Icahn Enterprises LP (IEP) 2010 Q2 法說會逐字稿

Good morning. My name is Jessica and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Icahn Enterprises L.P. Second Quarter 2010 Earnings Conference Call. (Operator Instructions). Thank you. Felicia Buebel, you may begin your conference.

Good morning. My name is Felicia Buebel. I'm Assistant General Counsel to Icahn Enterprises and I will now read the forward-looking statement. Interim results and forward-looking statements and non-GAAP financial measures.

Results for any interim period are not necessarily indicative of results for any full fiscal period.

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 SEC, 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 measure contained in this presentation and its most directly comparable GAAP measure, are available on our website by viewing a copy of this presentation at www.icahnenterprises.com/investor.shtml.

And now I will turn over the program to Dan Ninivaggi, President of Icahn Enterprises.

Thanks, Felicia, and good morning. Welcome to our second quarter 2010 earnings conference call. Joining me on the call today are Dominick Ragone, our Chief Financial Officer, and other members of IEP's senior management, including Vince Intrieri and Mike Mauer, Senior Managing Directors in our Investment Management Segment.

As we disclosed yesterday, Keith Meister has chosen to resign as Principal Executive Officer of Icahn Enterprises. Keith left on-- after eight years, on amicable terms, and we wish him well. His responsibilities at Icahn will be shared among other senior executives, including Vince, Mike, myself and others.

Before turning the call over to Dominick to discuss our financial results in detail, I'd like to say up front that we're generally pleased with the performance of our operating subsidiaries in the second quarter. In a very challenging and volatile environment, they delivered solid results.

Our management teams continue to focus on what we believe are core principles -- structural cost reduction, implementing productivity initiatives, customer service and generating cash flow. As a result of this focus, our operating subsidiaries are well positioned to benefit as the overall economy improves.

A great example of this is Federal-Mogul, which enjoyed an excellent second quarter, with revenue growth of 23% year-over-year and even stronger improvement in earnings. Likewise, ARI's backlog more than doubled in the second quarter from Q1 and both PSC Metals and Viskase had solid year-over-year revenue and earnings growth.

With respect to our Investment Management segment, while we had a small negative return in the first half, the month of July was very strong, up about 8%, and we continue to have confidence in our core positions. I'll now turn it over to Dominick for a financial review, after which we'll take your questions. Thank you.

Thanks, Dan. I will begin by briefly reviewing our consolidated results for the second quarter of 2010 and then highlight the performance of our operating segments and comment on the strength (technical difficulty).

Net loss attributable to Icahn Enterprises for the second quarter of 2010 was $116 million compared to income of $134 million for the same period in 2009. This was primarily due to the exceptionally strong performance of the private funds in the prior year compared to the negative return in the current year.

As Dan mentioned earlier, our operating segments are showing improved performance from last year. We closed out the quarter with cash and cash equivalents of $2.5 billion and our direct investment in the private funds of $1.9 billion.

Reflective of our continued strong balance sheet, subsequent to quarter end, our Board of Directors approved a quarterly cash distribution of $0.25 per depositary unit, payable on September 2nd, 2010.

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

Now I will provide some brief commentary on our Investment Management segment. For the second quarter of 2010, our Investment Management segment had a loss attributable to Icahn Enterprises of $90 million due to the performance of the private funds. However, the funds have seen significant improvement in performance since quarter end, with a gross return of approximately 8% in the month of July, resulting in a gain of approximately $195 million in the Investment Management segment for the month of July, which includes the special profits interest allocation.

The private funds were down 3.1% for the quarter, compared to the 11.4% drop in the S&P 500 index. As a result of the negative return for the period, there was no accrued special profits interest or incentive allocation and there was a reversal of the first quarter's accrual.

During the second quarter, our net equity exposure was gradually increased to 55% from 31% at the end of the first quarter. Our long equity exposure had a negative 5.7% return for the quarter, while our short equity exposure had a positive 1.6% return.

Our net credit exposure at the end of the second quarter was approximately 31%. Our net credit exposure generated a return of 1% for the second quarter.

As of June 30th, 2010, our Investment Management segment had $5.8 billion under management. The private funds continue to be focused on a handful of core activist positions, including Motorola and Genzyme. We believe our hard work this year has created significant positive momentum and opportunities that will drive performance in the latter half of this year.

Now turning to Federal-Mogul, net sales for Federal-Mogul increased by $294 million or 23% to $1.598 billion for the second quarter of 2010, compared to $1.304 billion in the corresponding prior year period.

Light and commercial vehicle OE production improved in all regions and, when combined with market share gains, OE sales increased by $315 million. The impact of the US dollar strengthening in the quarter, primarily against the euro, decreased the reported sales by $20 million as compared to the corresponding prior year period.

After-market sales increased by $9 million, despite $17 million in reduced sales in Venezuela as a direct consequence of the currency restrictions.

Gross margin for the three months ended June 30th, 2010, increased by $77 million or 39% as compared to the corresponding prior year period. As a percentage of net sales, gross margin was 17% for the three months ended June 30th, 2010, as compared to 15% in the corresponding prior year period. The improvement in gross margin was due to increased volume, productivity gains and material sourcing savings.

Federal-Mogul is well positioned with customer, market and product diversity. Revenue is well balanced between OE and after market with no single customer accounting for greater than 5% of revenue.

While the current market environment continues to be very challenging, Federal-Mogul is generating solid operating cash flows. Liquidity at our Automotive segment remains strong at approximately $1.5 billion, which is comprised of $1 billion in cash and a $540 million undrawn revolver. This liquidity provides opportunities for both organic growth, as well as acquisitions.

Now turning to our Railcar segment. Revenues from manufacturing operations in railcar services for the three months ended June 30th, 2010, decreased by $48 million or 44% as compared to the corresponding prior year period. The decrease was primarily due to decreased revenues from manufacturing operations, which were impacted by a decrease in railcar shipments and an overall decrease in average selling prices.

During the three months ended June 30th, 2010, ARI shipped approximately 370 railcars as compared to approximately 980 railcars in the corresponding prior year period. The decline in manufacturing revenue was partially offset by an increase in revenues from railcar services. Revenues from railcar services increased due to higher volumes at repair facilities and the utilization of ARI's railcar manufacturing facilities for railcar repair projects.

Gross margin decreased by $10 million or 77% for the three months ended June 30th, 2010, as compared to the corresponding prior year period. This was primarily due to the decrease in gross margin and manufacturing operations caused by the reduced railcar shipments and a decrease in overall average selling prices. This decline was offset, in part, by an increase in gross margin in railcar services due to the increased volume and efficiencies.

Gross margin, as a percentage of revenues, was approximately 5% for the three months ended June 30th, 2010, as compared to approximately 12% in the corresponding prior year period.

The economic downturn and restricted credit markets continue to have an adverse affect on the markets in which ARI competes, resulting in substantially reduced orders in the marketplace, increased competition and additional pricing pressure.

During the second quarter, loadings and storage rates have flattened out, however we saw an increase in inquiries and backlog. Our railcar order backlog has more than doubled sequentially. However, we still anticipate pricing to be competitive through the remainder of the year.

Now turning to our Food Packaging segment, net sales for the three months ended June 30th, 2010, increased by $5 million or 7% as compared to the corresponding prior year period. The increase is primarily due to increased volume.

Cost of sales-- cost of goods sold for the three months ended June 30th, 2010, increased by $3 million or 5% as compared to the corresponding prior year period. The increase was primarily due to higher price-- higher sales volume and higher plant inefficiencies. As a percentage of net sales, gross margin was 28% for both the three months ended June 30th, 2010, and 2009.

And now to our Metals segment, net sales for our Metals segment were $207 million for the second quarter of 2010, which represented a 223% increase from the $64 million recorded in the second quarter of 2009. The increase was primarily due to increases in ferrous revenue attributable to demand generated by improved steel mill operating rates during the second quarter of fiscal 2010, as compared to the corresponding prior year period.

During the second quarter of 2009, steel mill capacity utilization rates were in the mid-40% range. This compares to capacity utilization rates in the mid-70% range throughout the second quarter of 2010. Steel mills were also de-stocking raw materials in the second quarter of 2009 in order to bring their inventory levels in line with their significantly lower demand, which adversely impacted demand during 2009.

Increased ferrous demand resulted in higher ferrous average pricing of approximately $188 per gross ton, an increase of 103% and higher ferrous shipments of approximately 189,000 gross tons, an increase of 109% in the second quarter of 2010 compared to the corresponding prior year period.

Gross margin for the three months ended June 30th, 2010, increased by $10 million as compared to the corresponding prior year period. The increases were primarily due to increased volume, which resulted in improved fixed-cost absorption. As a percentage of net sales, gross margin was 4% for the three months ended June 30th, 2010, compared to a negative 2% in the three months ended June 30th, [2010].

During the second quarter of fiscal 2009, falling demand and production levels increased operating costs per unit, despite concerted efforts to align costs with volume.

Next is our Real Estate segment. Total real estate revenues were $25 million in the second quarter of 2010, which were $2 million above revenues recorded in the comparable period last year. This was primarily due to an increase in rental income from financing leases that were converted to operating leases upon their renewal.

For the three months ended June 30th, 2010, we sold seven residential units for approximately $4 million, compared to six residential units for approximately $3 million in the corresponding prior year period.

Total expenses for the three months ended June 30th, 2010, decreased by $6 million or 24% as compared to the corresponding prior year period. The decrease was primarily due to lower intangible amortization expense and inventory reserves, offset in part by an increase in development expenses related to maintenance costs associated with the acquisition of the former Fontainebleau property.

Turning to our Home Fashion segment, net sales of $107 million for the second quarter of 2010 were a 24% increase from the prior year period. This improvement was the result of increased sales volume. Gross margin as a percentage of net sales was 11% and 10% for the three months ended June 30th, 2010, and 2009, respectively.

The increase in gross margin was due to lower losses on sales of excess inventory, offset by higher raw material costs. Our Home Fashion segment has made great progress in realigning its manufacturing operations to lower costs. The Company is focused on its sourcing strategy, introduction of new products and scaling its operations to maximize its operating leverage.

SG&A for the three months ended June 30th, 2010, and 2009 remains flat at $19 million. Restructuring and impairment for the three months ended June 30th, 2010, decreased by $3 million or 50% as compared to the corresponding prior year period. Restructuring and impairment charges include severance, benefits and related costs, non-cash impairment charges related to plants that have been or will be closed and continuing costs of closed plants and transition expenses.

WPI continues to restructure its efforts and, accordingly, anticipates that restructuring charges and operating losses will continue to be incurred for the remainder of fiscal 2010.

Now I will highlight our debt and liquidity position. We finished the quarter with excellent liquidity. Our cash, cash equivalents, liquid assets and our investment in the hedge fund totaled approximately $4.4 billion. In addition to our strong cash position, we have undrawn credit facilities totaling $594 million as of June 30th, 2010.

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 opportunities.

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

(Operator Instructions). Your first question comes from the line of Ken Bann. Your line is now open.

Good morning. I'm just wondering, could you comment about some of your core positions on the credit side in the Investment Management business and has there been major changes in that?

Yes. Basically this year has been a year -- this is Vince Intrieri. This has been a year of paring credit down. So our credit book has been substantially reduced from last year and we continue, at this time, to look for new core positions on the credit side. But the credit book has been significantly scaled back this year.

Okay. Are there-- given the improvement in the Automotive side and the Food Packaging business, any thoughts about selling some of the equity you have in those two companies, now that they're in much better shape?

No. They're in good shape. They're continuing to improve. We expect their performance will continue to improve. So that's not on the table right now.

Okay. Finally, the Home Fashion business, is a lot of the improvement in sales due to just restocking of inventories at retail or are you seeing, in general, a pickup in customers and better demand for products in that segment?

Yes, we're seeing demand slightly up. We've basically gotten new programs, so it's probably a little bit of increase in market share. Demand's a bit up, but it's sort of, in the last month or so, it seems to be flattening out.

Okay. All right, thank you very much.

(Operator Instructions). Your next question comes from the line of Andrew Berg. Your line is now open.

Hey, just a quick question related to Real Estate and, specifically, Fontainebleau. Anything going on there in terms of costs being greater or less than you thought to maintain the property? I'm not thinking anybody's approached you to purchase it yet.

No, the costs, we anticipate about $15 million a year. It's consistent with what we've said before.

Okay. Thank you.

You have no further questions at this time.

Okay. Well, we appreciate the support of our shareholders, partners and employees. We're looking forward to a strong back half of the year. Thank you very much for joining the call and we'll talk to you in another few months. Thank you.