Icahn Enterprises LP (IEP) 2011 Q4 法說會逐字稿

Good morning and welcome to the Icahn Enterprises, LP Q4 2011 earnings callwith Felicia Buebel,Assistant General Counsel, Daniel Ninivaggi, President and Dominick Ragone, CFO and CAO. I would now like to hand over the call to Felicia Buebel , who will read the opening statement. Please begin.

Thank you. The Private Securities and Litigation Reform Act of 1995 provides a Safe Harbor for forward-looking statements that 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 notes that quantitative reconciliation z 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. And now I would like to turn the program over to Dan Ninivaggi.

Thanks, Felicia. Good morning and welcome to the fourth quarter 2011 Icahn Enterprises earnings conference call. Joining on today's call is Dominick Ragone, our Chief Financial Officer. I would like to begin by providing some key highlights for 2011. 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 net income for 2011 was $750 million, or $8.33 perdepository unit. In our investment segment we continued our focus on a core group of equity positions, most of them activist. During the year several of these positions have significant returns including Biogen, El Paso end Motorola Mobility. Outside of our core equity holdings our investment funds were defensively positioned with respect to the market overall. As a result our investment funds had gross returns of approximately 34.5% for 2011. We had assets under management of approximately $6.5 billion as of year-end, and Icahn Enterprises investment in the investment funds increased from $2.6 billion as of January 1st, 2011 to $3.1 billion as of year-end. In addition to approximately $340 million of net redemptions during the course of the year. So 2011 was truly a fantastic year in the Investment Management segment.

Our Automotive segment's net sales increased to $6.9 million for 2011 from $6.2 billion in the prior-year period. A 13% improvement primarily drive by strong OE sales in all major regions, partially offset by decreased North American aftermarket sales. OE net sales increased $531 million, or 18% over the prior year. Aftermarket sales in North America have been challenging, but appear to be stabilizing, and we are seeing growth in other markets. Yesterday we with announced a change in the organizational structure at Federal -Mogul, including our intent to create a separate and more independent aftermarket division within the Company. We believe this change will improve focus and execution in the aftermarket business unit.

In our Railcar segment the industry environment continued to improve during the fourth quarter, with the industry's backlog reaching approximately 65,000 railcars as of December 31, 2011. ARI had orders of approximately 10,700 railcars in 2011, which is the most orders it has had since 2005. Rising demand for railcars drove ARI's backlog to approximately 6,500 railcars as of year end 2011, up from a total backlog of just over 1,000 cars as of the end of 2010. In our Metal segment PSC ferrous volume increased 25%, and nonferrous volume increased 52% in 2011 versus 2010. However, while volumes improved year-over-year margins were compressed during 2011 as Dominick will discuss in more detail later. During 2011 we made several acquisitions to strengthen PSC's geographic presence, increase its controllable scrap, and diversify the Company's metal mix, and we believe the Company is well-positioned going into 2012.

Turning to our Food Packaging segment, this case continues to post solid results with sales volumes improving across all major products lines, with plants currently running near full, capacity is being added to Viskase's US plants, and we expect to open our Philippines shearing plant in mid-2012,which will strengthen our position in Asia. We are also seeing some improvement in the pricing environment and in our overall operating performance.

Turning to our Gaming segment, Tropicana Entertainment experienced solid results for 2011, posting EBITDA of $73 million which includes the impact of Hurricane Irene in the Atlantic City market, and the Mississippi flooding which closed two of our river boats in Mississippi for nearly a month. While our Atlantic City property continues to be impacted by competitive pressures in the region, we are beginning to see improved slot market share through more effective marketing programs, and other operational improvements. In addition we are pleased with the performance of several of our other properties, including the property in Evansville, Indiana.

At Icahn Enterprises we have a long track record of identifying and acquiring underperforming assets and unlocking value. While we continue it be cautious about the general macroeconomic outlook, we believe that all of our operating companies are well-positioned to post better results in 2012 than 2011, and that our activist investment style will continue to generate strong returns over the long-term.

With that, I will 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 fourth quarter and full year 2011, 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 2011 was $750 million, compared to income of $199 million in 2010. For the fourth quarter our net income attributable to Icahn Enterprises was $260 million, as compared to net income of $82 million for the prior year period. We closed out the year with cash and cash equivalents of approximately $2.3 billion, and our direct investment in the investment funds of $3.1 billion. To date in 2012 we have successfully closed a rights offering and two debt offerings, which collectively have raised approximately $1.2 billion in cash.

Reflective of our continued strong balance sheet our Board of Directors approved a quarterly distribution of $0.35 per depository unit payable on March 30th, 2011. This $0.35 distribution will consist of $0.10 payable in cash, and $0.25 payable in depository units.

I will now provide more detail regarding the performance of our individual segments. As Dan mentioned earlier, the strong performance of the investment funds was the largest driver of Icahn Enterprises earnings in 2011. Our investment segment had income attributable to Icahn Enterprises of $873 million for 2011, primarily due to the return on our direct investment in the investment funds. The investment funds had a gross return of 34.5% for the year. During 2011 our net equity expose decreased to 21% from 82% at the end of 2010. Our long equity exposure had a return of 35% return for the year, while our short equity exposure had a negative return of less than 1%. Our net credit exposure at the end of 2011 was approximately 13%, and generated a return of less than 1%.

The equity markets rallied in the fourth quarter of 2011. The investment funds had a gross return of 12.3% compared to 3.6% for the fourth quarter of 2010. As of December 31st, 2011 our investment segment had approximately $6.5 billion of assets under management.

Now turning to Federal-Mogul. Net sales increased $691 million, or 11%, to $6.9 billion for the year ended December 31st, 2011 from $6.2 billion for the year ended December 31st, 2010. This improvement was driven by an 18% increase in sales to OE customers which exceeded the 5% global market growth rate during the same period. The impact of the US dollar weakening in 2011 primarily against the Euro increased reported sales by $157 million.

Net sales of $1.65 billion for the fourth quarter of 2011 represented a 5% improvement above prior period sales on a constant dollar basis, as increased vehicle production boosted demand for the Company's products. As Dan mentioned earlier, aftermarket sales in North America appear to be stabilizing, and we are seeing growth in other markets. Our Automotive segment's gross margin was $1.1 billion in 2011, an improvement of $81 million, or 8%. This increase was primarily due to decreased depreciation, sales volume increases, currency movements, and customer price increases, partially offset by unfavorable productivity, net of benefits and labor inflation, and increased materials and service sourcing costs.

Gross margin as a percentage of sales was 16% for both 2011 and 2010. Gross margin was $247 million, or 15% of sales in the fourth quarter of 2011, a $6 million increase over the same period of 2010. Full year SG&A expenses decreased to 10.7% of sales in 2011 from 11.3% of sales in 2010, demonstrating the efficiency of the Federal-Mogul's Lean cost structure. The fourth quarter of 2011 had a similar improvement as compared to the prior year period. 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 $1.4 billion, which is comprised of $1 billion in cash, and $496 million undrawn revolver. This liquidity provides opportunities for organic growth as well as acquisitions.

And now to our Gaming segment. During the fourth quarter of 2011 we acquired additional shares of common stock of Tropicana, bringing our ownership to approximately 65% of the common stock of Tropicana. Our Gaming segment had solid net revenue of $624 million in 2011, of which $507 million related to casino revenues. Slot machine revenue was $400 million and table game revenue was $97 million for 2011. Slot machine whole percentages were 9%, and table game whole percentages were 15.2% for 2011.

Since acquiring the majority interest in Tropicana in 2010, we have installed new management, implemented a number of operational improvements, and developed a long-term capital plan that we believe will improve the Company's performance. In particular we believe that Tropicana Atlantic City with its large base and extensive amenities is well-positioned as that market trends towards being a regional destination resort, and away from convenience play. Tropicana has maintained a strong balance sheet and as of December 31st, 2011 had $150 million in cash and cash equivalents.

Now turning to our Railcar segment. The railcar industry saw strong demand for railcars in 2011 as railcar loadings improved from prior year levels. ARI's backlog as of December 31st 2011 was approximately 6,530 railcars, including approximately 2,200 railcars for lease. ARI had approximately 1,050 railcars in its backlog as of December 31st, 2010. Total manufacturing revenues for 2011 increased by $248 million, or 120% as compared to 2010. The primary reason for the increase in revenues from manufacturing operations was an increase in railcar shipments which were approximately 5,230 railcars in 2011, as compared to approximately 2,090 railcars for 2010.

Manufacturing revenues for the fourth quarter also improved from the prior year period as railcar shipments more than doubled to 2,170 railcars. Revenues for railcar services decreased slightly in the fourth quarter and full year 2011 as compared to the prior year, primarily due to a reduction of rail repair projects performed in manufacturing facilities, as capacity was returned to new railcar manufacturing. This was offset partially by increased volumes at railcar repair facilities.

Gross margin for manufacturing operations for 2011 was $43 million as compared to a loss of $4 million for 2010. Gross margin for manufacturing operations as a percentage of manufacturing operations revenues was 9% for 2011 as compared to a loss of 2% for 2010. The improvement over the respective periods was primarily due to an increase in railcar shipments, improved pricing, and leverage created by larger volumes. Gross margin from services operations for 2011 was $15 million, as compared to gross margin of $13 million for 2010. Gross margin for service operations as a percentage of service operation revenues was 21% for 2011 as compared to 18% for 2010.

Our railcar segment's liquidity position is strong with $307 million in cash and cash equivalents as of December 31st, 2011, and total borrowings of $275 million. This liquidity provides the segment the necessary working capital required to meet our expected operating requirements, as well as the ability to invest a significant amount into new leased railcars. Our railcar segment will continue to manage costs and capabilities to match market demand.

Now turning to our Food Packaging segment. Net sales for 2011 increased by $23 million, or 7% as compared to the corresponding prior-year period. The increase in volume was primarily due to increase in sales volume and foreign currency translation, partially offset by decrease due to product mix. Gross margin for 2011 decreased $6 million, or 7% as compared to 2010. While volumes were strong in 2011 particularly in NOJAX, operating inefficiencies and increased costs negatively impacted results. These operating issues have largely been corrected. Gross margin as a percent of net sales was 22% and 26% of 2011 and 2010 respectively.

And now to our Metals segment. Net sales for 2011 increased by $370 million, or 51% as compared to the corresponding prior-year period. The increase was primarily due to higher ferrous and nonferrous revenues attributed to higher prices and stronger volumes, driven by improvement in steel mill and aluminum smelter operating rates. Acquisitions made in 2011 also contributed to shipment volume and revenue growth.

For the fourth quarter of 2011 net sales increased by 46% as compared to the prior year due it higher ferrous and nonferrous volumes. Increased ferrous demand and higher market pricing resulted in ferrous average pricing of approximately $78 per gross ton higher, or 22%, and ferrous shipments of 311,000 gross tonnes higher, or 25% in 2011 as compared to 2010. Strong nonferrous demand early in 2011, along with favorable mix of copper and aluminum shipments during the year resulted in higher nonferrous average pricing of $0.16 per pound, or 16% compared to the prior year. Nonferrous shipments increased by 60 million pounds, or 52% in 2011 as compared to 2010.

Gross margin for 2011 was $27 million compared to $28 million in the corresponding prior year period. Gross margin as a percentage of net sales was approximately 2% in 2011, and approximately 4% in 2010. Constraints on material flow, low auto scrap rates, and shredder overcapacity all negatively impacted 2011 margins. Gross margin for the fourth quarter was negative 2% as compared to 4% in the prior-year period. Compressed margins for nonferrous and weakness in prime grades negatively implement fourth quarter margins.

Next is our Real Estate segment. Real estate revenues were $89 million for 2011, which was in line with prior year's results. Revenues from our real estate operations for 2011 and 2010 are substantially derived from our resort and rental operations. 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 in 2011 were $322 million, a decrease of 25% from the corresponding prior year period. The decline in sales reflects continued weakness in the housing market, and the impact of exiting non-core product lines and certain unprofitable programs. Gross margin for 2011 decreased by $12 million, or 41% as compared to 2010. Gross margin as a percentage of net sales was 5% for 2011 as compared to 7% for 2010, primarily due to higher cotton costs. SG&A for 2011 decreased by $14 million, or 19% as compared to the corresponding prior year period, primarily due to lower selling expenses and fulfillments cost related to cost cutting initiatives and decreased sales volumes.

We installed a new Management Team at Westpoint mid-year 2011. The Management Team has developed a plan based on expanding key customer relationships, exiting non-core product lines and unprofitable programs, cost reduction, and implementing a more customer-focused organizational structure. These initiatives together with lower cotton prices should start impacting results in the back half of 2012. At the end of 2011 Home Fashion had $55 million of unrestricted cash, and $27 million of unused borrowings available under its working capital facility.

Now I will highlight our debt and liquidity position. We finished the year with excellent liquidity. Our cash and cash equivalents, liquid assets, and our investment in the investment funds totalled approximately $5.4 billion. In addition to having strong cash position, our subsidiaries have undrawn credit facilities totaling $531 million as of December 31st, 2011. And as I mentioned earlier, we have raised an additional $1.2 billion in cash in 2012.

In summary, we continue to focus on building asset value and having 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?

Thank you. (Operator Instructions). Our first question comes from Ken Bann with Jefferies and Company. Please go ahead.

Good morning, Dominick. I was wondering could you talk about where your cash at the holding company is now, and whether since the end of the year you have made any investments or redemptions from the investment funds?

Well, since year end we haven't made any redemptions from the investment funds, so the same $3.1 billion that we had at 12/31 is in the funds. And, go ahead.

Go ahead. I am sorry.

Well, the cash and cash equivalents that we had as of December 31st is in money market funds, and the additional $1.2 billion is in similar type funds.

Okay. And is there any plans at this point to make further investments into the investment funds over the near-term?

It certainly is a possibility. There is no plan necessarily.

Okay. And then in the food packaging, in the Viskase area in food packaging, obviously raw material costs were an impact last year. You indicated with the strong volumes that pricing has improved. Can you give us any more detail on that, and is that covering the increase in raw material costs at this point?

Yes. So we expect pricing this year to cover our raw material costs and each catch up a little with some of the raw material costs that we weren't able to pass-through last year.

Okay. And the new plant in the Philippines that is coming on soon, is that correct?

Yes. It is coming on in June.

Okay. And then in Home Fashion with the getting rid of unprofitable lines, are the remaining lines, can they be profitable with lower cotton prices, and should we expect this unit to become profitable as cotton prices come down later this year?

Yes. I mean basically we believe that the manufacturing capacity we have in Bahrain is world class in terms of cost. So if we use that capacity efficiently, and we can fill that plant, which we believe we can, we believe we can make good margin there, as well as in Pakistan with the tallow operation in Pakistan. So we think with the right cost structure here in terms of sales and distribution, and with those plants full with reasonably profitable programs, we will be fine.

Okay. Has there been any major gains or losses in terms of retail customers in that segment?

I would say no major gains and losses although we are focusing on certain customers more than others. We are moving towards embellished goods, we are moving away from commodity type products, so the focus, the customer focus is somewhat different, but there haven't been any major losses.

Okay. Alright. Thank you very much.

Thank you.

(Operator Instructions). I am not showing any other questions in the queue at this time.

Thanks everyone for joining us, and we look forward to chatting with you again when we post our 2012 first quarter results.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the conference. You may now disconnect. Good day.