洛茲集團 (L) 2014 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Loews second-quarter earnings conference call. (Operator Instructions). I will now turn the call over to Mary Skafidas, Vice President of Investor and Public Relations.

Thank you, Lori. Good morning, everyone. Welcome to the Loews Corporation second-quarter 2014 earnings conference call. A copy of our earnings release and earnings snapshot slides may be found on our website, Loews.com. On the call this morning we have our Chief Executive Officer, Jim Tisch, and our Chief Financial Officer, David Edelson. 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 in 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 filings with the SEC.

During the call today we might 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's Chief Executive Officer, Jim Tisch.

Thank you, Mary. Good morning and thank you for joining us on our call today. Loews had net income from continuing operations of $303 million or $0.79 per share compared to $261 million or $0.67 per share for the second quarter of 2013.

Before we go into specifics about this quarter, I want to take a moment to focus on HighMount. When Loews acquired HighMount in 2007 we considered it a low-risk GAAP manufacturing business. Since then, the shale revolution and most notably the Marcellus and Utica plays have dramatically changed the US natural gas market.

When we bought HighMount, gas was trading at $7 per MCF and was thought to be a finite commodity. A year later it hit $14. Since then it has hit lows of $2 per MCF and is now at about $3.85.

In light of the changing circumstances in the natural gas market, last quarter we announced that we would conduct a strategic review of HighMount, which could include a sale of the Company. We are currently evaluating proposals for the sale of HighMount assets and can't say much more about the process at this time.

Later on in the call, David Edelson, our CFO, will give you more details on the accounting ramifications of moving HighMount to held-for-sale status. We will be the first to tell you that HighMount is not the most successful investment we have ever made. We are certainly not always right, but over the years fortunately we have been more right than wrong.

Now let's take a look at the performance of our other subsidiaries. At CNA, underlying property-casualty underwriting results continue to improve. The non-cat accident year loss ratio is down almost 1.5 points versus the same quarter last year. CNA's property-casualty business continues to trend in the right direction, albeit at a slower pace than I would like.

While CNA specialty is performing well and producing strong accident year underwriting results and favorable prior year development, CNA commercial's progress has been more measured, being hampered by certain lines of business as the Company is exiting or re-underwriting. The impact of these course corrections will take time to see.

The sale of Continental Assurance Company closed last week. CNA's long-term care runoff business now comprises the vast majority of CNA's life and group segments. Long-term care results for the first half of 2014 have improved over prior years; however, in this line of business two quarters of results does not necessarily constitute a trend. CNA is trying to build on these improving results and is actively managing the business.

Turning to Diamond Offshore, the outlook for the offshore drilling market remains uncertain. This market has become more competitive as new rigs enter the worldwide fleet and oil companies reduce their exploration and production spending to improve cash flow.

My sense is that over the next several years, oil companies will start to take advantage of reduced day rates as well as a softening of other services costs and that rig demand will subsequently increase. Diamond maintains the highest credit ratings of any offshore driller in the industry and is prepared to capitalize on whatever market conditions may prevail.

We are pleased to report that Diamond has negotiated a nine-month contract with Murphy Oil for its third drill ship, the Ocean BlackRhino, at a day rate of $550,000 a day. This charter will in effect substitute the BlackRhino for the Ocean Confidence, which is undergoing an extensive special survey. Murphy will have an option to convert this contract into a multiyear term.

Over the past several years, Diamond has committed to the construction of four new drill strips, the construction of a new harsh environment semisubmersible rig, and the reconstruction of two older semisubmersibles. All these rigs, with the exception of one drill ship, are now contracted at attractive day rates.

Moving on to Boardwalk, as we have discussed previously, the natural gas industry remains in a period transition as shale plays continue to develop and transform gas flows in the United States. The good news is that this transformation is creating attractive investment opportunities to expand Boardwalk's existing pipeline infrastructure. However these opportunities will not bear fruit overnight. This process will take some time and patience.

As Stan Horton mentioned on the Boardwalk call earlier today, he is encouraged by the deal flow that he has seeing. Boardwalk's assets are either attached to or located near many diversified shale plays. They are also located near major natural gas users such as proposed gas-fired power generation and petrochemical plants and LNG export facilities. Boardwalk's proximity to these shale plays and demand drivers is positively impacting its ability to take advantage of opportunities and make attractive investments.

Earlier today, Boardwalk highlighted that it is pursuing projects which represent approximately 2 billion cubic feet per day of demand. Most of these projects involve repurposing existing pipeline capacity. These include projects which came about due to the increased demand to transport Marcellus and Utica shale gas supplies from north to south.

Additionally, Boardwalk's southeast market expansion goes into service in the fourth quarter of this year and will transport natural gas to growing areas of demand including the industrial and power generation markets in Mississippi, Alabama, and Florida. All of these investment opportunities result from increased natural gas supplies in the United States and should benefit Boardwalk as natural gas production continues to increase in the coming years.

Last but not least, let's turn to Loews Hotels & Resorts. Loews Hotels has been focused on growing its brand and broadening its consumer base through the addition of new properties in gateway cities.

Additionally, the Company is reaping the benefits of the extensive renovations completed over the past year. In the last three years, Loews Hotels has acquired properties in Boston, Washington DC, Minneapolis, Los Angeles, and most recently in Rosemont, Illinois, near the O'Hare airport.

Loews Hotels is also developing the 400-room Loews Chicago hotel that is scheduled to open in early 2015. These properties expand Loews Hotels' footprint while maintaining the 4 plus star quality that its customers know and expect.

And finally, Loews Hotels continues to build on its 15-year relationship with Universal Studios in Orlando. In late June we opened the final phase of our first three-star product, the 1,800-room Cabana Bay Beach Resort. Early results are positive and our three original hotels continue to perform well. Book soon if you want a room.

At the Loews Holding Company, we ended the quarter with cash and investments of $4.9 billion. The Company has also repurchased 3.9 million shares of Loews common stock in the second quarter and 2.45 million shares since July 1. The Company spent $302 million on the 6.9 million shares repurchased in this year. Now I would like to turn the call over to David.

Thank you, Jim. Good morning. For the second quarter of 2014, Loews reported income from continuing operations of $303 million or $0.79 per share, compared to $261 million or $0.67 per share last year. Net income, which includes a loss of $187 million from discontinued operations, was $116 million for the quarter.

Let me spend a moment on discontinued operations. As Jim mentioned, in May we announced that HighMount is pursuing strategic alternatives, including a potential sale of the business. We initiated a process during the quarter that we expect will result in a sale of HighMount.

Accordingly, HighMount's assets and liabilities have been reclassified as held-for-sale as of June 30, 2014, and are reported at estimated fair value based mainly on market response to date. The associated impairment, together with the results of operations of HighMount, have been classified as discontinued operations.

During the second quarter, Loews recognized an after-tax loss from discontinued operations of $192 million related to HighMount, which includes an impairment loss of $167 million to reflect the excess carrying value of HighMount over its estimated fair value.

Additionally this impairment loss reflects certain estimated exit and disposal costs. We expect that the impairment will be subject to subsequent adjustment, which could be positive or negative, as the sale process reaches its conclusion. HighMount's operating results are also included in discontinued operations and will continue to be until the close of the transaction.

Finally, discontinued operations in the second quarter included after-tax income of $5 million from Continental Assurance Company, CNA's runoff annuity and pension deposit business. As Jim mentioned, the sale of CAC closed last week.

For the six months ended June 30, 2014, income from continuing operations was $568 million, or $1.47 per share, as compared to $583 million or $1.49 per share in the prior year period.

CNA's contribution to income from continuing operations, including net realized losses, was $235 million in the second quarter of 2014 versus $172 million last year. The main positive factors impacting CNA's year-over-year increase were improved results in CNA's specialty business and in its life and group segments together with the one-time curtailment gain from the elimination of certain postretirement medical benefits.

Offsetting these positives were lower earnings in CNA Commercial, stemming from unfavorable prior-year development. Additionally, CNA's second-quarter earnings in 2013 benefited from a legal settlement attributable to CNA commercial.

Diamond Offshore's contribution to income from continuing operations for the second quarter of 2014 was $42 million compared to $87 million in the prior year quarter. Diamond's year-over-year earnings decrease was primarily due to reduced contract drilling revenues as Diamond experienced more rig downtime because of scheduled surveys and rigs being stacked. Higher contract drilling expenses relating mainly to the surveys also contributed to the profit decline.

Boardwalk Pipeline's contribution to income from continuing operations was $17 million in this year's second quarter, as compared to $22 million in Q2 2013. Boardwalk's income was basically flat year-over-year excluding gains on the sale of operating gas, which were significant in last year's second quarter.

I would also note that last week Loews entered into a 10-year $300 million subordinated debt agreement with Boardwalk under which Boardwalk has the right to borrow at any time until year-end 2015. The purpose of this facility is to help Boardwalk finance various growth projects.

Loews Hotels & Resorts contributed $5 million to income from continuing operations, up from $1 million in the second quarter of 2013. The earnings improvement was driven by a 12% year-over-year increase in RevPAR in owned and joint venture hotels with much of the improvement coming from properties that have recently undergone renovation.

Holding company cash and investments at quarter end totaled $4.9 billion as compared to $5 billion at the end of March. We received $135 million in dividends from our subsidiaries in the second quarter of 2014, which breaks down as follows: $61 million from CNA; $61 million from Diamond; and $13 million from Boardwalk.

The first half of 2014 we received $512 million in dividends from our subsidiaries, up from $364 million for the first half of 2013. As a reminder, CNA paid a $1 per share special dividend during this year's first quarter.

In terms of returning capital to Loews shareholders, we paid $24 million in cash dividends during the second quarter of 2014 and spent $171 million buying back 3.9 million shares of Loews common stock. We continued to purchase shares after the quarter ended. From July 1 through August 1, we bought back a further 2.45 million shares of Loews common stock for $107 million. I will now hand the call back to Jim.

Thank you, David. Before we open up the call for questions, I wanted to add that over the last few years the industries in which our subsidiaries operate have certainly witnessed tremendous changes. We all know that change brings both risk and, importantly, opportunity.

Although our experience with HighMount unquestionably has been disappointing, we believe that each of our other subsidiaries, CNA, Boardwalk, Diamond Offshore, and Loews Hotels, have real opportunities ahead that should in the long-term benefit all Loews shareholders. Now I would like to turn the call back over to Mary.

Thank you, Jim. Lori, at this time we would like to open the call up for questions. Can you please give participants instructions on how to do that?

(Operator Instructions). Michael Millman, Millman Research Associates.

Thank you. Assuming that you are able to dispose of HighMount roughly at where you have it on the books, would that actually create a tax loss that you could use if you decided to sell some other assets?

Mike, I don't want a comment at what price we might be selling HighMount, but, yes, we would expect that -- the sale to generate additional tax benefits that we should be able to utilize in the future.

And also, again, what is your plan on -- assuming your sale, with the cash proceeds in the near term?

We have no plans. We currently have $4.9 billion. For the past several quarters we have had roughly $5 billion. And as I am fond of saying over a long period of time -- we don't let cash burn a hole in our pockets.

Okay, glad to hear you continue to make that statement. Thank you.

(Operator Instructions). Josh Shanker, Deutsche Bank.

Thank you. Jim, can you talk a little about the bond market right now and what you are doing? And are you concerned? Are there opportunities?

To quote myself I think from some time before, the yield is too darn low. The yield on 10-year notes right now is about 2.5%. Inflation is about 2% based on the CPI. And in a normal world you would expect to see a 10-year note probably 150 to 250 basis points higher than the current yield.

But CNA is in the business of managing a fixed income portfolio. We can't have all our assets in stocks. And so, we just have to grin and bear it at CNA with respect to the relatively low yields that we are able to obtain.

For our non-matched portfolio, we are trying to keep that portfolio as short as we can and reap the benefits of the roll down the yield curves as the securities we own age.

With respect to our matched portfolio, we were fortunate enough a year ago at this time to be buying a lot of municipal bonds, which have worked out to be very attractive investments for us. We were able to buy lots of securities with 4%, 5%, and some even 6% coupons, and those have gone up dramatically in pricing, have been used -- we pre-bought those securities because they were such a good bargain and have been using that to fund some of our matched liabilities.

Is there anything you can do with derivatives to protect yourself from rising rates?

Not really. CNA has the ability and the intent to hold its securities to price recovery, so we just don't worry about it.

Okay, thank you for the answers.

At this time there are no further questions. I will now return the call to Mary Skafidas for any additional or closing remarks.

Thanks, Lori, and thank you all for joining our call. A replay will be available on our site, Loews.com, in approximately 2 hours. That concludes today's call.

Thank you for participating in the Loews second-quarter earnings conference call. You may now disconnect.