our subsidiaries starting with CNA. CNA had another strong quarter and continued to improve its underwriting results. Excluding catastrophes and prior year developments CNA posted a loss ratio of 62.8% and a combined ratio of 95.9% in its core P&C operations. This represents almost a 5 point improvement in the combined ratio versus the third quarter of 2012.

CNA has been able to accomplish this in two ways -- first by taking advantage of favorable rate trends and pushing rate over retention; and second, by actively managing its P&C portfolio, focusing on key segments and exiting segments that don't hold potential for long-term profitability.

Premium rates continue to rise increasing approximately 7% during the quarter across P&C operations. Rising interest rates should have a favorable impact on CNA as the Company will be able to invest its cash flow at higher yields. CNA continues to take advantage of attractive yield opportunities in the cash exempt municipal bond market.

And from the exciting world of accounting, as some of you may have heard on the CNA call, the FASB has proposed a new set of accounting standards for the insurance industry. These proposed rules will make it difficult to compare results for a company from quarter to quarter, and they will also make it difficult to compare results from company to company. Although the comment period ended on Friday, I encourage you to learn more about the proposed rule and submit your comments to the FASB, they will be read.

Turning to Diamond Offshore, I want to take a moment to acknowledge Diamond's CEO, Larry Dickerson, who let us know last month that his plans to retire. I have had the pleasure of knowing and working with Larry for the past 25 years. With Larry at the helm, Diamond has created tremendous value for all shareholders, achieved operational excellence and substantially modernized its fleet.

As part of that modernization program the Ocean BlackHawk, a newly built ultradeep water drill ship, and the Ocean Onyx, a newly rebuilt victory class semisubmersible, are expected to go on day rate in early 2014 followed by the BlackHornet in mid-2014. Diamond expects to take delivery of two additional drill ships and another rebuilt deepwater semi, the Ocean Apex, during 2014. Recently the Ocean Apex received a letter of intent to begin work for an international oil Company in Southeast Asia during the fourth quarter of 2014.

And lastly on Diamond, due to nonpayment for services by customers, OGX and Niko Resources, Diamond recorded a pretax charge of $23 million in the third quarter for revenue it had previously recognized but had not yet been paid. Likewise in the third quarter, Diamond did not recognize as revenue $70 million of billings for OGX and Niko.

Now let's move on to Boardwalk. Net income was flat at $19 million. Boardwalk continues to further the Company's diversification strategy aimed at making Boardwalk less reliant on transporting and storing natural gas.

In May of this year Boardwalk entered into a joint venture agreement with Williams to continue the development process for the proposed Bluegrasss Pipeline. This project would transport natural gas liquids from the Marcellus and Utica shale plays to the rapidly expanding petrochemical and export complex on the US Gulf Coast.

On October 1, as part of the Bluegrass project, Williams and Boardwalk announced that they had executed additional joint venture agreements to continue developing an LPG export facility in the Lake Charles, Louisiana area. The proposed loss rate LPG terminal would serve ships transporting LPG to Asian, Latin American and European markets. Williams and Boardwalk currently working with a number of parties who want to reserve off-take capacity at the terminal.

As CEO Stan Horton discussed earlier today on Boardwalk's earnings call, Williams and Boardwalk are meeting with potential customers about the Bluegrass project and an open season for the project will begin on October 29. We're hopeful that this significant project will move forward, but we will not know for sure until the first quarter of 2014.

At HighMount the Company's operating results continue to be negatively affected by ongoing low prices for natural gas and natural gas liquids. HighMount has focused its drilling program on locations that could result in higher oil production such as the Wolfcamp shale in the Permian basis in Texas and its acreage in Oklahoma. Both of these programs are in the development stage and HighMount continues to expand its understanding of both plays.

And finally, at Loews Hotels and Resorts, 2013 remains a year of transition. Over the past year and a half Loews Hotels has added properties in Boston, Washington and Los Angeles. The Company is also developing properties in Orlando and Chicago and has extensive renovations well underway at a number of hotels, most notably the Regency Hotel in New York which has been closed since the beginning of the year and will reopen on January 16 of 2014.

Loews Hotels recently formed joint ventures during which an institutional investor acquired a 50% interest in the Loews Madison Hotel in Washington DC and the Loews Boston Hotel. Both of these properties were acquired in the beginning of 2013. The Company's shared ownership approach to expanding its network of hotels will result in a portfolio mix of wholly-owned, joint venture and managed properties.

At the holding Company, Loews ended the quarter with cash and investments of $4.8 billion. We repurchased 900,000 shares of Loews common stock for $41 million during the quarter. During the nine months ended September 30, we repurchased 4.9 million shares at an aggregate cost of $218 million.

As you all have heard by now we recently announced that Pete Keegan, Loews' CFO for 18 years, will be stepping down in May and David Edelson, our Senior Vice President of Loews, will succeed Pete. Since we have two more earnings calls to go before this transition is complete, we won't embarrass Pete just yet with his living eulogy. Without any further ado I'd like to turn the call over to Pete.

Thanks, Jim, and good morning, everyone. Loews Corporation today reported net income for the 2013 third quarter of $282 million compared to $177 million in the 2012 third quarter. Net income for the third quarter of 2013 and 2012 includes after-tax non-cash impairment charges of $42 million and $166 million at HighMount related to the carrying value of its natural gas and oil properties.

Excluding these impairment charges, net income for the third quarter of 2013 and 2012 was $324 million and $343 million. Net income for the nine months ended September 30, 2013 was $793 million or $2.03 per share as compared to $600 million or $1.51 per share in the prior year period.

Net income for the nine months ended September 30, 2013 and 2012 includes after tax non-cash ceiling test impairment charges of $134 million and $336 million at HighMount. Excluding these non-cash impairment charges net income for the nine months ended September 30, 2013 and 2012 was $927 million and $936 million.

CNA's contribution to Loews' net income for the third quarter was $247 million as compared to $200 million last year. CNA's earnings increased primarily from improved non-catastrophe current accident year underwriting results and higher favorable net prior year development. These increases were partially offset by higher catastrophe losses and reduced results from the Life & Group segment as a result of unfavorable morbidity in the long-term care business.

Diamond Offshore's contribution to net income for the third quarter of 2013 was $44 million compared to $83 million in the prior year quarter. Results for the third quarter decreased primarily due to lost revenue and bad debt write-offs totaling $35 million after-tax and non-controlling interest related to the termination of rig contracts due to payment defaults by two of Diamond's customers and lower utilization. These decreases were partially offset by higher day rates.

Boardwalk Pipeline's contribution to net income for the third quarter was $19 million as compared to $20 million in the prior year quarter. The contribution of results from Louisiana Midstream acquired in October 2012 and the sale of storage based cash in 2013 were offset by lower transportation revenues as a result of unfavorable contract renewal conditions.

In addition, Boardwalk's contribution to Loews' net income decreased because we own a smaller stake in the Company than we did this time last year. 53% ownership in the third quarter as compared to about 59% for the same quarter last year.

On October 9, 2013 we converted all of the 22.9 million Class B units into common units on a one-for-one basis. That is an additional $6.3 million in cash distributions per quarter at Boardwalk's current $0.5325 quarterly distribution per unit.

HighMount recorded earnings of $5 million for the third quarter of 2013 compared to $8 million in the third quarter of 2012 excluding non-cash ceiling test impairment charges of $42 million and $166 million after taxes for the third quarters of 2013 and 2012.

HighMount's third-quarter production volumes and realized prices, which included the benefits of hedges, are as follows -- natural gas production was 8.2 billion cubic feet added average realized price of $4.13 per 1,000 cubic feet; natural gas liquids production was 501.4 thousand barrels at an average realized price of $36.06 per barrel and oil production was 121.2 thousand barrels at an average price of $93.57 per barrel.

HighMount had hedges in place as of September 30, 2013 that covered approximately 74.1% and 44.9% of its total estimated 2013 and 2014 natural gas equivalent production at weighted average prices of $6.48 and $5.56 per Mcfe.

Loews Hotels contributed net income of $1 million for the third quarter of 2013 compared to a loss of $1 million for the third quarter of 2012. Results were impacted by the renovation of the Loews Regency Hotel in New York, which has been closed since early January, partially offset by newly acquired hotels.

Holding Company cash investments as of September 30, 2013 totaled $4.8 billion as compared to $4.6 billion at June 30, 2013. We received $183 million in dividends from our subsidiaries in the third quarter of 2013 and $547 million in dividends year to date.

From CNA, Loews received $48 million in dividends in the third quarter of 2013 and $145 million of dividends year to date. From Diamond Loews received $61 million in dividends in the third quarter of 2013 and $184 million in dividends year to date. From Boardwalk Loews received $74 million in dividends in the third quarter of 2013 and $218 million in dividends year to date.

We paid $24 million in cash dividends to our shareholders during the third quarter of 2013 and $73 million year to date. We bought back 900,000 shares of Loews common stock for $41 million in the third quarter of 2013 and 4.9 million shares of Loews common stock for $218 million year to date. And that completes my remarks and I will turn the call back over to Mary. Mary?

Thank you, Pete. Jackie at this time we would like to open up the call for questions.

(Operator Instructions). Josh Shanker, Deutsche Bank.

First of all, I wonder if you could go into a little bit of detail on investments. I realize it is not a significant thing, but the volatility and what we can expect in the future quarters given the numbers we saw in 3Q relative to prior quarters?

I assume you are in talking about investments for Loews Corp.?

For Loews Corp., that is right, yes, the coupons.

So we have about the $4.8 billion of cash and investments. We have about $700 million or so of limited partnership investments that have very good liquidity terms to it. And then we have another 500 or so of equity. And then beyond that most of the rest of the other $3.7 billion is invested in money market instruments that do not earn a lot of income.

And the spike, the $50 million from this quarter in terms of which bucket?

Say again?

The $50 million this quarter goes in which bucket of earnings?

(inaudible) likely the equities and the LP.

Yes, it is all equities and LP, yes.

All LPs, okay, thank you for that. And also on the hotels you got limited partnerships or joint partnerships with -- is it the same investor in both hotels or are those two different investors?

Yes, it is a joint venture -- two separate joint ventures but the same investor.

Okay. Thank you for the information. Take care.

David Adelman, Morgan Stanley.

Pete, maybe a question for you. If spot natural gas price is seasonally adjusted in the forward curve, seasonally adjusted or remain more or less where they are today going forward, will there continue to be ceiling test impairment charges over time?

If prices stay flat the answer is probably yes because what happens is in -- the type of accounting we use is you capitalize all of your drilling costs. And so, not everything is successful. So by definition over time you would have to take some of them off, I mean I am giving you a very simplistic view of this. But in an unchanged pricing environment that is probably what would happen.

Okay. And then, Jim, just a question on share repurchases. In a broad sense, leaving out some large scale acquisition, what drives the outcome from here over the next 12 or 18 months in which 12 or 18 months from now share repurchases have been very substantial relative to the current run rate versus share repurchases being modest relative to the recent run rate?

So there are a few things. Number one, we like to buy the stock at prices that appear low to us on an absolute and relative basis. Number two, we have other calls on our cash beyond simply an acquisition or share repurchases or dividends. So, for example, if the Bluegrass project moves forward chances are that will require significant financing coming from Loews. So that is something that we always keep our eyes attuned to.

And finally, if the Company is in possession of material nonpublic information, then our legal beagles here do not allow us to repurchase shares. So all those factors go into the mix and make it therefore difficult for investors to discern from our share repurchase in a particular quarter -- our share repurchases or lack of share repurchases whether we're bullish or bearish on the stock.

Okay. Thank you.

(Operator Instructions). Michael Millman, Millman Research.

Could you talk about what is the cause of the unfavorable contract renewal conditions at Boardwalk? And I have another question.

Sure. The Marcellus Shale has turned the pipeline industry on its head. About three years ago there was virtually no gas production in the Marcellus shale and today there is about 11 billion cubic feet of production. That is in the context of the US total production of about -- using the [PIRA] numbers about 66.5 billion cubic feet per day.

The Northeast consumes about on average 12 billion cubic feet a day. So the system that had been put in place to transport natural gas from Texas, Louisiana and the Gulf of Mexico up to Ohio, Pennsylvania and the Northeast, because of the Marcellus increased production has really changed -- the demand for the transportation to the Northeast has changed dramatically. And that is a major part of what is going on right now.

So there are pipelines then from Marcellus that are in place but not Boardwalk's?

That's right. Plus if you think of it in terms of the mileage that the average MCF of natural gas travels, it is dramatically lower because the natural gas is not coming from Texas up to the Northeast, it is coming from Pennsylvania up to the Northeast. And in fact, the reason that Boardwalk is moving forward with the Bluegrass pipeline project is because it has excess capacity going up to the Northeast.

In the Texas gas system we call it a pipeline, but it really has three separate pipes that go from Louisiana up to Ohio. And in the Bluegrass project we are planning to take one of those pipes that formerly carried natural gas and instead we are going to convert it to a pipeline that is capable of carrying natural gas liquids. Those natural gas liquids are currently being produced in the Marcellus shale and there is very limited capacity to take away those natural gas liquids.

So what we are trying to do is get commitments from natural gas and NGL producers to haul their natural gas liquids from the Marcellus Shale down through a combination of new pipelines and our existing pipelines to new processing facilities, fractionation facilities in Louisiana. That is a major effort for Boardwalk and, as I said in my remarks, we will have a pretty good sense, I believe, in the first quarter of this year -- of 2014 whether or not this project will move forward.

I see. That was very helpful, thank you. Another question, can you -- your sort of -- I guess it is your feelings on investment opportunities given the government shutdown and debt limit crisis that we just experienced.

What's my feelings?

What is your feeling about wanting to make investments US/international given those?

My view on the debt crisis and the government shutdown was that, number one, I assumed that eventually the government would reopen; and number two, I assumed that all interest and principal on the debt would be paid on a timely basis.

And that in fact that whole crisis that we experienced from September -- mid-September to mid-October, while it took up the front pages of the newspaper and took a lot of ink in the investment world, it really wasn't that important in terms of thinking about long-term investing. And the issues that were around before the crisis and after the crisis are really the ones that are our focus on deciding when, where and how to invest.

Very good. Thank you.

Thank you. Let me just say -- one other thing I want to say. I want to add something to my remarks, even though there is no question. And that is the issue relating to the FASB and these new accounting rules for insurance companies. They will make it very difficult for investors to be able to understand what is going on within an insurance company and also what is going on within the insurance industry.

If these rules get put in place as proposed by the FASB, it will make it very difficult to compare the numbers from one quarter to another quarter within a company. And that is because the reserves are going to be discounted and the discount rate is going to change every quarter and can change from one line of business to another line of business. So the measures that we use today to look at our insurance profitability will not be used when, as and if these rules are implemented.

And likewise, the problem for comparing from one company to another company is that different companies will use different discount rates to compute the present value of their reserves. From my perspective and the perspective of Loews and CNA the current system that we have in place is tried and true and tested.

It is conservative because reserves are not discounted, but the system gives us a very good sense of the profitability of the company as well as the financial standing of the company. So it is really unclear to us why the FASB wants to tinker with these rules in the first place, but that is what they are doing. Let me turn the call back to Jackie.

There appear to be no further questions at this time. I would now like to turn the call back over to Mary Skafidas for any additional or closing remarks.

Thank you, Jackie. Thank you all for your continued interest. A replay of this call will be available on our website, Loews.com, in approximately two hours. That concludes today's call.

Thank you. This concludes today's conference call. You may now disconnect.