Loews Earnings Call Nuggets: Boardwalk Credit Quality and Investment in Hotels

Loews Corporation (NYSE:L) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Boardwalk Credit Quality

Michael Millman – Millman Research Associates: I actually have two questions. One is with Boardwalk, what kind of risk is there in terms of the buyers contracts or so the contracts failing in some way. And second is more broadly now that the market has continued to go up, acquisitions eve looking less positive to you then they might have a couple of years ago?

James S. Tisch – Office of the President, President and CEO: First of all with respect to risk at Boardwalk. Tell me specifically what you’re referring to?

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Michael Millman – Millman Research Associates: Well, I’m referring to that there’re contracts out there and I don’t know if something goes wrong with the supplier, the field blows up or if the buyer, it’s bankruptcy, what kind of protection…

James S. Tisch – Office of the President, President and CEO: So, historically, we have credit quality has not been a problem for us at Boardwalk that all of our customers have generally paid on time and that has not been an issue for us, so it’s something we tend not to worry about too much. In terms of acquisitions, we keep looking, we keep checking tires, you’re right, equity values have gone up, but interest rates are still very low, and we haven’t given up in our quest to look for something and find something that fits us and just right for us.

Investment in Hotels

Robert Glasspiegel – Langen McAlenney: Pete, you went through the role of the cash too quickly. For me, it looked like your dividends were $70 million more than buyback plus dividends paid, but your cash went down by $200 million. Was there a debt payment or something else in there?

Peter W. Keegan – SVP and CFO: We are contributing money to hotels to help on their growth plan. We’ve added a bunch of hotels there.

Robert Glasspiegel – Langen McAlenney: I haven’t seen the Q if it has come out yet. What’s your investment in hotels now? Do you have a figure from some of the parts?

Peter W. Keegan – SVP and CFO: I don’t have that readily available.

Robert Glasspiegel – Langen McAlenney: So I’d assume the difference in the stated mix is…

Peter W. Keegan – SVP and CFO: And a small amount in the HighMount in the quarter.

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Robert Glasspiegel – Langen McAlenney: I’m sorry.

Peter W. Keegan – SVP and CFO: And a small amount in the HighMount in the quarter.

Robert Glasspiegel – Langen McAlenney: Okay. You said the impairment charge was driven by lower oil prices did you say and lower reserves.

Peter W. Keegan – SVP and CFO: Keep in mind, this is a four quarter look back of the prices. In the first quarter natural gas prices actually went up slightly and NGL and oil prices went down. And it’s that in combination with calculation of reserves and production, this is a very complicated calculation, which drove that impairment…

Robert Glasspiegel – Langen McAlenney: Okay. If we freeze prices where they are today, are there more impairments coming or are we through the – there’s a (indiscernible) tunnel and there’s – if we freeze everything today…?

Peter W. Keegan – SVP and CFO: Well, if you freeze prices, it’s hard to say because the other part of the calculation is reserves and production. So it’s really hard…

Robert Glasspiegel – Langen McAlenney: Okay, well, you made your best guess on reserves and production today, right, so that shouldn’t wiggle if we freeze that?

Peter W. Keegan – SVP and CFO: In the accounting, keep in mind, we capitalize all of our spending, so you’re constantly increasing the base against which this is calculated.

Robert Glasspiegel – Langen McAlenney: Okay. Can you remind me what the Boardwalk general partnership dividends you’re running on quarter, or what they were last year?

Peter W. Keegan – SVP and CFO: GP, do we have that?

James S. Tisch – Office of the President, President and CEO: Yeah, I have that here. For the general partner we received about $10 million a quarter.

Robert Glasspiegel – Langen McAlenney: Okay. And we’re in the maximum phase, right, of the earn, so…

Peter W. Keegan – SVP and CFO: They’re 50%.

James S. Tisch – Office of the President, President and CEO: The high plus, yes.

Robert Glasspiegel – Langen McAlenney: We’re in the high split. So, I mean, it’s now just going to grow with the overall dividend, right. There is not a step to that. It’s not accelerated.

Peter W. Keegan – SVP and CFO: Step function in the split, no. That’s the highest level it goes to…

James S. Tisch – Office of the President, President and CEO: The only split beyond 50% is everything and I don’t think we are ever going to get there.

Peter W. Keegan – SVP and CFO: That isn’t part of the formula.

Robert Glasspiegel – Langen McAlenney: Is there an endgame on – I mean, is Boardwalk – what are these like buffet we are going to own it forever, we love it. Is there a way you could capitalize that?

James S. Tisch – Office of the President, President and CEO: We love all our children, and we are very positive about all of them and we don’t think about disposing of any of them.

Robert Glasspiegel – Langen McAlenney: You’ve got sort of – in your some of the products, you used to sort of like creating value to pieces, now, we are sort of left to our own, and so we got a $40 million growing annual earnings power that…

James S. Tisch – Office of the President, President and CEO: You mean in the GP?

Robert Glasspiegel – Langen McAlenney: Right.

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James S. Tisch – Office of the President, President and CEO: Okay.

Robert Glasspiegel – Langen McAlenney: I’m just trying to think of how we should think of that as an asset growing $40 million dividend base annually. You are not going to give me any help to think about it or how to think about it?

James S. Tisch – Office of the President, President and CEO: Nope, sorry.

A Closer Look: Loews Earnings Cheat Sheet>>