Loews Profit Down 74 Percent

Leapfrog Posts Profit and President to Step Down; Build-A-Bear Profit Rises 68 Percent; Goodyear Posts Loss on Farm Tire Sales; Daimler Profits Above Expectations

Loews Corp. (LTR) Thursday said fourth-quarter profit fell 74 percent as its largest unit took a big loss to cancel reinsurance contracts, an area that has come under regulatory scrutiny.

The conglomerate, whose businesses include financial, tobacco, energy, hotel and watch-making companies, will also restate results from 2001 through the third quarter of 2005, its second restatement in less than a year.

Loews, controlled by the Tisch family, and CNA Financial Corp., its largest unit, will restate results to fix the latter's accounting for businesses CNA acquired in a 1995 merger with Continental Corp. and later exited.

The restatement will reduce Loews' net worth as of Dec. 31, 2004, by $186 million, or 1.5 percent, and CNA's net worth by $204 million, or 2.2 percent. Loews owns 91 percent of CNA, the No. 7 U.S. commercial insurer.

Overall Loews' results benefited from better-than-expected results at its Lorillard Inc. tobacco unit. The unit's tracking stock, Carolina Group, rose as much as 7.3 percent.

New York-based Loews said consolidated net income fell to $127.6 million from $500.3 million a year earlier. Profit attributable to Loews shareholders fell 90 percent to $46 million, or 25 cents per share, from $444.2 million, or $2.39.

Analysts polled by Reuters Estimates on average had forecast profit of $1.11 per share. Revenue rose 1 percent to $4.11 billion.

Chief Executive James Tisch on a conference call said quarterly results "put a bit of a damper" on the year, but that "all of our underlying businesses are performing well."


Chicago-based CNA posted a net loss of $217 million, or 92 cents per share, compared with a year-earlier profit of $303 million, or $1.11. Revenue fell 1 percent to $2.49 billion.

Profit was reduced by $223 million as the company exited, or commuted, several finite reinsurance contracts.

This should reduce interest expense and losses, with a goal of "enhancing future earnings," CNA Chief Executive Stephen Lilienthal said on a conference call. Finite reinsurance contracts let insurers transfer risks to other insurers.

Earnings at CNA were also reduced by $176 million for pollution exposure, workers' compensation, the runoff of businesses and catastrophes including Hurricane Wilma. Revenue fell 1 percent to $2.49 billion.

"CNA results appear worse than expected, even after stripping out the noise," said Gary Ransom, an analyst at Fox-Pitt, Kelton Inc. "The commutation is significant, in that it reflects an economic tradeoff between taking a loss today, with the hope of making more money in the future."

Loews and CNA last May restated 2002 to 2004 results to fix CNA's accounting for reinsurance with a former affiliate.

Regulators have said some finite reinsurance contracts are really disguised loans because they do not transfer enough risk. Federal prosecutors in New York last June subpoenaed CNA as part of an industrywide probe.

Tobacco Gains

Earnings rose 18 percent to $190.5 million at Carolina Group. Profit attributable to Carolina shareholders was $1.11 per share, topping analyst forecasts by 24 cents.

Net sales rose 10 percent to $916 million, as lower marketing expenses helped offset a 1.5 percent drop in unit sales volume. Lorillard brands include Newport, Kent and True.

Revenue rose at Loews units Diamond Offshore Drilling Inc., Boardwalk Pipeline Partners LP and Loews Hotels. The company also owns watchmaker Bulova Corp.

Last month, Loews named Andrew Tisch and Jonathan Tisch co-chairmen. They and James Tisch make up Loews' office of the president. Jonathan Tisch's father Preston Robert Tisch was a Loews chairman, and died in November. Andrew and James Tisch's late father Laurence was also a Loews' chairman.

In afternoon trading, Loews rose 60 cents to $95.65; CNA fell 35 cents to $31.05, and Carolina was up $2.39 at $47.34 after earlier hitting $48.24.

Leapfrog Posts Profit; President to Step Down

LeapFrog Enterprises Inc. (LF) on Thursday reported a quarterly profit, reversing a year-ago loss, helped by demand for new toys including the Fly pentop computer.

The toymaker also said it will consolidate the roles of chief executive officer and president into one position, with CEO Thomas Kalinske assuming the responsibilities of President Jerome Perez, who is resigning.

LeapFrog, known for its LeapPad electronic learning toys, reported fourth-quarter earnings of $14.4 million, or 23 cents per share, compared with a loss of $7.5 million, or 12 cents per share, a year earlier.

Analysts, on average, had been expecting it to earn 21 cents per share, according to Reuters Estimates.

Revenue fell 3 percent to $248.8 million. Analysts were expecting revenue of $290.6 million.

Net sales for the U.S. consumer segment rose 12 percent to $187.5 million, helping to offset declines in the international, and education and training segments.

LeapFrog has been realigning its business after a string of disappointing results hurt its credibility with investors.

It is betting that products like its Fly Pentop Computer, which hit store shelves in October, will bolster sales.

The Fly is a talking, computerized pen that can translate words into other languages or help with math and spelling homework. On Saturday, Fly was named "Toy of the Year" at the annual toy awards show that takes place in New York as part of the American International Toy Fair.

For 2006, LeapFrog is expanding the Fly product line, introducing applications to help with algebra, writing and memorization.

It is also introducing its Little Leaps Grow-with-Me Learning System, an interactive educational toy console that plugs into a television and is aimed at kids ages 9 months to 3 years old.

Build-A-Bear Profit Rises 68 Percent

Build-A-Bear Workshop Inc. (BBW) Thursday said quarterly profit rose 68 percent, helped by strong Internet sales.

Build-A-Bear, a retailer that lets customers make their own stuffed animals, reported fourth-quarter net income of $10.6 million, or 52 cents per share, up from $6.3 million, or 32 cents per share, a year earlier.

Analysts, on average, had been expecting 47 cents per share, according to Reuters Estimates.

Revenue rose 19 percent to $118 million, with Internet sales increasing 44 percent over the quarter. Comparable store sales declined 0.6 percent.

Looking ahead, the company said it expected full-year 2006 earnings per share in the range of $1.57 to $1.63, including items, and said it is looking for revenue growth of about 20 percent. Sales at stores open at least a year are expected to be flat to higher in the low single-digit percent range.

Analysts on average were expecting Build-A-Bear to report full-year earnings of $1.60 per share, on revenue of $437 million.

To boost its international presence, the company said it is in discussions with the Hamleys Group, Ltd. about a possible acquisition of its Bear Factory subsidiary, a United Kingdom-based stuffed animal retailer, and is also considering buying Amsbra, Ltd., its franchisee in the United Kingdom.

Internet sales, new store openings and the doubling of international franchise fees will drive growth in 2006, the company said in a conference call with analysts and investors.

Shares of Build-A-Bear were down 58 cents at $29.55 in mid-morning trading.

Goodyear Posts Loss on Farm Tire Sales

CHICAGO — Goodyear Tire & Rubber Co. (GT) Thursday posted a fourth-quarter loss on sales of its farm tire unit and other assets as hurricanes and the strong dollar pressured results.

Goodyear, whose shares fell 2.5 percent, said raw materials costs and currency fluctuations remain a challenge, but a focus on new more expensive tires and cost cutting give it a foundation to continue its multiyear turnaround plan.

Goodyear, the largest U.S. tire maker, reported a net loss of $51 million, or 29 cents per share, compared with year-earlier net income of $125 million, or 62 cents per share, which included a large gain from an insurance settlement.

The latest results included numerous one-time items, including an after-tax loss of 44 cents per share from the sale of the farm tire unit and other assets.

Hurricane costs cut after-tax results by 12 cents per share, conforming to accounting rule changes cut 6 cents, restructuring cut 4 cents, tax adjustments added 12 cents and settlements with suppliers added 7 cents, Goodyear said.

"There were a lot of one-time items; losses an asset sales and currency translation hurt them a little bit, but nothing too surprising," Morningstar analyst Ben Butwin said.

Sales rose 2.1 percent to $4.93 billion, supported by price increases and the sale of more expensive tires, as well as higher volume outside the key North American tire unit. Foreign exchange fluctuations cut sales by about $107 million.

Analysts expected sales of $5 billion, according to Reuters Estimates.

In its key North American tire unit, Goodyear said sales rose 4 percent to $2.29 billion and operating income rose to $43 million from $29 million. Operating margin rose to 1.9 percent in the quarter from 1.3 percent a year earlier.

Sales fell 4 percent in the European tire unit to $1.17 billion as dollar strength cut revenue by about $119 million.

Goodyear in September announced the continuation of a restructuring program intended to cut costs and debt to support a turnaround of its North American operations. High debt levels and required pension contributions remain a challenge.

The Akron, Ohio-based company has focused on raising prices and selling more expensive tires to offset the impact from rising costs of natural and synthetic rubber, steel and other materials.

Goodyear warned in late January that fourth-quarter costs of raw materials were higher than expected, but said operating income from its business segments should be steady.

Raw materials costs rose 13 percent, or $160 million, from a year earlier, but higher prices and sales of more expensive tires added $190 million, more than offsetting the increases.

Total segment operating income fell to $226 million in the quarter from $238 million a year earlier, after the U.S. hurricanes in the Gulf Coast region last year pressured results by $15 million, Goodyear said.

Shares of Goodyear were off 39 cents at $15.05 in early New York Stock Exchange trade. Through Wednesday, the stock was down 11 percent since the start of 2006, while the Dow Jones U.S. automobiles and parts index had fallen 1.25 percent.

Daimler Profits Above Expectations

SINDELFINGEN, Germany — DaimlerChrysler (DCX) forecast on Thursday improved profitability in 2006 after a surprise profit at premium division Mercedes Car Group helped its fourth-quarter operating results beat expectations.

But the world's fifth-biggest carmaker provided an outlook that was less concrete than expected by some analysts, and the stock reversed early gains to fall as it became apparent how much one-off items had contributed to results.

Operating profit at the world's fifth-biggest carmaker rose to 1.048 billion euros ($1.25 billion) in the final three months of 2005, beating a Reuters poll average estimate of 972 million.

"DaimlerChrysler expects an improvement in profitability in 2006, with continuous increases in operating profit during the following years," it said, reiterating expectations that 2006 vehicle sales would be in the same range as in 2005.

It said it would issue a more detailed 2006 earnings forecast once it had calculated how much it would cost to implement previously announced job cuts.

Michael Raab, an analyst at German bank Sal. Oppenheim, said the results were "mildly positive from the market's point of view, but since a few people were expecting a more concrete outlook, there could be some profit-taking."

DaimlerChrysler shares were down 2.4 percent to 48.89 euros at 1000 GMT, making it one of the top losers on the German blue chip DAX index and the worst performing car stock in the DJ Stoxx European automotive index.

Its shares had outperformed the European car sector by around 15 percent since it said in July that Juergen Schrempp would resign as chief executive at the end of 2005 and hand over to Dieter Zetsche, an aggressive cost-cutter.

Early on Thursday, the shares reached a more-than-three-year high of 50.45 euros. Reuters data show the stock trades at nearly 14 times estimated 2006 earnings per share, the highest among European carmaking peers.

One-Off Gain

The quarterly operating profit rise included better-than-expected results at Mercedes, U.S. arm Chrysler and financial services.

Restructuring charges limited flagship Mercedes Car Group's operating profit to 1 million euros, but this was far better than the loss of 119 million expected in the Reuters poll.

Contrary to expectations, operating profit at Chrysler rose to 428 million euros, flattered in part by a one-off gain.

"Adjusted for the 240 million euro gain from the sale of its test track in Arizona, Chrysler's operating profit pretty much fell by half in the fourth quarter, and I think this is the most important thing that these results show," said Stephan Droxner, an auto analyst at German bank LBBW.

"The fourth quarter left unmistakable skid marks at Chrysler, and this is a hint that we think points toward a weak 2006. I estimate Chrysler's operating profit could decline by 40 to 50 percent this year," he added.

Zetsche, the former head of Chrysler, acknowledged that pressure was growing on Chrysler.

"It is profitable in the toughest market in the world. But it's clear that cost pressure and competition will intensify," he told the carmaker's annual results news conference.

Operating profit at its market-leading commercial vehicles business fell unexpectedly to 357 million, hurt by high prices for steel and other raw materials.

Proceeds from asset sales helped group net profit rise 84 percent to 966 million euros on revenues of 41.45 billion, up 10 percent. It proposed a steady dividend of 1.50 euros per share.

Full-year 2005 operating profit came in at 5.18 billion euros, fulfilling the company's forecast that operating profit would rise excluding 1.1 billion euros in restructuring charges for its loss-making Smart small-car brand.

Mercedes booked a charge of 570 million euros in 2005 for its programme of cutting 8,500 high-cost jobs at Mercedes-Benz in Germany. It has set aside 950 million euros in all for the program.

In addition, it will incur around 2 billion euros in costs over the next three years to cut white-collar staff by a fifth.