Icahn Enterprises L.P.
Q2 2017 Earnings Call Transcript

Published: 8 Aug 2017

[Operator:]

Good morning. And welcome to the Icahn Enterprises LP Second Quarter 2017 Earnings Call with Jesse Lynn, General Counsel; Keith Cozza, President and CEO; and SungHwan Cho, Chief Financial Officer. I would now like to hand the call over to Jesse Lynn, who will read the opening statement.

[Jesse Lynn:]

Thank you, operator. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for forward-looking statements we make in this presentation, including statements regarding our future performance and plans for our businesses and potential acquisitions. These forward-looking statements involve risks and uncertainties that are discussed in our filings with the Securities and Exchange Commission, including economic, competitive, legal and other factors. Accordingly, there is no assurance that our expectations will be realized. We assume no obligation to update or revise any forward-looking statements should circumstances change, except as otherwise required by law. This presentation also includes certain non-GAAP financial measures. A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP financial numbers can be found in the back of this presentation. I’ll now turn it over to Keith Cozza, our Chief Executive Officer.

[Keith Cozza:]

Thanks, Jesse. Good morning and welcome to the second quarter 2017 Icahn Enterprises earnings conference call. Joining me on today's call is SungHwan Cho, our Chief Financial Officer. I would like to begin by providing some brief highlights; Sung will then provide an in-depth review of our financial results and the performance of our business segment. We will then be available to address your questions. For Q2, 2017, we had a net income attributable to Icahn Enterprises of $1.6 billion or $9.51 per LP unit compared to a net loss of $69 million or $0.50 per LP unit in the prior year period. Adjusted EBITDA attributable to Icahn Enterprises for Q2, 2017 was $506 million compared to $292 million for Q2 of 2016. Our investment fund had a positive return of 4.3% in Q2 of 2017, compared to a loss of 6% in Q2 of 2016. Our second quarter 2017 performance was driven by net gains in both our core long and single name short equity positions, offset by losses in various hedge positions. Net sales for our Automotive segment in Q2 of 2017 were $2.5 billion, an increase of 2% from the prior year period. . The increase was primarily due to higher sales volumes at Federal Mogul. In Icahn automotive group, we continue to make acquisitions of auto service centers and maintain an active pipeline of additional acquisition opportunities to further expand our national footprint. In our Energy segment, our Q2, 2017 net sales were $1.4 billion and consolidated adjusted EBITDA was $73 million. CVR Refining posted strong operational performance during Q2 with a quarterly record for crude oil throughput at it Coffeyville refinery. CVR partners Coffeyville and East Dubuque Facilities also recorded high on stream rates for the fertilizer operations. East Dubuque Facilities posted an on stream rate of 100% per its ammonia plant which was also a quarterly record. [Rinse] expense for our refining operations remains the single largest headwind for our energy segment. The volatility and extraordinarily high prices of [rinse] continue to hamper results for the industry and may cause financial distress and risk and closure for smaller independent merchant refiners. In our Railcar segment, we closed the previously announced initial sale of American Railcar Leasing for pretax gain of approximately $1.5 billion. We have the option to sell additional railcars upon meeting certain conditions for a value of $559 million as of the end of the Q2, 2017. In our Gaming segment, Tropicana delivered solid results for the quarter with strong performance improvements at its Atlantic City and St. Louis properties. We closed the quarter with strong liquidity position and are excited about a number of investment opportunities across through all of our business segments. With that let me turn it over to Sung.

[SungHwan Cho:]

Thanks Keith. I will begin by briefly reviewing our consolidated results, and then highlight the performance of our operating segments, and comment on the strength of our balance sheet. Net income attributable to Icahn Enterprises was $1.6 billion for Q2, 2017 compared to a net loss of $69 million in the prior year period. As you can see on Slide 5, in Q2, 2017, IEP had significant income in our railcar segment associated with the $1.5 billion pretax gain recorded for the ARL in the short sale closing. We also released approximately $500 million of tax asset valuation allowances in our automotive segment during the quarter. The performance of our Investment Fund also improved from the prior year period with the return of positive 4.3% for Q2, 2017 compared to negative 6% for Q2, 2016. Adjusted EBITDA attributable to Icahn Enterprises for Q2, 2017 was $506 million compared to $292 million for Q2, 2016. I’ll now provide more detail regarding the performance of our individual segments. Our Investment segment had a gain attributable to Icahn Enterprises of $97 million for Q2, 2017. The Investment Fund had a return of positive 4.3% in Q2, 2017 compared to a return of negative 6% for Q2, 2016. Long positions had a positive performance attribution of 3.8% for the quarter, while short positions and other expenses had a positive performance attribution of 0.5%. Since inception in November 2004 through the end of Q2, 2017, the Investment Funds gross return is 119% or approximately 6.4% annualized. The Investment Funds continue to be significantly hedged. At the end of Q2, 2017, net short exposure was 44% compared to a net short exposure of 128% at the end of 2016. During the quarter, we invested $800 million into the Fund from the proceeds of the ARL sale. IEP's investment in the fund was $2.7 billion as of June 30, 2017. And now turning to our Energy sector. For Q2, 2017, our Energy segment reported revenues of $1.4 billion and consolidated adjusted EBITDA of $73 million compared to revenues of $1.3 billion and consolidated adjusted EBITDA of $113 million for the prior year period. Both the refining and fertilizer businesses had solid operational performance in the quarter. The Coffeyville refinery achieved a quarterly crude throughput record and the East Dubuque Fertilizer Facility posted an on stream rate of 100% for its ammonia plant. CVR Refining reported Q2, 2017 adjusted EBITDA of $43 million compared to $85 million in the prior period. Refining margin adjusted for FIFO impact, a non-GAAP financial measure, was $7.48 per barrel in Q2, 2017 compared to $9.56 per barrel in the prior year period. The decrease was primarily driven by higher [rinse] 0

[Operator:]

[Operator Instructions] And our first question will come from the line of Dan Fannon with Jeffries. Your line is now open.

[Dan Fannon:]

Thanks. Good morning, guys. I guess just generally first from the funds, the hedging is changed pretty dramatically year-to-date. So maybe just given overall outlook and kind of how are you thinking about investment opportunities there and then is the billion that's coming into the fund year-to-date -- I am sorry $800 million that's come in to the fund, is that -- do you think we are going to see -- will you see more going into the fund or is that kind of where we should -- is it the right level?

[Keith Cozza:]

Hey, Dan. It's Keith. I think it just depends on if there is other significant assets monetization. We have a healthy amount of cash at the hold co around $650 million or so that is -- that's a pretty healthy amount to deploy for investment opportunities and for the various business segments. But if we were to monetize certain assets then that would increase the cash level, a lot of that cash would probably go into the fund. So it's just -- really the answer it depends but right now there is no current intention to put more in because we have a kind of full pipeline of things that we are looking at the various segments especially in the Icahn automotive group.

[Dan Fannon:]

And the overall outlook for just kind of the Fund itself just in terms of positive bearish the hedging kind of obviously went down on the short side but --

[Keith Cozza:]

Yes, so the answer on the hedging, yes, we've reduced some of the macro index hedges, some of it was to correspond with some long positions that we had sold at decent valuation, the other it really related to an outlook we had kind of related to second quarter earnings particularly in the SMB 500 looking at the year-over-year growth and basically taking some risk of the table with our negative net exposures that the market will perceive those earnings to be quite well. And so we wanted to reduce some of that potential headwind. So we took the macro short down significantly during the quarter.

[Dan Fannon:]

Got it. And then just thinking about the energy segment and sustainability the dividend with neither of the subsidiaries declaring dividend this quarter up to CVR energy so I guess just thinking about the outlook about $0.50 cash dividend.

[Keith Cozza:]

Yes. I mean the Board meets every quarter to evaluate that continuing that dividend so I am not going to provide forward guidance. But I'd point out that CVI, the parent company has over $200 million of excess cash there so, subject to Board deliberation they could continue it for another three or four quarters I'd say at least. Just based on the shares outstanding. So but again it's a healthy debate each quarter and we are hopeful that crack spread can stay all weighted here provide for future distribution.

[Operator:]

Thank you. And a next question will come from the line of [A V Sophia with Sophia Capital]. Your line is now open.

[A V Sophia:]

Hi, congratulation on the tendering further CPC shares at pretty nice discount. But in your order said you have indemnify the court regarding the offer and regarding the price range. So I was wondering if you guys have reserved anything regarding that and if you are concerned about potential litigation.

[Keith Cozza:]

I am not sure I even understand the question but no we are not concerned about potential litigation.

[A V Sophia:]

Got it. And what's the future plan for the holdings of GPCA?

[Keith Cozza:]

Future plan I mean we continue to operate at just like our other nine segments. We want to provide management with support -- the support and capital to grow the business and improve profitability over time. And we think the Tropicana management team is doing a good job with that.

[A V Sophia:]

Yes. They are doing great job but do you think eventually IPO, and you can do outright sale thanks to the dividend for --

[Keith Cozza:]

Yes. There are no current plans for any of those things that you just said.

[A V Sophia:]

And any thoughts on the balance sheet of PPC?

[Keith Cozza:]

No, there are no thoughts.

[A V Sophia:]

Got it. And guys the confusion, clarify your confusion before I was just referencing the fact that you are tendering for stock at a price that is 35% to 40% discount where you are marking it. So imagine there could be some litigation regarding that and if you had any concerns there.

[Keith Cozza:]

No.

[Operator:]

And I currently have no more questions in queue.

[Keith Cozza:]

Okay. Thanks everybody. We look forward to talking to you during this day after the third quarter. Thanks.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude your program. And you may all disconnect. Everyone have a great day.