Loews Corporation

Good day, everyone, and welcome to today's Lowe's Corporation Q3 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. You may register to ask a question at any time by pressing star 1 on your touchstone phone. Please note the call may be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn today's call over to Mary Scafidis, Vice President of Investor Relations and Corporate Communications. Please go ahead.

Thank you, Ashlyn. Good morning, everyone, and welcome to Lowe's Corporation's Third Quarter Earnings Conference Call. A copy of our earnings release, earnings supplement, and company overview may be found on our website, lowes.com. Also posted on the homepage of the Lowe's website is the company's 2021 Virtual Investor Day Presentations. from Lowe's and CNA. The Lowe's presentation narrated by Jim Tisch, the company's CEO, focuses on strategic capital allocation. CNA's strategic discussion is hosted by its CEO, Dino Robusto, and its interim CFO, Larry Hafner. We invite you each to access these presentations. We look forward to your feedback and hope you find the presentations informative. On the call this morning, we have our Chief Executive Officer, Jim Tisch. and our Chief Financial Officer, David Edelson. Following our prepared remarks this morning, we will have question and answer session with questions from our shareholders. Before we begin, however, I will remind you that this conference call might include statements that are forward-looking in nature. Actual results achieved by the company may differ materially from those made or implied in any forward-looking statements due to a wide range of risks and uncertainties, including those set forth in our SEC filings. Forward-looking statements reflect circumstances at the time they are made. The company expressly disclaims any obligation to update or revise any forward-looking statements. This disclaimer is only a brief summary of the company's statutory forward-looking statements disclaimer, which is included in the company's filings with the SEC. During the call today, we might also discuss non-GAAP financial measures. Please refer to our security filings and earnings supplement for reconciliation to the most comparable GAAP measures. With that, I'd like to turn the call over to Jim. Jim, over to you.

Thank you, Mary, and good morning. Before we review the quarter, I want to acknowledge someone who has been instrumental to Lowe's' success. Andrew Tisch has decided to step away from his executive responsibilities of Lowe's Corporation at the end of December. I could not have asked for a better partner than Andy, who has served Lowe's with complete dedication for the last 50 years. During his tenure, he has successfully led a number of our subsidiaries in functional areas while also fostering open communication, collaboration, and respect throughout the organization. We are all fortunate to have been the beneficiaries of his wisdom and expertise, and we are grateful that he will continue to serve as co-chairman of the Lowe's Board and as a member of the CNA Board. Turning to earnings, Lowe's had another strong quarter across the board, with good performance from each of our consolidated subsidiaries. CNA continues to be a success story for Lowe's. The company's underlying combined ratio decreased by 1.5 points, driven by the expense ratio, which was 30.7% compared to 31.8% in the prior year quarter. The underlying loss ratio was also lower at 60.2% compared to 60.5% in the prior year. CNA's P&C gross written premiums increased by 10%, and net written premiums increased by 5%. Note that the increase in net written premiums is lower than for gross written premiums due to additional reinsurance that the company has purchased in its strategy to protect the insurance portfolio from large loss events. The value of this incremental protection was fully on display this past quarter with the mitigated losses CNA reported on Hurricane Ida. CNA had pre-tax investment income of $513 million, pretty much flat with the prior year's quarter. Limited partnerships had a great quarter, and the fixed income portfolio continues to provide consistent earnings, even with headwinds from the historically low interest rate environment. We continue to be very pleased with CNA's results. In other news, Lowe's Hotels made an exciting announcement in early October. The company broke ground on the Lowe's Arlington Hotel and Convention Center, a new project in the tried and true entertainment hub of Arlington, Texas, which sits between Dallas and Fort Worth. When it opens in early 2024, the hotel will have 888 rooms and over 250,000 square feet of meeting and event space. For those not schooled in the hotel industry, that's a whole lot of rooms and a whole lot of meeting space. Once again, Lowe's Hotels is acting both as the owner and the operator of this project. Industry dynamics generally do not allow for companies in the hotel space to perform this double role. And as a result, Lowe's Hotels is a leader within this niche of the market. Playing to these strengths has served Lowe's Hotels well, and we believe it will continue to do so. This will be Lowe's Hotels' second property in Arlington, following in the strong footsteps of Live by Lowe's, which has had a successful opening in 2019 and whose occupancy rate has generally remained strong throughout the pandemic, a testament to this market's resilience and the team's focus. The new hotel is consistent with Lowe's Hotel's growth strategy, which is built on two pillars. The first pillar is owning and operating hotels associated with immersive destinations. Lowe's Hotel's two decades-long partnership with Universal Orlando is a great example of the strength of this pillar. Our hotels in Arlington will also clearly benefit from built-in demand drivers since our guests will have access to all the sports and entertainment destinations close to the hotels, including the Dallas Cowboys AT&T Stadium and the Texas Rangers Globe Life Field. The second pillar of Lowe's Hotels' growth strategy is the company's focus on owning and operating hotels with 300-plus keys that have strong group business and ample meeting space. Lowe's Hotels has a well-earned reputation for successfully operating hotels that cater to this type of business. The two Arlington hotels combined will offer nearly 1,200 guest rooms and more than 300,000 square feet of meeting and event space. and these properties offer unique local experiences and are equally attractive to leisure and group customers. Lowe's Hotels has continued to see strong demand for leisure travel and improving interest for group travel. For the third quarter, the occupancy rate for owned and joint venture hotels was almost 72%, as opposed to about 35% in the first quarter of this year. Our resort hotels continue to do considerably better than our properties in urban settings, and about 60% of Lowe's Hotels' rooms are in resort destinations. As the U.S. economy and the hotel industry continue their recovery, we are confident that Lowe's Hotels will once again be a growth engine for Lowe's Corp. Next, I want to talk about BoardWalk. The demand for natural gas is increasing, and Boardwalk is well positioned to take advantage of this change. We see the increased demand coming from increased domestic consumption and from international markets via LNG exports. Boardwalk transports natural gas under fixed-fee, take-or-pay contracts with mostly investment-grade customers, which limits its commodity and volumetric risk. The company currently has $9 billion of revenue backlog with a weighted average contract life of seven years. As the transition towards clean energy unfolds, we believe that gas will continue to be an important fuel used the world over. Finally, let me update you briefly on share repurchases. From July 1st through last Friday, we repurchased 6.2 million shares of Lowe's Common Stock for just over $337 million. Year-to-date, we've bought back 15.7 million shares for $830 million, which is 5.85% of the shares outstanding at the beginning of the year. As I've often said, we believe that Lowe's still trades at a significant discount to our view of its intrinsic value, but will continue to let our share repurchase activity speak for itself.