Icahn Enterprises LP (IEP) 2011 Q3 法說會逐字稿

Good morning, and welcome to the Icahn Enterprises L.P. third quarter 2011 earnings call with Felicia Buebel, Assistant General Counsel, Dan Ninivaggi, President, and Dominick Ragone, CFO and CAO. (Operator Instructions). I would now like to hand the call over to Felicia Buebel who will be reading the opening statement.

Good morning. I will now read the forward-looking statement. 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 Dan Ninivaggi, our President.

Thanks, Felicia. Good morning, and welcome to the third 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 third 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.

The majority of our operating segments posted solid top line growth during the third quarter of 2011 as compared to the prior year period. Notably, our automotive, railcar, and metal segments saw improved demand in their respective markets.

Icahn Enterprises reported a net loss of $39 million for the third quarter and income of $490 million for the nine months ended September 30. The slight loss for the quarter was largely the result of a breakeven return in our investment management segment and interest expense at the holding company. However, our investment funds have recorded a gross return of 19.8% for the first 9 months of the year compared to a negative 11.4% return for the S&P total return index.

Our automotive segment's net sales increased to $1.7 billion in the third quarter of 2011 from $1.5 billion in the prior year, a 12% improvement primarily driven by strong OE sales in all major regions.

In our railcar segment, industry environment continued to improve with the industry's backlog reaching approximately 65,000 railcars as of September 30. ARI's manufacturing net sales more than doubled for the quarter and its backlog has increased to over 7,000 rail cars as of September 30th from 1,100 cars at the end of 2010.

In our metals segment, PFC's ferrous volume increased 31% and non-ferrous volume increased 48% in the quarter compared to the comparable period last year. However, wall volumes improved year over year. Margins were weak in the third quarter as Dominick will discuss later.

Since the end of the second quarter, we've continued to pursue acquisitions and Greenfield expansions to strengthen PFC's geographic presence, increase its controllable scrap, and diversify the company's metal mix.

Turning to our food packaging segment, Viskase continues to post solid results with sales volumes improving across all major product lines. With plants currently running near full capacity, we're adding capacity to Viskase's US plants and we expect to open our Philippines sharing operation in early 2012.

In our gaming segment, Tropicana continues to be impacted by the stagnant economy and increased competitive pressure, particularly in Atlantic City. However, the Company experienced very solid results in the third quarter, posting net income of $21 million. Tropicana benefited from an improved cost structure as well as more effective marketing programs.

Overall, our management team has continued to focus on improving productivity and making the necessary investments to generate sustainable, profitable growth. While we remain cautious about general macroeconomic conditions, we believe there are many opportunities to create asset value in our business segments. And with that, I will turn it over to Dominick and then we'll be available as I mentioned to answer your questions. Thank you.

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

As Dan stated earlier, the net loss attributed to Icahn Enterprises for the third quarter of 2011 was $39 million, or a loss of $0.44 per depository unit. This compares to a net income of $298 million or $3.31 per depository unit for the third quarter of 2010.

We ended the quarter with cash and cash equivalents of approximately $2.2 billion and our direct investment in the investment funds of $2.8 billion. On November 1, 2011, our Board of Directors approved a quarterly distribution of $0.10 per depository unit, payable on December 1, 2011.

I'll now provide more detail regarding the performance of our individual segments. Our investment management segment had a loss attributable to Icahn Enterprises of $15 million in the third quarter of 2011 and income for the nine months ended September 30, 2011 of $527 million. The Investment Funds had a gross loss of 0.9% for the quarter and a gain of 19.8% for the first nine months of 2011. As of September 30, 2011, our net equity exposure was just under 70%. Our long equity exposure had an 8% loss for the quarter and a positive 12% return year to date, while our short equity exposure had a return of 8% for both the quarter and year to date.

Our net credit exposure at the end of the third quarter of 2011 increased to 12% from 11% at the end of the second quarter and generated a loss of about 1% for both the quarter and year to date. As of September 30th, our investment management segment had approximately $5.8 billion of assets under management.

Now turning to Federal-Mogul, our automotive segment's third quarter net sales of $1.7 billion represented a $188 million or 12% increase from the third quarter of the prior year. The impact of the US dollar weakening increased reported sales by $70 million.

Light and commercial vehicle OE production increased in most regions and when combined with market share gains in all major regions, resulted in increased OE sales of $118 million.

After market sales decreased by $13 million due to sales decreases in North America, partially offset by sales increases in other regions. Gross margin increased by $25 million to $263 million or 15.2% of sales for the third quarter of 2011 compared to $238 million or 15.4% of sales in the same period of 2010. This increase was due to currency movements, customer price increases, decreased depreciation, and the gross margin impact of sales volume and mix partially offset by increased materials and services sourcing costs and unfavorable productivity.

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 $1.5 billion, which is comprised of $931 million in cash and a $540 million undrawn revolver. This liquidity provides opportunities for organic growth as well as acquisitions.

And now turning to our gaming segment. During the third quarter of fiscal 2011 we acquired additional shares of common stock of Tropicana, bringing our ownership to approximately 61.7% of the common stock of Tropicana. The Tropicana AC property continues to be adversely impacted by weak economic conditions, promotional activity from competitors, and the introduction of table games in Pennsylvania in mid-2010. The Atlantic City market experienced year over year declines in casino revenues of 9.3% and 7.8% for the three and nine months ended September 30, 2011.

Although the Atlantic City market remains difficult, our gaming segment had solid net revenues of $176 million in the third quarter despite an estimated $5 million adverse impact from Hurricane Irene. Casino revenues for the three months ended September 30, 2011 were $156 million. Our third quarter casino revenues were driven by both improved marketing programs and operating performance.

The gaming segment recorded net revenues of $478 million for the first nine months of the year, of which $426 million was from casino revenues. Casino revenues are comprised primarily of slot machine and table game revenues. Slot machine revenue was $115 million and $331 million and table game revenue was $38 million and $88 million for the three and nine months ended September 30, 2011 respectively.

Slot machine hold percentages were 9.1% and 9% and table game hold percentages were 17.6% and 15% respectively for the three and nine months ended September 30, 2011. Tropicana has maintained a strong balance sheet and as of September 30, 2011 had over $176 million in cash and cash equivalents.

Now turning to our railcar segment. As reported by independent industry analysts, the railcar industry continues to see strong demand for railcars with orders totaling over 20,000 for the third quarter which represents a 119% increase year over year and a 19% sequential increase. US railcar loadings in the third quarter of 2011 were basically flat compared to the third quarter of 2010. The reported idle US railcar fleet has decreased from 20.8% of total railcars at the end of last year down to 17.1% at the end of the third quarter of 2011.

Total backlog in the industry grew to approximately 65,000 railcars as of the end of the third quarter, up from 23,000 at the end of 2010. The backlog for our railcar segment was in excess of 7,100 railcars as of September 30, 2011, up from total backlog of approximately 1,100 railcars as of December 31, 2010. The backlog as of September 30, 2011 included approximately 1,700 railcars that ARI will lease.

Our railcar segment continues to see strength in the hopper railcar market for [fraction] and chemical railcars as well as tank railcars primarily in the chemical and oil segments. Total railcar manufacturing revenues for the three months ended September 30, 2011 increased by $61 million as compared to the three months ended September 30, 2010. The increase in railcar manufacturing revenues was driven by higher railcar shipments which were approximately 1,340 railcars in the current quarter as compared to approximately 420 railcars in the comparable prior year period.

Gross margin from manufacturing operations as a percentage of manufacturing operations revenues was 10% for the three months ended September 30, 2011 as compared to a loss of 2% for the three months ended September 30, 2010. The improvement was primarily due to an increase in railcar shipments, improved pricing, and leverage created by larger volumes.

Revenues and gross margin for railcar services operations were both up slightly for the three months ended September 30, 2011 as compared to the prior year comparable period.

Our railcar segment's liquidity is strong with $284 million of cash and cash equivalents as of September 30, 2011. This liquidity provides the segment the necessary capital required to continue to ramp-up production levels to meet strong railcar demand as well as build out its lease fleet.

Now turning to our food packaging segment. Net sales for the third quarter of 2011 were $87 million which was an $8 million increase from the third quarter 2010. Higher net sales are primarily due to an increase in sales volume and foreign currency translation offset by negative product mix. Gross margin as a percentage of net sales was 24% for the three months ended September 30, 2011 compared to 25% for the comparable prior year period. The decrease was primarily due to higher raw material and energy costs.

As Dan mentioned earlier, our food packaging segment is adding production lines in the US and is in the process of constructing a sharing plant in the Philippines to take advantage of growth opportunities in Asia. Cash and cash equivalents for our food packaging segment were $65 million as of September 30, 2011.

And now turning to our metals segment. Net sales for the three months ended September 30, 2011 increased by $103 million or 61% as compared to the three months ended September 30, 2010. $66 million of this increase was due to increases in ferrous revenue attributed to higher prices and volumes driven by improvements in steel mill operating rates to the mid 70% range during the third quarter of 2011. Acquisitions made in September 2010 also contributed -- since 2010, also contributed to shipment volume and revenue growth.

Increased ferrous and higher market sale prices resulted in higher ferrous average sale pricing of approximately $84 per gross ton or 22%. However, average market by pricing during the quarter increased by $92 per gross ton or 28%, compressing margins. Ferrous shipments were 91,000 gross tons or 31% higher for the three months ended September 30, 2011 as compared to the three months ended September 30, 2010. Non-ferrous revenues improved by $26 million or 86% due to higher demand and higher market pricing than the prior year comparable period.

Gross margin for the three months ended September 30, 2011 increased by $2 million compared to the three months ended September 30, 2010. Gross margin as a percentage of net sales was 2% for each of the three months ended September 30, 2011 and 2010.

Next is our real estate segment. Real estate revenues were $23 million in the third quarter of 2011 which was $1 million higher than the comparable prior year period. Out net lease portfolio continues to drive earnings in this segment with its 30 properties generating strong cash flows and our resort operations remain profitable quarter over quarter.

Now turning to our home fashion segment, during the third quarter we acquired additional shares of common stock of West Point which brought our common stock ownership to 96.5%. Net sales for the three months ended September 30, 2011 decreased by $37 million as compared to the three months ended September 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 4% for the three months ended September 30, 2011 compared to 5% for the three months ended September 30, 2010. We continue to work on a turnaround plan with new management which will include rebuilding the company's sales backlog and making future improvements to its manufacturing productivity and cost structure. At the end of the third quarter, our home fashion segment had $44 million of unrestricted cash and the ability to borrow $35 million under a senior secured revolving credit facility.

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 hedge funds totaling approximately $5.2 billion. In addition to our strong cash position, our subsidiaries have undrawn credit facilities totaling $583 million as of September 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 segments. Thank you. Operator, can you please open it up for questions?

(Operator Instructions). Ken Bann, Jefferies.

Good morning, Dominick. I was wondering if you could talk about the holding company made some investments in precious metals and put some cash down into the real estate operations. Could you talk a little bit about that and any other uses of cash from the holding company during the quarter?

Sure. As you mentioned, during the quarter we invested about $150 million into precious metals and we also put down about $150 million of cash into our real estate segment. We often move money between our real estate segment and the holding company. Actually when we think about our cash position, we also view real estate's cash as part of the holding company cash.

During the quarter we had some interest payments on our senior notes and we also had, we also purchased the equity of the segments that I mentioned. We purchased some stock in Federal-Mogul, the Tropicana, and ARI.

Okay. And the amount invested in precious metals on the consolidating statements, where does that show up? In the holding company?

Yes, if you look at the holding company, it's in the line item investments. $164 million of total investments.

Right, okay. And is there a particular reason for putting money in the real estate? Is there an investment that you are looking at or contemplating within real estate at this point to use that cash?

Not at this point.

Okay. And also in the past you've often talked about barriers, things that you might eventually sell out of the total portfolio. Is there any new updates on that or any new updates on what you might do with Federal-Mogul?

As of right now, no.

Okay. And then how soon do you think the management team at the home fashion segment will begin to have plans that maybe they can talk about as far as turning around that operation and getting sales moving in a more positive direction?

This is Dan. So I think they're off to a good start, but the product lead time in textiles is about 18 months, so it will take them some amount of time to rebuild the backlog. I'd say they're off to a good start, but I wouldn't expect any kind of dramatic turnaround in the near term.

Okay. All right, great. Thank you very much.

(Operator Instructions). We have no further audio questions, I'll turn the call back over to the presenters.

All right, well thank you very much. I appreciate everybody being on the call. We look forward to a strong finish to the year and talking to everybody back in the end of the year in February. Take care. Thanks.

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