Icahn Enterprises LP (IEP) 2011 Q1 法說會逐字稿

(Operator Instructions) Good morning, and welcome to the Icahn Enterprises L.P. first quarter 2011 earnings call with Felicia P. Buebel, Counsel, Daniel A. Ninivaggi, President, and Dominick Ragone, CFO and CAO. I would now like to hand over the call to Felicia Buebel, Counsel.

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

And now, I'd like to turn the program over to our President, Dan Ninivaggi.

Thanks, Felicia. Good morning, and welcome to the first quarter 2011 Icahn Enterprises earnings conference call. Joining me on today's call is Dominick Ragone, our Chief Financial Officer.

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 segments. We'll then be available to address your questions.

Icahn Enterprises posted strong results for the first quarter of 2011 driven by the earnings of our investment management and automotive segments. Additionally, our railcar, metals, and home fashion segments all recorded solid top line growth in the quarter compared to the comparable period last year.

Icahn Enterprises net income for the first quarter of 2011 was $240 million compared to a net loss of $65 million in the prior year period. In our investment management segment, the Private Funds recorded a gross return of 9.6% compared to less than 1% in the prior year quarter. Our automotive segment's net sales increased to over $1.7 billion in the first quarter from $1.5 billion in the prior year period, a 16% improvement largely from a significant increase in our OE sales.

In our metal segment, PSC's ferrous volume increased 25% and non-ferrous volume increased 48% year over year. The railcar industry environment has improved significantly as well. ARI's manufacturing net sales almost doubled and backlog has increased to 5,600 cars as of March 31st from 1,100 cars at yearend.

Our food packaging segment continues to post strong results and is currently running near full capacity. We're adding capacity in fact to Viskase's US plants and we have expansion plans underway in the Philippines to take advantage of growth in Asia.

In short, each of our operating business units has significantly reduced its cost structure over the past few years, improved its operating performance, and is well positioned to further benefit from the improving economy.

And with that, I will turn it over to Dominick.

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

As Dan stated earlier, net income attributable to Icahn Enterprises for the first quarter of 2011 was $240 million, or $2.68 per depository unit. This compares to a net loss of $65 million or an $0.80 loss per depository unit for the first quarter of 2010.

We closed out the year with cash and cash equivalents of approximately $2.7 billion, and our direct investment in the private funds of $2.8 billion. On May 4, 2011, our Board of Directors approved a quarterly cash distribution of $0.50 per depository unit, payable on May 31, 2011. This $0.50 distribution will consist of $0.10 payable in cash and $0.40 payable in depository units.

I'll now provide more detail regarding the performance of our individual segments. As Dan mentioned earlier, the strong performance of the private funds was a key driver of Icahn Enterprises' earnings in the first quarter. Our investment management segment had income attributable to Icahn Enterprises of $253 million in the first quarter, primarily due to the return on our direct investment in the Private Funds.

During the first quarter of 2011, gains were primarily due to the investments funds' long exposure to the equity markets which were driven by certain core holdings. These gains were offset in part by the investment funds' short positions.

The Private Funds had a gross return of 9.6% for the quarter. Special profits interest was $9 million and incentive allocation was $7 million in the first quarter of 2011. As a result of the return of fee paying capital as of March 31, 2011 which was previously disclosed in our 2010 Form 10-K, no further incentive allocations or special profits interest allocations will accrue for periods subsequent to March 31, 2011.

During the first quarter, our net equity exposure increased to 84% from 82% at the end of 2010. Our long equity exposure had an 11% return for the quarter, while our short equity exposure had a negative 1% return. Our net credit exposure at the end of the first quarter of 2011 was approximately 14% and generated a return of less than 1%. As of March 31, 2011, our investment management segment had approximately $5.4 billion of assets under management.

Now turning to Federal-Mogul. Our automotive segment sales increased by $235 million to $1.724 billion for the first quarter of 2011 from $1.489 billion in the same period of 2010. The impact of the US dollar weakening, primarily against the Euro, increased reported sales by $7 million.

In general, light and commercial vehicle OE production increased in most regions and when combined with market share gains in all regions across all three manufacturing segments, resulted in increased OE sales of $203 million.

After market sales increased by $27 million due to sales increases in all regions. Gross margin increased by $25 million to $279 million or 16.2% of sales for the first quarter of 2011 compared to $254 million or 17.1% of sales in the same period of 2010. This increase was primarily due to improved sales volume as noted earlier.

Federal-Mogul is well positioned with customer, market, and product diversity, and revenue is well balanced between OE and aftermarket.

Liquidity at our automotive segment remains strong at approximately $1.6 billion, which is comprised of $1 billion in cash and a $540 million undrawn revolver. This liquidity provides opportunities for organic growth as well as acquisitions.

And now to our gaming segment. Our gaming segment recorded $157 million in revenues in the first quarter of 2011. Weak economic conditions continued to adversely impact the gaming industry. In response, the Tropicana is rationalizing its cost structure and focusing on improved marketing and targeted investments to increase revenues. Tropicana has maintained a strong balance sheet. As of March 31, 2011, it had over $157 million in cash and cash equivalents.

Now turning to our railcar segment. The railcar industry has shown steady improvement in the first quarter of 2011. Total backlog in the industry spiked to approximately 52,000 cars as of the end of the first quarter, up from 23,000 cars at the end of 2010. The reported idle US railcar fleet decreased from 20.8% of total cars at yearend down to 18.7% at the end of the first quarter.

Railcar shipments for the first quarter of 2011 were approximately 670 cars as compared to approximately 340 cars in the same period in 2010. For the three months ended March 31, 2011, revenues were $84.8 million as compared to $52.3 million for the three months ended March 31, 2010.

Revenues increased primarily due to an increase in railcar shipments. The small decrease in railcar service, revenue services, was primarily attributed to a reduction in railcar repair projects performed at our company's railcar manufacturing facilities.

Overall, gross margin increased by $4 million for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010. Gross margin for manufacturing operations as a percentage of manufacturing operations revenues was 2.9% for the three months ended March 31, 2011 as compared to a loss of 2.8% for the three months ended March 31, 2010.

Gross margin for railcar service operations as a percentage of railcars services operations revenues was 18.8% for the three months ended March 31, 2011 as compared to 12.5% in the three months ended March 31, 2010.

Our railcar segment's liquidity position is strong with $315 million in cash and cash equivalents as of March 31, 2011, and total borrowings of $275 million of unsecured senior notes, which are due in 2014. This liquidity provides the segment the necessary working capital required to ramp-up production levels to meet its growing backlog. Our railcar segment will continue to manage costs and capabilities to match market demand.

Now turning to our food packaging segment. Net sales for the first quarter of 2011 were $80 million which was flat with the first quarter of 2010. Our food packaging segment gross margin for the first quarter was $19 million which was $1 million below the prior year period. The decrease was due to higher raw material and energy costs. In response to plants running near full capacity, our food packaging segment has added production lines in the US and has begun the construction of a sharing plant in the Philippines to take advantage of growth opportunity in Asia. Cash and cash equivalents of our food packaging segment were $778 million as of March 31, 2011.

And now to our metals segment. Net sales for the three months ended March 31, 2011 increased by $105 million as compared to the three months ended March 31, 2010. $73 million of this increase was due to higher ferrous revenues attributed to higher prices and continued improvement in steel mill operating rates. Operating rates increased from 68% at the end of 2010 to 75% by the end of the first quarter of 2011. Non-ferrous revenues improved by $22 million due to higher volume and pricing.

Gross margin for the three months ended March 31, 2011 increased by $9 million to $18 million, as compared to the three months ended March 31, 2010. Gross margin as a percentage of net sales was 6.5% for the three months ended March 31, 2011 compared to 5.2% for the three months ended March 31, 2010. The increases were primarily due to increases in ferrous and non-ferrous spreads and improved volumes.

Next is our real estate segment. Total real estate revenues were $21 million for the first quarter of 2011 and 2010. While our residential real estate sales declined by $1 million, our net lease portfolio continues to drive earnings in this segment with its 30 properties generating strong cash flows.

Turning to our home fashion segment, net sales for the three months ended March 31, 2011 increased by $15 million as compared to the three months ended March 31, 2010 primarily resulting from increased pricing and higher sales volume. Increased pricing was implemented to offset increased raw material and transportation costs.

Gross margin as a percentage of net sales were 8.2% and 7.2% for the three months ended March 31, 2011 and 2010 respectively. The improvement in gross margin for the three months ended March 31, 2011 as compared to the prior year period was primarily due to improved sales mix. At the end of the first quarter, home fashion had $34 million of unrestricted cash. Its existing credit facility expires on June 15, 2011 and the segment has been actively exploring its financing options.

Now I will highlight our debt and liquidity position. We continue to maintain excellent liquidity as we finished the quarter with cash, cash equivalents, liquid assets, and our investment in the Private Funds totaling approximately $5.5 billion. In addition to our strong cash position, our subsidiaries have undrawn credit facilities totaling $584 million as of March 31, 2011.

In summary, we continue to focus on building asset value and maintaining ample liquidity to enable us to capitalize on opportunities within and outside our existing segments. Thank you. Operator, can you please open it up for questions?

(Operator Instructions). Andrew Berg, Post Advisory.

Thanks. I just want to go back to home fashion. What was the maturity coming up on that?

Maturity is June for the credit facility. We have a commitment to extend that facility for a year and we're looking at that as well as other financing options.

Ken Bann, Jefferies & Company.

Thank you. Good morning. Last time that the metal segment was exhibiting results this strong you were looking to or exploring the possibility of selling it. Is there any thoughts now given the strength of the business at this time and the strong outlook for it over the rest of the year?

No, there are no specific plans on the table now. In fact, we're investing in it. We're doing a number of acquisitions. We had the Cash's deal that closed in January, we've done a number of smaller deals. We have several Greenfield projects in the pipeline. So we're really focused on growing the business and we think that over the next 12 to 18 months that segment is going to be fairly strong.

Okay, and what about the potential sale of your stake in Federal-Mogul? Can you comment on that?

No, we can't. We're obviously continuing to go through the process and there's nothing to report at this point.

Okay, and then finally in the food packaging segment, do you think at this point you'll be able to raise prices given that you're operating at capacity and you've got higher raw material costs coming through? Do you think you'll be able to raise prices this summer to offset that increase?

No, we don't anticipate any significant price increases. There's still a little slack capacity among some competitors particularly in North America. We've been able to absorb the price increases and pass some along. We've done some improvements on the costs and on the manufacturing side, but we don't see any significant price increases this year.

Carl Coffman, Osterweis Capital.

Thank you. Good quarter, guys. Could you just briefly discuss the change in your dividend policy, perhaps what that means for the convertible note holders?

We reduced the cash dividend. We did a stock dividend as well. We reduced the cash dividend. Frankly, we believe that there are attractive investment opportunities within IEP and so we would rather preserve some more cash. In terms of the convertible note holders, I believe --

The convertible note holders, the exchange rate will change. It will go from -- the strike price will go from 105 down to 103.96.

Right, but there will be no cash distribution.

There will be no cash distribution.

To the convertible note holders.

That doesn't quite make up for it, but thank you.

Rob Longnecker, Joytree.

Can you detail how you funded the redemption in the fund?

I'm sorry, Rob, could you repeat the question? I had trouble hearing it.

The redemptions from the fund, how those were funded?

Yes, we funded the redemption with cash on hand and available credit lines. As I think we've said that from the beginning.

Within the investment management segment.

Gotcha. And can you provide a little more detail on the SPV?

The SPV is short term, relatively inexpensive financing vehicle. It rolls every three months, so it was more attractive than some of our other financing options, so we went forward with it.

And those were the same securities that you guys had within the fund? Is that right?

We had certain exposures to certain reference securities prior to entering into the transaction. And our financing for that exposure was higher quite frankly than the way we've structured the transaction now.

But it's in the fund.

So everything is still within the fund. We retained similar exposure except our financing costs have been reduced as a result of the SPV.

Okay, thank you.

(Operator Instructions). There are no further questions at this time. I turn the call back over to the presenters.

Okay, well thank you to our unit holders, and those on the call, to our employees. We had a great quarter, look forward to the balance of the year, and to talking to everybody in three months. Take care.