Dow Opens at New High After Italy Referendum

Dismiss

Loews Corporation Profits Rise as Cash Balances Hit $5 Billion

By Markets Fool.com

Loews overcame sharply lower results at its oil rig subsidiary this quarter. Image source: Getty Images.

Continue Reading Below

Holding company Loews (NYSE: L) this week posted third-quarter results that were highlighted by sharply higher earnings and a slight acceleration of sales growth. Improved results at its biggest subsidiary, CNA Financial (NYSE: CNA), more than offset continued declines at Diamond Offshore (NYSE: DO). Loews also benefited from a big boost in investment income this quarter.

Here's how the overall numbers compared against the prior-year period:

Metric

Q3 2016 Actuals

Q3 2015 Actuals

Growth (YOY)

Revenue

$3.29 billion

$3.17 billion

4%

Net income

$327 million

$182 million

80%

Earnings per share

$0.97

$0.50

94%

YOY = Year over year. Data source: Loews financial filings.

What happened with Loews this quarter?

Continue Reading Below

Sales growth ticked up to a 4% pace from 3% last quarter despite a 50% drop at Diamond Offshore. The real driver of this quarter's improvement was the insurance giant CNA financial, which posted a 9% sales bounce and a 52% spike in profits.

Highlights of the quarter included some positive developments:

  • CNA Financial enjoyed an unusually strong gain in investment income tied to its limited partnerships. Its core insurance business performed well, too. Written premiums rose by 6%, and its loss ratio improved to 55%.
  • Diamond Offshore's business continued to feel the strain from slumping demand for oil rigs. Earnings dove 74% to just $36 million. Yet cost cuts (and the absence of a huge writedown) kept profits in positive territory: Earnings improved to $0.10 per share compared to last year's $4.30 per-share loss.
  • Loews slowed down its stock repurchase spending, shelling out $17 million for buybacks, compared with $65 million last quarter and $33 million in the priorquarter.
  • Cash on hand jumped to $5 billion from $4.3 billion.
  • Book value has risen by 5% since the start of the year to $54.22 per share.

What management had to say

CNA Financial executives were bullish about the latest business trends despite challenging market conditions in the property and casualty insurance segments.

"CNA had a strong quarter highlighted by a combined ratio of 90.4%, reflecting our steady underwriting performance and continued favorable reserve development," CEO Thomas Motamed explained in a press release. "Our disciplined actions have sustained an underlying loss ratio in line with where we ended 2015."

For its part, Diamond Offshore management highlighted the fact that the company remained profitable despite a historically awful operating environment.

"Overall, I am pleased with our third quarter results and our ability to manage costs, while remaining focused on maintaining our backlog position," CEO Marc Edwards said.

Looking forward

The contraction in the oil rig industry is showing no signs of letting up, so investors can continue to expect Diamond Offshore to drag on Loews' operating results in the quarters ahead. The holding company's insurance business investment remains highly profitable, though, which helps remove some of the sting of stumbles elsewhere in the portfolio.

In the meantime, don't look for executives to quickly begin deploying Loews' cash haul toward new investment opportunities or increased returns to shareholders.

Sure, Loews' $5 billion cash position matches its biggest treasure chest in the last five years.However, management prides itself on having a fortress-like balance sheet and staying patient when searching out value plays. That's why isn't likely that CEO Jim Tisch and his team are in any rush to spend their growing cash bounty.

A secret billion-dollar stock opportunity
The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.

Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool recommends Loews. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.