Loews Corporation (L), one of the largest diversified holding companies in the United States, reported third quarter 2011 earnings on Monday. Here is a refresher from the second quarter, which I covered in a previous article:
“The company is engaged in the following lines of business (with market value of position updated as of October 31st):
Commercial property and casualty insurance (CNA Financial Corporation, a 90% owned subsidiary) ($6.44 billion);
Operation of offshore oil and gas drilling rigs (Diamond Offshore Drilling, Inc., a 50.4% owned subsidiary) ($4.6 billion);
Exploration, production and marketing of natural gas and natural gas liquids (HighMount Exploration & Production LLC, a wholly owned subsidiary in Houston);
Operation of interstate natural gas transmission pipeline systems (Boardwalk Pipeline Partners, LP, a 64% owned subsidiary) ($4.3 billion); and
Operation of hotels (Loews Hotels Holding Corporation, a wholly owned subsidiary).”
Book value per share increased to $46.81 as of June 30, 2011, compared to $45.54 at March 31, 2011, and $44.51 at Dec. 31, 2010.
During the three and six months ended June 30, 2011, the company purchased 5.5 million and 9.9 million shares of its common stock at an aggregate cost of $228 million and $415 million. From July 1, 2011, to July 28, 2011, the company purchased an additional 1.0 million shares of its common stock at an aggregate cost of $41 million.
As Mr. Tisch noted on the call, “We have, as I like to say, a long and glorious history of share repurchases. We have less than 1/3 the shares that were outstanding in 1970. And we've done that through what I would call well-timed share repurchases. It's a part of our DNA. We were repurchasing Loews shares long, long, long before repurchases were the corporate vogue. We're not doing it because it's the corporate vogue, but rather because we think that it creates very good long-term value for all our shareholders.”
As we will see, that long-term value creation via buybacks continued in the third quarter:
Net income in the third quarter was $162 million ($0.40 per share), more than quadruple the $36 million ($0.09 per share) reported in the third quarter of last year. After adjusting for a charge taken by CNA in 2010 to cede legacy asbestos and pollution liabilities to a subsidiary of Berkshire Hathaway (after-tax cost - $328 million), net income in the current year declined $202 million (adjusted Q3 2010 earnings of $0.87 per share).
As noted by Mr. Tisch on the call, this is attributable to three things: decreased limited partnership investment results at CNA (driven by negative equity market returns, combined with widening credit spreads and continued capital market volatility); lower performance of equity-based investment in the Loews holding company portfolio; and higher cat losses at CNA; this was partially offset by an increase in Diamond Offshore’s contribution to net income ($121 million compared to $93 million in the year ago period).
During the quarter, the company repurchased 7.5 million shares at an aggregate cost of $275 million, bringing the year to date total to 17.4 million shares ($690 million); as of September 30th, there are 397.4 million common shares outstanding; the wording in the press release and on the call gives no indication that the pace of this activity will be slowing anytime soon.
Book value per share increased to $47.75 at September 30, an increase of 2% compared to the end of the second quarter ($46.81) and more than 7% since the start of fiscal year 2011.
About the author:
I think Charlie Munger has the right idea: "Patience followed by pretty aggressive conduct."
I run a fairly concentrated portfolio, with 2-5 positions accounting for the majority of my equity portfolio. From the perspective of a businessman, I believe this is sufficient diversification.