Icahn Enterprises LP (IEP) 2011 Q2 法說會逐字稿

Good morning and welcome to the Icahn Enterprises LP second quarter 2011 earnings call with Keith Schaitkin, Deputy General Counsel; Daniel A. Ninivaggi, President; and Dominick Ragone, CFO and CAO. There will be a question and answer after the presentation. I would now like to hand the call over to Erin Fogarty, who will read the opening statements.

Good morning. A note regarding forward-looking statements and non-GAAP financial measures -- the Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for forward-looking statements made during the presentation, including statements regarding our future performance and plans for our businesses and potential acquisitions. These forward-looking statements involve risks and uncertainties 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 reconciliation between each non-GAAP financial measure contained in this presentation at its most directly comparable GAAP measure are available on our website by viewing a copy of this presentation at www.IcahnEnterprises.com/investor.shtml.

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

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

Icahn Enterprises posted very strong results for the second quarter of 2011, driven by the earnings of our Investment Management and Automotive segments. Additionally, our Railcar, Metals and Food Packaging segments all recorded solid top-line growth in the quarter compared to the comparable period last year.

Icahn Enterprises net income for the second quarter was $289 million compared to a net loss of $116 million in the prior-year period. In our Investment Management segment, the Private Funds recorded a gross return of 10.2%, bringing our gross return for the first half of the year to 20.8%. Our Automotive segment's net sales increased to $1.8 billion in the second quarter from $1.6 billion in the prior-year period, a 13% improvement primarily due to a significant increase in OEM sales.

In our Metals segment, PSC's ferrous volume increased 16% and non-ferrous volume increased 45% in the quarter compared to the comparable period last year. We continue to execute our strategy of having greater control over the flow of scrap into our yards through acquisitions and greenfield feeder yards. For example, since the beginning of the year we have opened a new feeder yard and purchased two competitors in the Midwest region. These actions have expanded our industrial and demolition business, improved our nonferrous volumes and expanded our overall presence in the Midwest.

Turning to our Railcar segment, the industry environment improved significantly in the first half of the year. ARI's manufacturing net sales almost doubled and its backlog has increased to 5300 cars as of June 30 from 1100 cars at year end. Our Food Packaging segment continues to post strong results and is currently running near full capacity. Lines are being added to Viskase's US plants and expansion plans are underway in the Philippines to take advantage of growth opportunities in Asia. We expect to open our new Philippines shearing plant during the first quarter of 2012.

In our Gaming segment, Tropicana continues to be impacted by the stagnant economy and increased competitive pressure, particularly in Atlantic City. However, we have improved our cost structure, reevaluated our marketing strategies and made targeted investments to increase our revenues.

In our Home Fashion segment we have completed a strategic review and decided to pursue an internal plan focused on further improvements to our cost structure and better leveraging of our low-cost manufacturing base. We have brought in a new management team with strong sales, marketing and finance backgrounds to further develop and execute that plan.

In short, we are generally pleased with the performance of our operating segments in the second quarter. Our management teams continue to focus on structural cost reduction and implementing productivity improvements. We will continue to manage our businesses conservatively, given the uncertain state of the economy. However, as always, we will seek out investment opportunities both organic and external that will strengthen our companies in the long-term.

With that, I'll turn it over to Dominick and then we will be available to answer your questions.

Thanks, Dan. I will begin by briefly reviewing our consolidated results for the second 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 second quarter of 2011 was $289 million or $3.19 per depository unit. This compares to a net loss of $116 million or a $1.33 loss per depository unit for the second quarter of 2010. We ended the quarter with cash and cash equivalents of approximately $2.6 billion, and our direct investment in the Private Funds of $2.9 billion. On August 8, 2011, our Board of Directors approved a quarterly distribution of $0.10 per depository unit, payable on September 1, 2011.

I will now provide more details 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 second quarter. Our Investment Management segment had income attributable to Icahn Enterprises of $289 million in the second quarter of 2011. These gains were primarily due to the investment funds' long exposure to the equity markets, which were driven by certain core holdings. The Private Funds had a gross return of 10.2% for the quarter and 20.8% for the first six months of 2011.

During the 2011 second quarter our net equity exposure decreased to 68% from 84% at the end of the first quarter. Our long equity exposure had a 10% return for the quarter and a 21% return year to date, while our short equity exposure had a return of less than 1% for the quarter and negative 1% return for the six months ended 2011.

Our net credit exposure at the end of the second quarter of 2011 decreased to 11% from 14% at the end of the first quarter and generated a return of less than 1% for both the quarter and year-to-date. As of June 30, 2011, our Investment Management segment had approximately $5.9 billion of assets under management.

Now turning to Federal-Mogul, our Automotive segment's second quarter net sales of $1.8 billion represented a $202 million or a 13% increase from the second quarter of the prior year. The impact of the US dollar weakening increased reported sales by $98 million. OE sales increased by $129 million on a constant dollar basis, driven by market share gains in all regions and increased volumes from global market demand. OE sales were up 14% in constant dollars, led by sales increases of 13% in the US and Canada, 15% in Europe and 23% in combined sales to Brazil, Russia, India and China.

Our total aftermarket sales in the second quarter declined by 3% or 7% on a constant dollar basis, driven mainly by the US market, which accounts for 60% of the total aftermarket sales. North American aftermarket sales for the quarter were down from the prior year comparable period, due to volume and pricing, while Europe and the rest of the world had solid aftermarket sales growth, particularly in India and China. Gross margin increased by $25 million to $299 million or 16.6% of net sales for the three months ended June 30, 2011, compared to $274 million or 17.1% of net sales for the three months ended June 30, 2010. This increase was due to higher OE sales, decreased depreciation and currency movements, partially offset by unfavorable sales mix and unfavorable productivity for the three months ending June 30, 2011, as compared to the three months ended June 30, 2010. 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 $145 million in revenues in the second quarter of 2011 and $302 million for the first six months of the year. The Tropicana AC property continues to be adversely impacted by weak economic conditions and the introduction of table games in Pennsylvania in mid-2010. The Atlantic City market has experienced year-over-year declines in casino revenues of 6.7% and 7% for the three and six months ended June 30, 2011. In addition, two of Tropicana's riverboats in Mississippi were forced to close down in May because of flooding.

As Dan mentioned earlier, Tropicana continues to improve on its cost structure across all of its casinos and is making targeting investments to increase revenues. The Tropicana has maintained a strong balance sheet, and as of June 30, 2011 had over $152 million in cash and cash equivalents.

Now turning to our Railcar segment, in the first half of 2011, our Railcar segment saw strength in hopper railcar market for frac sand chemical railcars as well as interest emerge for tank railcars, primarily in the chemical and oil segments. Total backlog, almost 5300 cars at the end of June 2011, represented a 400% improvement since the end of 2010. Total backlog in the industry spiked to approximately 57,000 cars as of the end of the second quarter, up from 23,000 at the end of 2010. The reported idle US railcar fleet decreased from 20.8% of total cars at the end of last year down to 18.2% at the end of the second quarter.

Total revenues for the three months ended June 30, 2011 increased by $49 million or 80% as compared to the three months ended June 30, 2010. This increase was primarily due to increased railcar shipments from manufacturing operations, which drove up quarterly revenues by $51 million as compared to the prior-year quarter. Railcar shipments for the second quarter of 2011 were approximately 1040 railcars as compared to approximately 370 railcars for the same period in 2010. Overall, gross margin increased by $10 million for the three months ended June 30, 2011, as compared to the three months ended June 30, 2010, due entirely to railcar manufacturing operations.

Gross margin for manufacturing operations as a percentage of manufacturing operations revenues was 9% for the three months ended June 30, 2011, as compared to a loss of 5% for the three months ended June 30, 2010. Gross margin for Railcar services operations as a percentage of Railcar services operations revenues was 28% for the three months ended June 30, 2011, as compared to 26% for the three months ended June 30, 2010. Our Railcar segment's liquidity position is strong with $301 million of cash and cash equivalents as of June 30, 2011. This liquidity provides the segment with the necessary working capital required to continue to ramp up production levels to meet stronger Railcar demand.

Now turning to our Food Packaging segment, net sales for the second quarter of 2011 were $89 million, which was an $8 million increase from the second quarter of 2010. Higher net sales were primarily due to an increase in sales volumes and foreign currency translation offset by negative product mix. Gross margin as a percent of net sales was 26% for the three months ended June 30, 2011, compared to 28% for the prior-year period. The decrease was due to higher raw much real and energy costs, partially offset by improved manufacturing efficiencies. In response to plants running near full capacity, or Food Packaging segment has added production lines in the US and has begun the construction of a shearing plant in the Philippines to take advantage of growth opportunities in Asia. The plant is expected to open in the first quarter of 2012 and will be scaled up over several years as demand in the Asian market continues to grow. Cash and cash equivalents for the Food Packaging segment were $78 million as of June 30, 2011.

And now to our Metals segment -- net sales for the three months ended June 30, 2011 increased by $81 million or 39% as compared to the three months ended June 30, 2010. $48 million of this increase was due to the increase in ferrous revenues attributed to higher prices and volumes, driven by improvements in steel mill operating rates to the mid-70% range during the second quarter of 2011. Acquisitions made since June 2010 also contributed to shipment volume and revenue growth. Increased ferrous demand for higher market prices resulted in higher ferrous average pricing of approximate $63 per gross ton or 17% and increased ferrous shipments of 57,000 gross tons or 16% for the three months ended June 30, 2011, as compared to the three months ended June 30, 2010. Nonferrous revenues improved by $23 million or 75%, due to higher demand and higher market pricing than the prior-year comparable period.

Gross margin for the three months ended June 30, 2011 increased by $1 million compared to the three months ended June 30, 2010. Gross margin as a percentage of net sales was 3% for the three months ended June 30, 2011, compared to 4% for the comparable prior-year period.

Next is our Real Estate segment. Total Real Estate revenues were $25 million for the second quarter of 2010 and 2011. In the second quarter of 2011 we sold four residential units for approximately $5 million compared to seven units sold for $4 million in the second quarter of 2010. 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 June 30, 2011 decreased by $25 million as compared to the three months ended June 30, 2010. The decline in sales reflects continued weakness in the housing market and lost business, including the impact of exiting certain unprofitable programs. Gross margin as a percentage of net sales was 9% for the three months ended June 30, 2011 compared to 11% for the three months ended June 30, 2010. At the end of the second quarter Home Fashion had $32 million of unrestricted cash.

During the second quarter, West Point executed an amended and restated senior secured revolving credit facility. This new one-year senior credit facility is for $50 million with a maximum borrowing availability of $45 million, subject to monthly borrowing base calculations.

Now I will highlight our liquidity position. We continue to maintain excellent liquidity as we ended the quarter with cash, cash equivalents, liquid assets and our investment in the Private Funds totaling $5.5 billion. In addition to our strong cash position, our subsidiaries have undrawn credit facilities totaling $584 million as of June 30, 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 operating segments.

Thank you. Operator, can you please open it up to questions?

(Operator instructions) Andrew Berg.

Just a quick question, Dominick, on slide 10 with respect to the Metals segment. I know that subsequent to the end of the quarter there was an asset purchase. Can you give us some ballpark estimate of what that cost?

Yes, the purchase price was $23 million, and it gives us basically 4 yards in and around the St. Louis region.

And can you comment on what it can contribute for gross margin or EBITDA?

The EBITDA is about $5 million, $5 million to $5.5 million.

Thank you very much.

(Operator instructions). There are no further questions at this time.

Okay, I guess it was just Andrew this time. Thanks, Andrew, for the question.

Again, we had a good quarter. We're looking forward to the balance of the year and looking forward to talking to you about three months. So take care. Thank you.

This concludes today's conference call, you may now disconnect.