After the market closed yesterday, Leucadia National Corporation (LUK) released earnings and filed its quarterly report with the SEC. Today the stock has been down by as much as 6%.
As is customary with LUK, the press release contained an income statement and just a brief mention of earnings and then you are directed to the company's filing with the SEC for further information. So let us take a look inside.
For the second quarter ended June 30, 2012, LUK reported revenues of $2.14 billion compared to $753.44 million during the same quarter in 2011. The 2012 quarter included revenues from the recently acquired National Beef Packing Company (NBPC) of 1.91 billion and net securities gains of $2.53 million compared to $0 revenues from NBPC and net securities gains of $529.64 million during the same period in 2011. For the first six months of 2012, revenues were $4.57 billion versus $1.04 billion during the same period in 2011. The first six months of 2012 included revenues from NBPC of 3.70 billion and net securities gains of $427.46 million compared to $0 revenues from NBPC and net securities gains of $531.94 million during the same period in 2011.
LUK reported a net loss of $197.25 million or $(0.81) per share for second quarter of 2012 compared to net income of $186.31 million or $0.76 for the same quarter in 2011. For the first six months of 2012, LUK reported net income of $293.63 million or $1.20 per share versus net income of $196.82 million or $0.81 per share during the same period in 2011. The six month period for 2012 included net securities gains of $424.94 million that were recorded in the first quarter of 2012 compared to net securities gains of only $2.53 million in the second quarter of 2012. It is important to note that securities gains and losses play a major roll and tend to create inconsistent earnings at the corporate level for LUK.
Since LUK generates earnings from several divergent businesses, it is worth taking a look at how each of the major contributors performed on a standalone basis.
As noted in the table above the Associated Companies line item includes publicly traded companies accounted for under the equity method. These companies include Jefferies Group, Inc. (JEF), Mueller Industries, Inc. (MLI) and HomeFed (OTCQB:HOFD). The large loss was primarily the result of unrealized losses recorded in the stock of JEF which fell 31% during the second quarter of 2012.
In analyzing LUK, it is important to understand that a primary focus for its operating companies is cash flow. While many of the operations in the table above show losses for period, many still provide positive funds to the operation.
LUK continues to deleverage its balance sheet and now has only $1.37 billion in long-term debt.
During and subsequent to the end of the second quarter of 2012, LUK made the following additional investments and divestitures.
- May 2012 - LUK invested an additional $50 million in Sangart increasing its ownership to 97.2%.
- July 2012 - LUK sold its remaining common shares of Fortescue Metal Group Ltd (OTCQX:FSUMF) for net cash proceeds of $152.93 million and will record a gain of $125.83 million during the third quarter of 2012. LUK still holds a note in which it receives payments from FSUMF based on the volume and selling price of iron ore produced. In July 2012, the company received $105.13 million from FSUMF net of withholding taxes.
- July 2012 - LUK, through its subsidiary Conwed Plastics, acquired Tensar Polytechnologies, Inc. (TPI) from Tensar Corporation. According the Tensar press release, TPI manufactures and distributes Light Weight Oriented Net which is used in the manufacturing of erosion control blankets, carpet padding and numerous other industrial products.
One major issue that could impact LUK earnings in the future is the ongoing drought in many parts of the United States. Due to the increasing price of feed as well as damaged pastures, cattle producers are beginning to thin their herds which will most likely push the prices of cattle higher in the coming months. LUK stated that it had not yet been significantly impacted, but is concerned that the price NBPC pays for cattle may rise more than the price increases it can pass along for its products which will negatively impact profitability.
Disclosure: I am long LUK.