Loews Corp. (NYSE: L) Q1 2022 earnings name dated Might. 02, 2022
Company Members:
Mary Skafidas — Vice President, Investor Relations and Company Communications
James S. Tisch — President and Chief Government Officer
David B. Edelson — Senior Vice President and Chief Monetary Officer
Presentation:
Operator
Good day, everybody and welcome to as we speak’s Loews Company Q1 Earnings Convention Name. [Operator Instructions] Please notice that this name perhaps recorded and I will probably be standing by in the event you want any help.
It’s now my pleasure to show the convention over to Mary Skafidas, Vice President of Investor Relations and Company Communications.
Mary Skafidas — Vice President, Investor Relations and Company Communications
Nice. Thanks, Katie, and good morning, everybody. Welcome to Loews Company’s first quarter earnings convention name. A replica of our earnings launch, earnings complement and firm overview perhaps discovered on our web site, loews.com.
On the decision this morning, we have now our Chief Government Officer, Jim Tisch; and our Chief Monetary Officer, David Edelson. Following our ready remarks this morning, we could have a question-and-answer session with questions from shareholders.
Earlier than we start, nonetheless, I’ll remind you that this convention name may embody statements which might be forward-looking in nature. Precise outcomes achieved by the corporate could differ materially from these made or implied in any forward-looking statements as a result of wide selection of dangers and uncertainties, together with these set forth in our SEC filings. Ahead-looking statements replicate circumstances on the time they’re made. The corporate expressly disclaims any obligation to replace or revise any forward-looking statements. This disclaimer is simply a quick abstract of the corporate’s statutory forward-looking statements disclaimer, which is included within the firm’s filings with the SEC.
In the course of the name as we speak, we’d additionally talk about non-GAAP monetary measures. Please discuss with our safety filings and earnings complement for reconciliation to probably the most comparable GAAP measures.
With that, I’d like to show the decision over to Jim. Jim, over to you.
James S. Tisch — President and Chief Government Officer
Thanks, Mary and good morning. Loews is off to an amazing begin in 2022 with every of our consolidated subsidiaries persevering with to provide stable leads to the primary quarter.
Earlier than we discuss in regards to the monetary efficiency of our subsidiaries although, I need to provide you with an replace on the continued Boardwalk litigation in Delaware. As a few of you already know, 4 months in the past, the Delaware Court docket of Chancery discovered that Loews improperly utilized a name proper embedded in Boardwalk’s Grasp Restricted Partnership settlement after we purchased within the minority unitholder shares of Boardwalk. Astoundingly, we have been discovered chargeable for damages of virtually $700 million plus curiosity, which quantities to greater than a 60% premium to the unaffected worth of Boardwalk in 2018. I’ve been instructed that that is the most important class damages award in Delaware courtroom historical past.
We have been shocked by the choice. Why? There are three fundamental causes. First, the choice disregarded and dismissed a well-supported opinion of counsel, a doc to which the Delaware courts historically give nice deference; second, the quite a few well-reputed legal professionals who suggested us on this matter have been discovered to have participated in a corrupt scheme to ship what was known as a contrivance; and eventually, we have been assessed the harm quantity that by way of each {dollars} and premium flies within the face of established Delaware precedent that market worth ought to function a barometer in assessing the worth of a public firm.
Those that know me and know Loews will perceive why I’m outraged and pissed off by this consequence. At Loews, we have now all the time believed that working ethically and with integrity is paramount. The notion that we’d have been so duplicitous in our dealings with the minorities’ unitholders of Boardwalk is solely not true.
So the place can we stand now? Presently, our case is on enchantment on the Delaware Supreme Court docket, and we have now each motive to imagine the courtroom ought to be taking this enchantment very critically. There are quite a few precedent-setting authorized findings made in our case that, in our opinion, would create vital difficulties for firms and their legal professionals within the State of Delaware in the event that they have been to be upheld. We imagine the Delaware Supreme Court docket has spoken loudly and clearly in earlier instances on the problem of damages and that throwing out years of precedent would create uncertainty and confusion for corporations that depend on the Delaware courts to offer constant and considerate rulings.
On timing, we have now already filed our enchantment temporary and reply temporary, and we count on to argue our case earlier than the courtroom within the third quarter. We anticipate a choice hopefully by the tip of the 12 months. I don’t suppose we’ll have an excessive amount of extra to report earlier than then. In the present day, I merely needed to let you realize the place we stand and the way I really feel.
Shifting on to happier matters. On as we speak’s name, I’d wish to concentrate on the efficiency of CNA and Loews Inns. CNA continues to be a hit story for Loews. CNA had an excellent quarter, delivering its strongest property and casualty mixed ratio and underwriting revenue for the reason that third quarter of 2016. The underlying loss ratio was flat in comparison with the underlying loss ratio of the prior 12 months’s quarter and customarily flat for all of 2021.
Whole renewal premiums elevated by 9% for the quarter, pushed by 7 factors of fee and a pair of factors of publicity progress. Charges continued to be forward of loss value developments and publicity progress is up because the financial system expands. CNA’s eager concentrate on underwriting has served them nicely and their stability sheet stays sturdy and secure. We proceed to be extraordinarily happy with the corporate’s efficiency.
Whereas greater rates of interest could have a destructive impact available on the market worth of CNA’s fastened earnings portfolio, those self same greater charges will probably be helpful over the long run. The excellent news is that the corporate is now capable of make investments at considerably greater yields. And whereas e book worth per share has suffered a decline resulting from these greater rates of interest, this doesn’t indicate that there’s been any impairment of the well timed assortment of principal and curiosity. Larger rates of interest have additionally been favorable for CNA’s long-term care e book of enterprise, permitting CNA to purchase long-term securities at greater yields than was beforehand out there. The corporate is now starting to elongate the period of its long-term care portfolio.
As for Loews Inns, the corporate delivered its highest first quarter adjusted EBITDA ever, clocking in at $68 million as pent-up demand for post-COVID leisure journey coinciding with this 12 months’s timing of spring break. When evaluating first quarter outcomes with these from the primary quarter of 2019, adjusted EBITDA is $7 million greater. Loews Inns’ favorable efficiency is, after all, partially impacted by the combination of accommodations within the portfolio as a number of extra resort accommodations have opened over that three-year time interval. Moreover, we have now exited a number of city market accommodations with minimal assembly house. Resort locations continued to prepared the ground, and we’re seeing a gentle return of group enterprise. The lacking piece of the puzzle is a rebound in company journey, the shortage of which continues to negatively have an effect on accommodations in city facilities. And whereas occupancy charges nonetheless lag pre-COVID ranges in some areas, for many of our accommodations, the common every day room fee is on par with or exceeds pre-COVID ranges.
Subsequent I need to replace you on our share repurchases. In the course of the first 4 months of the 12 months, the corporate repurchased about 1% of our shares excellent or a bit greater than 2.4 million shares for about $148 million.
Earlier than I hand the decision over to David, I need to point out that this will probably be his final earnings name as CFO of Loews Company. Nevertheless, don’t rush to say goodbye. He’s staying on via the tip of June to make sure a clean transition and can then proceed with the corporate as a senior adviser. I thank David for his super efforts on behalf of Loews over the previous 17 years throughout which era he has been a useful member of Loews’ senior management staff. His sound judgment, strategic acumen and laser-like consideration to element, has been an unlimited profit to Loews and we have now been lucky to have him as a colleague and as a pal.
Jane Wang will formally take over as CFO on Might 10. Jane joined the corporate in 2006 and has steadily and brilliantly labored her means up the ranks at Loews and I look ahead to internet hosting our subsequent earnings name together with her. David, you might be nonetheless on the hook for as we speak. So with out additional ado, over to you.
David B. Edelson — Senior Vice President and Chief Monetary Officer
Thanks, Jim, for these type phrases. Working with you and the entire Loews staff since 2005 has been a tremendously gratifying skilled and private expertise.
This morning, Loews reported first quarter web earnings of $338 million, a 30% improve from web earnings of $261 million in final 12 months’s first quarter. Earnings per share rose 40% to $1.36, spurred on by a 7% year-over-year discount in common shares excellent, due to our share repurchase exercise.
All three of our consolidated subsidiaries, CNA Monetary, Boardwalk Pipelines and Loews Inns posted glorious leads to the primary quarter. Whereas CNA accounted for the majority of our Q1 web earnings, the earnings improve was pushed by considerably improved outcomes at Loews Inns in addition to by the absence of non-recurring prices associated to Altium Packaging that depressed final 12 months’s first quarter outcomes. Partially offsetting these positives was a decline in mum or dad firm funding earnings as fairness markets offered off in Q1.
Earlier than I stroll via our subsidiaries outcomes, let me contact on the influence on our earnings of latest monetary market turbulence. The S&P 500 was down 4.6% in Q1, and the NASDAQ 100 was down virtually twice that at 8.9%. In fastened earnings, the 10-year treasury yield elevated 83 foundation factors to 2.34%, and the Bloomberg Barclays U.S. Mixture Bond Index was down about 6% within the first quarter.
Since each CNA and the Loews mum or dad firm maintain fairness securities and LP investments correlated to equities, the decline in fairness markets had a destructive influence on earnings in these two portfolios. The decline in bond costs brought on by greater fastened earnings yields, nonetheless, didn’t negatively have an effect on present interval web funding earnings at both CNA or the Loews mum or dad firm. On the mum or dad firm, virtually 83% of the portfolio is made up of money and short-term investments with fairness securities comprising the rest. Modifications in rates of interest have a little bit influence on the worth of our money and short-term holdings.
As Jim mentioned, rising rates of interest and yields did trigger a decline within the worth of CNA’s massive portfolio of fastened earnings investments. Whereas these market worth modifications diminished CNA’s web e book worth, they didn’t run via present interval web funding earnings. In reality, as Jim talked about, over time, greater yields ought to allow CNA to reinforce web funding earnings via greater returns on new fastened earnings investments.
CNA’s web funding good points and losses, alternatively, will be negatively affected by rising fastened earnings yields. For instance, CNA’s portfolio of non-redeemable most popular inventory is mark-to-market via web funding good points and losses. General, the decline in CNA’s web unrealized good points throughout the quarter diminished CNA’s widespread fairness by $1.6 billion or simply beneath $6 per share.
Let me return to our quarterly outcomes. CNA contributed web earnings of $281 million, consistent with final 12 months’s $279 million. That mentioned, the make-up of CNA’s earnings differed year-over-year. CNA’s web funding earnings declined due to the selloff in fairness markets. Moreover, web funding good points, which have been significant in final 12 months’s first quarter, swung to a slight loss this 12 months, pushed by the unfavorable change in truthful worth of non-redeemable most popular inventory and decrease web funding good points on disposals of fastened earnings securities.
A lot improved property casualty underwriting outcomes offset the destructive earnings influence of monetary markets. Continued earned premium progress and underwriting self-discipline led to a ten% plus improve in P&C underwriting earnings, excluding disaster losses. Earned premium was up 5% year-over-year, and the underlying mixed ratio improved 50 foundation factors to 91.4. CNA’s expense ratio, which, along with the loss ratio makes up the mixed ratio, declined to 31 which was 50 foundation factors higher than in Q1 ’21 and consistent with full 12 months ’21. The corporate’s expense ratio enchancment over the previous few years is notable and outcomes from each expense administration and premium progress.
Disaster losses declined materially year-over-year. Final 12 months, the winter freeze in Texas resulted in vital cat losses, whereas cat losses have been unusually modest this 12 months. Disaster losses added 6.8 factors to the mixed ratio final 12 months as in comparison with only one level on this 12 months’s first quarter. General, CNA posted a mixed ratio of 91.9% in Q1 ’22 as in comparison with 98.1% final 12 months.
In abstract, CNA’s outcomes have been sturdy regardless of a difficult quarter in monetary markets, pushed by favorable underlying P&C underwriting outcomes and modest disaster losses.
Boardwalk contributed web earnings of $91 million, up from $85 million in final 12 months’s first quarter. EBITDA, which is outlined and reconciled in our earnings complement, was $261 million within the quarter in comparison with $249 million in Q1 ’21. Boardwalk’s web working revenues elevated greater than 3% year-over-year, pushed by progress initiatives just lately positioned in service. Loews Inns continues its spectacular rebound, as Jim talked about, pushed by its resort properties in addition to having all properties open for the complete first quarter of 2022. The corporate posted web earnings of $15 million versus a web lack of $43 million in Q1 ’21.
Let me unpack the outcomes a bit additional. GAAP working income earlier than reimbursables was $123 million, up from $39 million final 12 months. Given the necessities of three way partnership accounting, nonetheless, a lot of the corporate’s enterprise is just not captured in its GAAP revenues. Factoring in its professional rata revenues from its three way partnership properties, together with all of the properties on the Common Orlando Resort, Loews Inns revenues in Q1 have been about 3 occasions final 12 months’s degree.
Pre-tax fairness earnings from three way partnership properties was $26 million as in comparison with a $12 million loss final 12 months. Consolidated pre-tax earnings was $22 million, a pointy improve from final 12 months’s $55 million loss. Adjusted EBITDA, which is outlined and reconciled in our earnings complement, was $68 million within the quarter, up from a $13 million loss final 12 months. The corporate’s 9,000 rooms in Orlando, along with the Loews Miami Seaside Lodge, continued to be the most important earnings contributors and the first drivers of the year-over-year improve.
I might spotlight, as Jim did, that Q1 ’22 represents the all-time excessive for first quarter adjusted EBITDA, surpassing the $61 million earned in 2019.
Turning to the Company section. The mum or dad firm’s funding portfolio generated a web pre-tax lack of $16 million in comparison with earnings of $46 million final 12 months. Like at CNA, destructive returns on fairness securities brought about this 12 months’s loss. The rest of the company sector generated a $36 million after-tax loss within the quarter versus final 12 months’s $96 million loss. Final 12 months’s outcomes included two non-recurring prices associated to Altium Packaging, a debt extinguishment cost in reference to Altium’s recapitalization and a deferred tax legal responsibility ensuing from the then-pending sale of a 47% stake in Altium.
A number of phrases in regards to the mum or dad firm. The mum or dad firm portfolio of money and investments stood at $3.8 billion at quarter finish, with over 80% in money and short-term investments. In the course of the quarter, we obtained $584 million in dividends from CNA, together with the $0.40 per share common quarterly dividend and the $2 per share particular dividend.
As Jim talked about, we spent about $129 million repurchasing 2.15 million shares of our widespread inventory at a mean worth of simply over $60 per share. Our repurchase after quarter finish was modest at slightly below 300,000 shares.
Earlier than I flip the decision again to Mary, let me thank all of you in your curiosity in Loews and in your questions and strategies through the years. It has been a privilege to spend the previous 17 years at Loews, serving as CFO since 2014. I’m thrilled to have the ability to hand the baton to Jane, who joined the corporate 16 years in the past and is greater than able to tackle this function.
And with that, I’ll return the decision to Mary.
Questions and Solutions:
Mary Skafidas — Vice President, Investor Relations and Company Communications
Thanks a lot, David. We are actually going to maneuver on to the Q&A portion of the decision. Now we have plenty of questions from shareholders. Our first query is for Jim. Jim, how ought to we take into consideration the way forward for pure gasoline in gentle of the battle within the Ukraine?
James S. Tisch — President and Chief Government Officer
So, let me begin by saying that I’m horrified by the photographs that I see on the information. I hope and pray that sanity and peace will be restored, however the price by way of human lives is already means too excessive. Due to Europe’s dependence on Russian hydrocarbons, power has develop into a spotlight of many discussions surrounding this battle. I imagine the battle in Ukraine has made it clear that we ought to be encouraging drilling for pure gasoline together with LNG export improvement in the USA. We wish to have the ability to provide LNG to Europe and different nations and the world who beforehand have been provided by Russia. We’re lucky that pure gasoline is a really plentiful useful resource in the USA and we have now greater than sufficient to take care of our power independence and nonetheless have the ability to safely export massive volumes to those that want it. The businesses that make the numerous investments for LNG services will want long-term contracts from Europeans and others in an effort to make this occur.
Trying on the broader image, I additionally need to talk about the transition to renewable power within the U.S. and the world. The elevated use of pure gasoline has meaningfully diminished greenhouse gasoline emissions worldwide. Globally, pure gasoline has an necessary function to play in lowering emissions via the displacement of coal and as a backup to renewable power by offering dependable energy for occasions when the solar doesn’t shine and the wind doesn’t blow. In the USA, CO2 emissions from energy technology are down by 40% during the last 20 years as energy vegetation have switched from coal to pure gasoline. Because the U.S. develops cheap pure gasoline exports, we will help wean the world off of coal.
Presently, world demand for pure gasoline is pushed by China and India, the place coal nonetheless accounts for greater than 60% of their energy technology. Power transition targets in these nations will doubtless speed up pure gasoline demand to interchange coal utilization. Within the coming a long time, the necessity for electrical energy will improve due to the electrification of vehicles and heating. Gasoline energy technology will probably be wanted as a result of the wind and photo voltaic assets are intermittent, and present battery know-how is unlikely to fill the hole.
Gasoline energy technology is dependable, dispatchable and pure gasoline will be saved safely and inexpensively. And whereas the world is targeted on our reliance on carbon-based gasoline for energy technology, pure gasoline can be a uncooked materials for plenty of gadgets that we depend on on daily basis. There isn’t any straightforward alternative for pure gasoline as a uncooked materials.
Boardwalk is nicely positioned to make the most of greater demand for pure gasoline and progress within the LNG export market. The corporate continues to work to make its operations extra environmentally pleasant by specializing in lowering methane emissions. We imagine that pure gasoline will proceed to be an necessary gasoline and uncooked materials for the U.S. and the world, and forecasters predict that worldwide pure gasoline consumption will improve at the very least over the subsequent 10 years and possibly longer.
Mary Skafidas — Vice President, Investor Relations and Company Communications
Nice. Thanks, Jim. Subsequent query for you, Jim. You and David lined this a little bit bit on the decision, however are you able to remark additional about how rates of interest will have an effect on CNA’s portfolio going ahead?
James S. Tisch — President and Chief Government Officer
Certain. On the finish of ’21, unrealized good points for the CNA portfolio have been $4.4 billion. On the finish of the primary quarter of ’22, unrealized good points have been $1 billion, primarily resulting from greater prevailing rates of interest. Over the long run, nonetheless, greater rates of interest will usually be helpful for CNA, permitting the corporate to take a position its money movement at greater charges than it beforehand might. On common, CNA invests between $300 million and $400 million a month in its fastened earnings portfolio, so greater rates of interest will enhance that portfolio’s return over time.
Additionally, the rise within the normal degree of rates of interest has been very helpful for CNA’s long-term care e book of enterprise. Within the present setting, CNA has been capable of make investments at charges considerably greater than was beforehand attainable. Moreover, till now, the long-term care e book of companies operated on the decrease finish of its focused period. With the present improve in charges above its focused fee, CNA is now shopping for long-term securities at yields that beforehand it might solely hope for and has begun the method of lengthening the period of the long-term care portfolio.
Mary Skafidas — Vice President, Investor Relations and Company Communications
Nice. Thanks, Jim. Final query. Jim, for the previous a number of quarters, you may have ended our earnings convention calls along with your views on inflation and rates of interest. Might you please replace us on these matters?
James S. Tisch — President and Chief Government Officer
Certain can. To begin with, kudos to Jay Powell for lastly recognizing the seriousness of the inflation downside. Some could argue whether or not the subsequent Fed funds fee improve ought to be 25 foundation factors, 50 foundation factors and even 75 foundation factors, however Powell has stayed out 50 foundation factors. And to me, it appears completely affordable within the context of extra fee will increase within the close to future as wanted. The age of yield curve intervention has ended. Since 2008, the Fed has mainly managed not solely the brief finish of the yield curve, but in addition the complete maturity spectrum within the fastened earnings markets.
How did we get right here? In 2008, I imagine the Fed acted appropriately when it intervened in a time of monetary emergency. Nevertheless, the intervention went on for means too lengthy. The Fed’s management of the yield curve by the use of quantitative easing squelched any alerts that the markets may need despatched via worth strikes in fastened earnings securities. In different phrases, the Fed was implicitly saying that their judgments on the form of the yield curve have been higher and wiser than the markets. As we now see, that technique has had disastrous outcomes with regard to as we speak’s degree of inflation. We’re left with the best degree of inflation in 40 years, caused by zero-cost cash, unfastened, unfastened, unfastened fiscal coverage and COVID, all of which brought about the inflation genie to return gushing out of the bottle. And sadly, the Fed stored the proverbial punchbowl out for thus lengthy that there are not any straightforward options to the inflation downside that the Fed is at present making an attempt to repair.
The market now’s at first phases of a giant adjustment as traders, and never the Fed, decide time period rates of interest. A number of individuals have guesses, however nobody is aware of the place the yield curve will finally settle out within the coming months and years. On account of the excessive inflation and the Fed now not controlling the yield curve, the Fed put, which mainly assured that the inventory market wouldn’t decline by unacceptable quantities, is now gone. That put was ushered in by Alan Greenspan and was an awesome consolation to fairness markets for a number of a long time.
Additionally washed away on this inflation tsunami is trendy financial concept. MMT was the notion that the U.S. authorities might spend limitless quantities of cash with no destructive repercussions. After the previous two years, we have now seen that, that pipe dream was precisely that, a pipe dream. Now we have now seen that there’s a restricted quantity to how a lot the federal government debt will be issued and subsequently bought by the Central Financial institution. The lengthy and in need of the previous 12 months within the fastened earnings markets is that the alerts that come from a free market shouldn’t be stifled. The Fed imposing its judgment within the place of the market’s judgment, whereas generally needed in a second of disaster, is fraught with huge hazard as a long-term coverage. It is a lesson that I hope future Fed chairs will bear in mind.
Mary Skafidas — Vice President, Investor Relations and Company Communications
Nice. Thanks, Jim. And that concludes the Loews name for as we speak. As all the time, thanks in your continued curiosity. Please be happy to succeed in out to me with any extra questions at mskafidas@loews.com. A replay of this name will probably be out there on our website, loews.com, in roughly two hours. Thanks a lot. You could now all disconnect.
Operator
[Operator Closing Remarks]
