Icahn Enterprises LP (IEP) 2009 Q2 法說會逐字稿

Good morning. My name is Elaina and I will be your conference operator today. At this time I would like to welcome everyone to the Icahn Enterprises L.P. second quarter 2009 earnings call. (OPERATOR INSTRUCTIONS.)

I'd now like to turn the call over to Ms. Felicia Buebel, Counsel, who will read the forward-looking statements. You may begin your call.

Good morning. 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 non-GAAP financial measures. Please note that quantitative reconciliations between each non-GAAP financial measure contained in this presentation and its most directly comparable GAAP measure are available on our website by viewing the copy of this presentation at www.icahnenterprises.com/investor.shtml.

I will now turn the program over to Keith Meister, our Principal Executive Officer.

Thank you, Felicia. And good morning and welcome to the second quarter 2009 Icahn Enterprises earnings conference call. Joining me on today's call is Dominick Ragone, our Chief Financial Officer.

I will begin by providing a brief overview of some key highlights for the second quarter and a review of our investment management segment, after which Dominick will provide an overview of our financial performance and the performance of our other business segments, after which we will be available to address your questions.

Icahn Enterprises posted solid results for the second quarter of 2009. Our results were largely driven by strong performance in our Investment Management segment, which I will discuss in a moment, as well as continued improvement in our various operating businesses, which Dominick will discuss in detail.

For the three months ended June 30th, 2009, we earned net income attributable to Icahn Enterprises from continuing operations of $128 million, or $1.67 per depository unit. We ended the quarter with a strong balance sheet with significant liquid assets of approximately $3.2 billion.

Reflective of our strong balance sheet, subsequent to quarter-end our Board of Directors approved a quarterly cash distribution of $0.25 per depository unit, payable on August 31st, 2009.

Moving to our Investment Management segment. Year-to-date through June 30th, 2009, our Investment Management segment is up approximately 22.1% on a gross basis, compared to 1.8% for the S&P 500 for the comparable period.

For the second quarter our Investment Management segment had gross returns of 14.2%, as compared to 15.2% for the S&P 500. As of July 1, 2009, assets under management were approximately $5.1 billion.

Through the first six months, having achieved a 22.1% gross return, our business is well positioned to achieve a solid year in our Investment Management segment in 2009. We have work to do to make up for the losses incurred in 2008, but believe we are well positioned to do so.

Our funds continue to be positioned in a relatively defensive manner. During the course of the year we have substantially reduced our net long equity exposure and have continued to allocate new investments with a focus towards distressed debt. We believe the current market environment sets up quite well for the skill sets embedded in Icahn Capital and look forward to attempting to continue the strong results we achieved in the first half of 2009.

With that, let me turn it back to Dominick to discuss our other business units.

Thanks, Keith. I will briefly review our consolidated results for the second quarter of 2009, and then highlight the performances of our operating segments and comment on the strength of our balance sheet.

Net income from continuing operations attributable to Icahn Enterprises for the second quarter of 2009 was $128 million, compared to a loss of $50 million in the same period in 2008. As Keith had mentioned earlier, the performance of the private funds improved both year-over-year and sequentially. And our other operating segments, with the exception of Real Estate, all had sequential improvements in income from continuing operations.

There was $2 million of income from discontinued operations attributable to Icahn Enterprises for the second quarter of 2009, compared to a loss of $1 million recorded in the second quarter of 2008.

I'll now provide more detail regarding the performance of our Automotive, Metals, Real Estate and Home Fashion segments.

Net sales for Federal-Mogul decreased by $691 million or 34.6% to $1.304 billion for the second quarter of 2009, compared to $1.995 billion in the corresponding prior year period. Sequentially, however, net sales increased $66 million or 5.3% over the first quarter of 2009.

The current market environment continues to be very challenging. Global vehicle production numbers for the calendar year are estimated to remain well below the previous year. We see some markets stabilizing, although at lower levels than last year.

Federal-Mogul had net income -- I mean had income from continuing operations of $4 million for the second quarter of 2009, compared to $47 million for the second quarter of 2008. The current quarter income comes after a loss from continuing operations of $74 million for the first quarter of 2009.

The profitable second quarter results reported by Federal-Mogul were due to the implementation of numerous actions throughout its global operations and functional teams to improve operating performance. These actions have also prepared Federal-Mogul to capitalize on an eventual market rebound.

Our Automotive segment recorded a gross margin of $197 million, or 15.1% of sales in the second quarter of 2009, as compared to $375 million, or 18.8% of sales for the second quarter of 2008. Sequentially, however, gross margin improved by approximately $40 million.

SG&A expenses were reduced by $14 million from the first quarter of 2009 to $170 million in this quarter. Federal-Mogul had positive cash flows of $7 million in the second quarter versus a negative $196 million in the first quarter, a significant improvement of $203 million.

Federal-Mogul remains committed to growing its presence in developing markets, especially China, India, Eastern Europe, Russia and South America, while strengthening its leading positions in North America and Europe.

Turning to the Metals segment. Falling demand and market prices continued to impact revenues in the second quarter of 2009. The extremely weak demand for steel, copper and aluminum in the housing, automotive, construction and infrastructure markets, and the destocking of finished goods by steel service centers, has continued to hurt the top line in the second quarter of 2009. Net sales for the second quarter of 2009 were $64 million compared to $434 million in the comparable period last year, and $76 million in the first quarter of 2009.

The aggressive actions our Metals segment has taken to counteract the dismal economic conditions helped reduce operating costs further in the second quarter as the full impact of salary cuts, staffing reductions and temporary idling of major equipment operations were realized.

Gross margin improved sequentially, going from a negative $22 million in the first quarter of 2009 up to a negative $1 million in the current quarter.

Selling, general and administrative expenses in the second quarter of 2009 were 44.4% lower than in the second quarter of 2008, reflecting the impact of cost reduction initiatives implemented in the first quarter of 2009.

The realignment measures undertaken in 2009 make our Metals segment well positioned to weather the economic downturn, while maintaining the core infrastructure necessary to ramp up production once demand begins to turn around.

Next is our Real Estate segment. Operating loss for the second quarter of 2009 was $2 million, compared to operating income of $2 million for the second quarter of 2008. This decline primarily reflects a decrease in residential real estate sales and property values and an increase in warranty reserves.

In the second quarter of 2009 we sold six units for $3 million, while in the second quarter of 2008 we sold 15 residential units for $13 million. Our resort operations at New Seabury and Vero Beach were flat from prior period's result, while our rental income increased due to the two large net lease properties acquired in August of 2008.

Turning to our Home Fashion segment. Net sales declined by 10.4% to $86 million for the second quarter of 2009, compared to $96 million for the second quarter of 2008. Operating losses, however, have begun to decline sequentially due to the improvement in margins and lower SG&A expenses, which are the result of continued cost cutting initiatives.

Home Fashion's gross margin in the second quarter was $9 million, compared to $7 million for the second quarter of 2008. Restructuring and impairment charges decreased by $1 million, or 14.3%, to $6 million for the second quarter of 2009 as compared to the second quarter of 2008.

WPI will continue to realign its manufacturing operations to optimize its cost structure, pursuing offshore sourcing arrangements that employ a combination of owned and operated facilities, joint ventures and third-party supply contracts.

Now, I will highlight our debt and liquidity position. We finished the quarter with excellent liquidity. Our cash, cash equivalents and liquid assets totaled approximately $3.2 billion. It should be noted that liquid assets include our investment in our private funds, as well as our holding company investments.

In addition to our strong cash position, we have undrawn credit facilities totaling $570 million as of June 30th, 2009.

In summary, we continue to focus on having ample liquidity and a strong balance sheet to enable us to execute our strategy and to capitalize on market opportunities.

Thank you. And operator, could you please open it up for questions?

(OPERATOR INSTRUCTIONS.) Your first question comes from the line of Andrew Berg. Your line is open.

Hey, guys. With respect to WestPoint, (inaudible) you thought you had about 20 points of margin improvement you could get out of that vehicle. Obviously, the economy's been a lot tougher than you anticipated at that point in time. So, can you give me some feel for how far along you feel like you are on that plan at this point?

Could you repeat the question, Andrew? I'm sorry, you were breaking up.

Yes, I'll try one more time. I apologize. When you guys originally were doing the improvement on the WestPoint, you thought you could get 20 margin points of improvement. Can you give us a sense of how far along you think you are at this point in getting to that level of cost improvement?

I don't--.

We talked about, when we originally took position of WestPoint, that if we -- from the steady state of the business at the time, if we had been able to move all of our manufacturing offshore to lowest-cost sources, there could be up to 20 points of gross margin that could be realized versus the embedded cost structure. I don't think we ever thought we'd get all of it because I think we recognized as we were getting those savings there would be some pass-through to customers, etc.

I think we've made a lot of progress in terms of moving our manufacturing base to offshore, lower-cost jurisdictions. While I don't think we're 100% complete with that, I think we've gotten a majority, but not all of the benefits yet. We've been offset, obviously, both by resizing the business to fit until we had a lower-cost structure, combined with the problems in the economy over the last 18 months.

So, I think it'll -- we've had some of the difficulty in getting margins because volumes have been down, frankly, because of the economy. However, as we're able to rebuild revenues, I think we're confident that the new WestPoint will have a much higher gross margin structure than the old WestPoint. I'm not sure if we'll get the full 20 points; I don't think we will. But I think we'll get a significant uplift.

Okay. Thank you.

(OPERATOR INSTRUCTIONS.)

Great. Operator, if we don't have any other questions, we thank everyone for their participation and we look forward to chatting with everyone when we update on our third quarter results. Thank you for your participation.