Icahn Enterprises LP (IEP) 2010 Q3 法說會逐字稿

Third Quarter 2010 Earnings Call with Felicia P. Buebel, Counsel; Daniel A. Ninivaggi, President; Dominick Ragone, CFO and CAO. I would now like to hand the call over to Felicia Buebel, Counsel. Please go ahead.

Good morning. I will now read the forward-looking statement.

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 business and potential acquisition. 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 a copy of this presentation at www.icahnenterprises.com/investor.shtml.

I will now turn the program over to Daniel Ninivaggi, our President and Chief Executive Officer.

Thanks, Felicia. Good morning and welcome to the third quarter 2010 Icahn Enterprises earnings conference call. Joining me on the call today are Dominick Ragone, our Chief Financial Officer, as well as Steve Mongillo, the Managing Director in our Investment Management segment.

I'd like to begin by providing some key highlights for the quarter. Dominick will then provide a more in depth review of our financial results and the performance of our business units. We'll then be available to address your questions.

Icahn Enterprises posted strong results for the third quarter of 2010, primarily driven by the performance of our Investment Management and Automotive segments. All of our segments recorded top line growth as compared to the third quarter of 2009 with the exception of our Real Estate and Railcar segments.

Some highlights for the quarter include above market performance of the private funds, which I will touch on in a second, Federal-Mogul's strong market share growth in its OE business, continued solid performance in our Food Packaging segment and American Railcar's strong sequential backlog growth.

We remain cautious about the US economy overall, but we are seeing gradual improvement in general economic conditions. Each of our business units has significantly reduced its cost structure over the past two years and stands to benefit from an economic recovery.

With respect to our Investment Management segment, the private funds recorded a gross return of 13.9% for the quarter. For the first nine months of 2010, we're up 11.2% compared to 3.9% for the S&P 500. We continue to have confidence in our core positions and as always are actively pursuing new opportunities that fit our investment strategy.

With that, I will turn it over to Dominick and as I said we will return for your questions at the end of the presentation. Thank you.

Thanks, Dan. I will begin by briefly reviewing our consolidated results for the third quarter of 2010 and then highlight the performance of our operating segments and comment on the strength of our balance sheet.

Net income attributable to Icahn Enterprises for the third quarter of 2010 was $298 million compared to income of $116 million for the same period in 2009. This was primarily due to the strong performance of the private funds and improved operating results of our Automotive segment as Dan mentioned earlier.

We closed out the quarter with cash and cash equivalents of $2.3 billion and a direct investment in the private funds of $2.5 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 December 2, 2010.

I'll now provide more detail regarding the performance of our individual segments. For the third quarter of 2010, our Investment Management segment had income attributable to Icahn Enterprises of $332 million due to very strong returns of the private funds. The private funds had a gross return of 13.9% for the quarter, accrued special profits interest for the period was $34 million and accrued incentive allocation was $3 million. We have not yet started accruing incentive income for most of our investors who are still below their respective high water marks.

During the third quarter, our net equity exposure gradually increased to 62% from 55% at the end of the second quarter. Our long equity exposure had a 17.2% return for the quarter, while our short equity exposure had a negative 4.6% return.

Our net credit exposure at the end of the third quarter was approximately 21% and generated a return of 1.3%.

As of September 30, 2010, our Investment Management segment had approximately $6.6 billion of assets under management. The private funds continue to be focused on a limited number of core activist positions.

Now turning to Federal-Mogul. Net sales for Federal-Mogul increased by $164 million, or 12%, to $1.544 billion for the third quarter of 2010 compared to $1.380 billion in the corresponding prior year period. The impact of the US dollar strengthening, primarily against the euro, decreased reported sales by $44 million for the third quarter.

Light and commercial vehicle OE production improved in all regions and when combined with market share gains, OE sales increased by $224 million.

After-market sales decreased by $4 million, due to $6 million in reduced sales in Venezuela as a direct consequence of currency restrictions, partially offset by net sales gains of $2 million in all other regions.

Gross margin increased by $26 million to $238 million or 15.4% of sales for the third quarter of 2010 compared to $212 million, or 15.4% of sales, in the same period of 2009. The improvement in gross margin was due to increased volume and material sourcing savings offset in part by pricing decreases and foreign currency movements.

Federal-Mogul is well positioned with customer, market and product diversity, and revenue is well balanced between OE and after-market. As the market environment continues to gradually improve, Federal-Mogul is generating solid operating cash flow.

Liquidity at our Automotive segment remains strong at approximately $1.6 billion, which is comprised of $1.1 billion in cash and a $538 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 September 30, 2010, decreased by $14 million, or 18%, 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 September 30, 2010, ARI shipped approximately 420 railcars as compared to approximately 610 railcars in the corresponding prior year period. However, during the third quarter the company had orders for 647 cars and ended the quarter with the backlog of 1,429 railcars.

Revenues from railcar services were flat in the third quarter as compared to the prior year quarter. Although repair work volumes are improving, customers are delaying re-lining and coating services.

Gross margin decreased by $7 million, or 78%, for the three months ended September 30, 2010, as compared to the corresponding prior year period. This was primarily due to the decrease in gross margin and manufacturing operations caused by reduced railcar shipments and a decrease in overall average selling prices.

Gross margin, as a percentage of revenues, was approximately 3% for the three months ended September 30, 2010, as compared to approximately 12% in the corresponding prior year period.

Leading indicators in the industry point to modestly improving railcar demand and our railcar order backlog has increased by over 18% sequentially. However, we still anticipate pricing to be competitive through the remainder of the quarter.

Now turning to our Food Packaging segment. Net sales for the three months ended September 30, 2010, increased by $2 million, or 3%, as compared to the corresponding prior year period. The increase is primarily due to an increase in sales volume partially offset by foreign currency translation and price and product mix.

Cost of goods sold for the three months ended September 30, 2010, increased $3 million, or 5%, as compared to the corresponding prior year period. The increase was primarily due to higher sales volume and operating inefficiencies in a plant in France, which have largely been corrected. As a percentage of net sales, gross margin was 25% for the three months ended September 30, 2010, compared to 27% for the three months ended September 30, 2009.

And now to our Metals segment. Net sales for our Metals segment were $169 million for the third quarter of 2010, which represented a 28% increase from the $132 million recorded in the third quarter of 2009. The increase was primarily due to higher average prices for both ferrous and non-ferrous product. Ferrous selling prices have been driven out by the increased demand generated by improved steel mill operating rates during the third quarter of fiscal 2010, as compared to the corresponding prior year period.

During the third quarter of 2009, steel mill capacity utilization rates were in the mid-50% range. This compares to capacity utilization rates in the 70% range throughout the third quarter of 2010. Steel mills were also de-stocking raw materials in the third 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 $77 per gross ton, an increase of 29%. Ferrous shipments however fell by 22,000 gross tons, a decrease of 7% in the third quarter of 2010 compared to the corresponding prior year period. This drop in volume was primarily attributed to a slowdown in the flow of scrap to yards in the south.

Non-ferrous selling prices continue to be driven by prices for copper and aluminum. Demand from automotive production and improved conditions in other sectors caused average selling prices to increase by 27% in the third quarter versus the prior year quarter. Volume also improved during the third quarter going up 11% from the third quarter of 2009.

Gross margin for the three months ended September 30, 2010 decreased by $3 million as compared to the corresponding prior year period. The decrease was primarily due to material shortages resulting in higher material and production costs per gross ton. As a percentage of net sales gross margin was 2% for the three months ended September 30, 2010, compared to 5% for the three months ended September 30, 2009.

Next is our Real Estate segment. Total real estate revenues were $23 million for the third quarter of 2010, which were $3 million below revenues recorded in the comparable period last year. This was primarily due to a drop in residential real estate sales. For the three months ended September 30, 2010, we sold one residential unit compared to six residential units in the corresponding prior year period.

Total expenses for the three months ended September 30, 2010 decreased by $1 million, or 5%, as compared to the corresponding prior year period. The decrease was primarily due to lower impairment charges and development costs of sales 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 $116 million for the third quarter of 2010 or a 23% increase from the corresponding prior year period. This improvement was the result of increased sales volume. However, gross margin decreased $2 million to $6 million, or 5% of sales, for the third quarter of 2010, compared to $8 million, or 9%, of sales in the same period of 2009.

Gross margin was adversely impacted by higher costs of freight, raw materials, principally cotton, and goods sourced out of China. The price of cotton is hovering at historic highs and down feathers and synthetic fibers are up significantly from last year. WPI has sought and will continue to seek recovery of higher raw material and transportation cost from its customers. In spite of the difficult market conditions, Home Fashion segment continues to make 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 increased by $1 million for the three months ended September 30, 2010, as compared to the corresponding prior year period due primarily to higher sales volumes. Restructuring and impairment for the three months ended September 30, 2010, decreased by $3 million or 33% as compared to the corresponding prior year period. Restructuring and impairment charges include severance, benefits, 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 its restructuring 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 private funds totaled approximately $4.8 billion. In addition to our strong cash position, we have undrawn credit facilities totaling $607 million as of September 30, 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.

(Operators Instructions). We have a question from Andrew Berg on the telephone line. Your line is open.

Hi guys. Dominick, just go back to railcar for a second. It's great to see the pickup in the orders. You mentioned the pricing remains competitive. Can you give me some sense of what pricing should be like year-over-year?

This is Dan. I would say pricing is down year-over-year, but it's up sequentially from the second quarter.

Can you quantify it all for me?

No, we really can't, we really can't. But obviously we are being a little bit more cautious now on the orders that we take and there is a little bit more pricing discipline in the market.

Okay. And then with respect to food packaging you guys note there was a legal expense increase for the patent litigation. It strikes me as though that's running through numbers and it's probably non-recurring. Can you quantify that for us -- seems like it should be higher number.

Yes. It's about $3.5 million, a little over $3.5 million for the year-to-date and there is probably another $1 million, $1.5 million to flow through before it's resolved.

$3.5 million year-to-date or $3.5 million in the third quarter?

$3.5 million year-to-date, $1.5 million in the third quarter.

Got it, great. Thank you very much.

Sure.

The next question comes from Ken Bann. Your line is open.

Hi. This is actually Erin Mazzoni calling in for Ken Bann. Just a follow-up on food packaging. Could you provide an update at all on the negotiations between the union numbers and management at the Lawton facility? Has that been resolved?

Yes it has. It was resolved successfully a few weeks ago and we are satisfied with the contract we ended up with.

Okay great. And my final question is it looks like you still have Tropicana as part of the Investment Management business, you own about 49%. Do you have any plans to move that into your real estate portfolio or add to its own portfolio company or keep it within the Investment Management segment?

Yes. So if we go over 50% it would be a consolidated segment of IEP and it would be its own segment, gaming segment. We would not fold it into the real estate segment.

All right, great. Thank you very much.

(Operator Instructions). We do have one more question from Carlos Feged. Your line is open.

Hi this is Carlos Feged from Hartford Investment Management. Just one quick question on the holding company cash. So you ended the quarter at about $680 million, I think you were at about $900 million last quarter what's the -- can you just do a quick bridge of what happened with holding company cash quarter-to-quarter?

Sure. I mean, the majority of it related to interests and dividends, hedge fund funding and certain miscellaneous operating costs.

And hedge fund funding increased by $500 million?

We actually don't provide the individual breakdown of those numbers.

Okay. Thank you.

I have no further questions on the audio portion.

All right. Well, thank you very much everyone. We appreciate the support of our shareholders and partners and employees obviously. We look forward to a strong finish to the year and we will talk to you again in the first quarter.

This concludes today's conference call. You may now disconnect.