Investors used to scratch their heads in disbelief when one of the first Baby Berkshires decided to get into the merchant banking and beef businesses.
They obviously thought it was more than it could chew. But in the final months of the year, Leucadia National Corp. (LUK, Financial) reported profits for the year in both businesses, beating Wall Street's expectations.
Almost four decades after its founding, the American conglomerate does more than cattle and banking. Fourth-quarter filings show it is actively involved in a variety of ventures, such as car dealerships, oil and gas exploration, Idaho timber, fixed wireless broadband services and gold and silver mining.
It also runs a joint commercial real estate venture with Warren Buffett (Trades, Portfolio)'s Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial).
Tax hit and fourth-quarter earnings
In the fourth quarter, the New York City-based conglomerate and investment holding company got a $760.9 million tax hit as a result of the U.S. Tax Cuts and Jobs Act.
The impact triggered a loss in net income of $251 million, compared to a gain of $166 million in the prior-year quarter. That’s a net income loss of 74 cents per diluted share in the fourth quarter, compared to a gain of 37 cents per diluted share in the prior-year quarter.
For the entire year, net income attributable to Leucadia’s common shareholders for the 12 months ending Dec. 31 was $167 million, or 45 cents per diluted share, versus $126 million in the prior-year, or 34 cents per diluted share.
The company's board of directors this month declared a quarterly cash dividend of 10 cents per share for common shareholders. It is payable on March 30.
National Beef and Jefferies
In the 12 months ending Dec. 31, National Beef reported pre-tax net income of $407 million compared to $329 million the prior year. Jefferies reported $527.8 million compared to $43.5 million in 2016. (Net revenues for Jeffries were $3.2 billion compared to $2.4 billion in 2016.)
Leucadia’s leaders told shareholders in a Feb. 22 letter they are riding the momentum. CEO Richard B. Handler and President Brian P. Friedman lead the conglomerate.
“This is remarkable progress, given that only two short years ago, some were questioning the wisdom and value of both businesses,’’ the two men wrote in the co-signed letter to shareholders.
Key figures
Leucadia National stood at $23.62 a share, down 1.56%, in afternoon trading on Thursday. The 52-week range is $22.23 to $28.30 a share. Year to date, the stock has fallen 11%.
The company with a market cap of $8.4 billion has a price-earnings ratio of 53.68 versus a median of 20.26. Its price-book ratio is 0.88 versus a median of 1.72. Its price-sales ratio is 0.73 versus a median of 1.08.
GuruFocus detected three warning signs, which can affect Leucadia’s financial performance. The company has issued new debt over the last three years of over $277 million. Revenue per share and operating margins have been in decline in recent years.
Leucadia also has three good signs, including a Piotroski-F score of 8, indicating a very healthy situation. GuruFocus ranks it a 5 out of 10 in financial strength and 8 out of 10 in profitability and growth.
Its share price is trading near the Peter Lynch earnings line, which suggests it is close to fair value.
Loss of founder
On Feb. 2, one of the company’s two co-founders, Ian Cumming, passed away after complications of a prolonged illness, according to an obituary. He was 77. Cumming took over the business over more than three decades ago as part of a partnership with Joseph Steinberg, the other co-founder. Cumming is remembered in the letter to shareholders dated Feb. 22. “Words cannot describe the leadership, brilliance, creativity, generosity, passion and good-natured fun that Ian brought to life,” the letter states.
