Loews Corporation
Q1 2016 Earnings Call Transcript

Published: 2 May 2016

[Operator:]

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 First Quarter 2016 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. Thank you. I would now like to turn the conference over to Mary Skafidas, Vice President of Investor and Public Relations. Please go ahead.

[Mary Skafidas:]

Thank you, Jackie, and welcome everyone to Lowes' first quarter 2016 earnings conference call. A copy of our earnings release, earnings snapshot, and company overview 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 that at the time they are made, 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' Chief Executive Officer, Jim Tisch.

[James S. Tisch:]

Thank you, Mary, and good morning. The first quarter was my favorite type of quarter. It was relatively quiet, with solid performances from each of our subsidiaries. Just to review, CNA had significant reserve releases as well as strong operational results. However, this positive performance was distorted by a non-cash retroactive reinsurance charge relating to the company's asbestos policies. Investment losses from CNA's LP (2

[David B. Edelson:]

Thank you, Jim, and good morning. For the first quarter, Loews reported net income of $102 million, or $0.30 per share, as compared to $109 million, or $0.29 per share in last year's first quarter. As described in our earnings release, Boardwalk's and Diamond's contributions to our net income were up year-over-year, while contributions from CNA and Loews Hotels were down. Parent company investment results were also below prior year. Let me unpack this quarter's results to highlight four key drivers

[James S. Tisch:]

Thank you, David. Before we open the call up for questions, I want to stress that even in these times of dynamic change, Loews and its subsidiaries remain committed to creating value for shareholders over the long-term. It's a goal that has defined us for more than half a century and it continues to define us today. Importantly, in each of our businesses, we have the leadership horsepower needed to fuel this value creation. All of our CEOs are long-term veterans of their industries with the vision, experience and expertise necessary to position each company for future growth and development. At CNA, Tom retirement has overseen the company's dramatic move towards achieving its goal of becoming a top-quartile underwriter, and the company has since 2013 paid out to shareholders more than $2 billion in dividends. At Diamond Offshore, Marc Edwards is leading the charge with grace under extreme pressure. He is revolutionizing the offshore drilling industry with Pressure Control by the Hour and other innovations which are differentiating Diamond from the competition and cementing close relationships with Diamond's customers along the way. Stan Horton at Boardwalk is one of the best strategic thinkers in the natural gas pipeline space. He has envisioned and developed the full slate of very attractive investment opportunities, which will be coming online in the next few years and will form the foundation for growth. And finally at Loews Hotels, Kirk Kinsell is continuing to build on the growth of our Hotel business increasing EBITDA and profitability while creating long-term value. Kirk has been focused on expanding the company's brand equity, attracting and retaining the best talent, and most importantly, creating a wonderful experience for our guests. And while we certainly appreciate the exemplary CEOs at each of our subsidiaries, we know that their efforts are supported and strengthened by their leadership team's deep and talented bench. Now, I'd like to turn the call back over to Mary.

[Mary Skafidas:]

Thank you, Jim. Jackie, at this time, we'd like to open up the call for questions. Could you instruct our listeners on how to do so?

[Operator:]

Our first question comes from the line of Josh Shanker with Deutsche Bank.

[Josh D. Shanker:]

Good morning, everyone.

[James S. Tisch:]

Good morning, Josh.

[Josh D. Shanker:]

My first question relates to loving one of your children more than the other ones. And I look at the repurchase of CNA and I look at the repurchase of Loews, two questions. How do you decide that now is the time that you should be putting more emphasis in buying CNA? Two, to what extent are you constrained, because you don't want CNA to become a private company? And three, how do you decide whether to buy Loews' share or CNA's share?

[James S. Tisch:]

So, let me just talk about the CNA purchase. It was really simple for us. The stock was trading at $28 a share. The company for the past two years has paid a $2 special dividend and paid a $0.25 quarterly dividend. The stock was yielding in excess of 10% based on historic dividends. And that just seemed to us to be too high a yield and too cheap a stock, so we decided that we'd buy some shares.

[Josh D. Shanker:]

And at that time did you stop buying Loews shares to buy CNA shares?

[James S. Tisch:]

I'll let our (25

[Josh D. Shanker:]

And then the extent which your constraint, because of liquidity not there is a lack of liquidity, but because you want there to be CNA shares in the market, to what extent even if the best deal in the world, are you (25

[James S. Tisch:]

Well, first of all, it's not tracking stock, but it is – it does give everybody a sense of the worth or value of CNA. But we just bought like 150,000 shares. There wasn't a lot of stock to buy, so – and we're very, as you saw from our Form 4s, we were very price sensitive about those purchases. So we weren't concerned that we were going to substantially dry up liquidity in the stock.

[Josh D. Shanker:]

Okay. And you would be willing to buy more even though, obviously, with the shrinking amount of shares out there in the market, if the price were right?

[James S. Tisch:]

Yes. Yes.

[Josh D. Shanker:]

Okay. And then my second question, in terms of – CNA just issued some new debt retires of old debt at a nice discounted coupon rate. From my guess is that, Loews has an even cheaper borrowing cost than CNA, maybe that's not correct, I'm making that assumption. Could you talk about, how CNA thinks about buying debt? Is there some value, could they borrow from Loews, because Loews has cheaper debt capacity or how can I think about that?

[James S. Tisch:]

Think of them as completely separate. That CNA has the capacity to borrow on its own balance sheet. And we totally believe that CNA should borrow on the basis of its own balance sheet. If for some reason having for bid, they were in extremis (27

[Josh D. Shanker:]

Well, that makes sense. I'm just saying from a practical standpoint, what if Loews cost of borrowing is dramatically cheaper than somebody else's, and there's no real string on the balance sheet. It's not a matter of urgency, but it just seems like there might be an arbitrage in there or maybe I'm thinking about this incorrectly.

[James S. Tisch:]

Look, I guess we could do that, but that's not the way we choose to structure our investment. Loews does not want to be a creditor of CNA and earn on its cash, I don't know – 350 basis points, that's not what we're looking to do with our almost $5 billion of liquidity. We're looking to earn much higher rates of return than that.

[Josh D. Shanker:]

Makes sense. All right. Well, thank you very much.

[James S. Tisch:]

Thank you.

[Operator:]

Our next question comes from the line of Bob Glasspiegel with Janney.

[Robert Glasspiegel:]

Good morning, Loews, and let me say thank you for the expanded commentary in the call on your 33 page timeless principle on the web, those are very helpful for us.

[James S. Tisch:]

And thank you for the advertisement for our website.

[Robert Glasspiegel:]

Great. There was no buyback in April presumably, given there was no reference in the press release?

[James S. Tisch:]

No, there wasn't. No.

[Robert Glasspiegel:]

Okay. This question is probably motivated by having watched Buffett over the weekend in Omaha. But are we still totally committed on the partnership hedge fund investments? And I know you think it over time, it's created value to you, but it seems like it's coming under attack from various institutions.

[James S. Tisch:]

Yeah. So, we've been reducing our hedge fund investments over the past year or year-and-a-half. But I would say – I have a slightly different take on it than Buffett. I would say that the space has become very crowded and returns have been competed away. When 20-years-ago, there were one or two or 10 payers (30

[Robert Glasspiegel:]

So your hedge funds in partnerships are going from what to what and where do you want it to be?

[James S. Tisch:]

It's going from almost $3 billion in 2014 to about $2.5 billion now. This is at CNA.

[Robert Glasspiegel:]

Right. And where do you want it to be?

[James S. Tisch:]

We'll let you know when we get there.

[Robert Glasspiegel:]

That's lower (32

[James S. Tisch:]

Not higher. Not higher. That's correct.

[Robert Glasspiegel:]

Okay. Thank you very much.

[James S. Tisch:]

My pleasure.

[Operator:]

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

[Mary Skafidas:]

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

[Operator:]

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