Icahn Enterprises LP (IEP) 2012 Q4 法說會逐字稿

Good morning and welcome to the Icahn Enterprises L.P. fourth-quarter 2012 earnings call with Felicia Buebel, Assistant General Counsel; Daniel Ninivaggi, President; and SungHwan Cho, Chief Financial Officer.

I'd like to hand the call over to Felicia Buebel, who will read the opening statement.

Good morning, and welcome to our call. 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 certain non-GAAP financial measures.

And now I'd like to turn it over to Daniel Ninivaggi, our President and Chief Executive Officer.

Good morning. Thanks, Felicia. Welcome to the fourth-quarter 2012 Icahn Enterprises earnings conference call. Joining me on today's call are SungHwan Cho, our Chief Financial Officer; and one of our top guys, Keith Cozza, our Chief Operating Officer of Icahn Capital, and Executive Vice President.

I'd like to begin by providing some brief highlights on the year. Sung will then provide an in-depth review of our financial results on the performance of our business segments. We'll then be available to take your questions. Icahn Enterprises' net income for 2012 was $396 million, or $3.75 per depositary unit, compared to net income of $750 million or $8.15 per depository unit in 2011.

As Sung will discuss in more detail later, 2012 net income was negatively impacted by impairment and restructuring charges at Federal-Mogul, as well as turnaround costs and hedging losses at CVR. In 2011, we benefited from a gross return of approximately 35% in our investment segment. 2012 adjusted EBITDA attributable to Icahn Enterprises was $1.5 billion, about even with 2011.

In short, 2012 was a solid year. And we are off to a very good start in 2013, with our investment funds up about 12% year-to-date. Before going into more detail on our financial results, I'd like to talk a little bit about our track record; IEP's operating strategy; and our outlook for the future.

So, turning to slide four -- since 2000, when we fully embraced our activist strategy, the market value of IEP's depositary units has increased by over 800%. Comparatively, the S&P 500, Dow Jones Industrial Average, and Russell 2000 index, have increased approximately 36%, 72% and 124%, respectively, over the same period.

Since the inception of the investment funds in 2004, our investment funds' gross return through March 13, 2013, is over 200%, representing an annualized return of 14%, which includes a very challenging 2008.

Earlier this month, we completed a $200 million public equity offering of IEP units. We also recently announced a $4.00 per unit annual dividend policy, provided at 6.5% dividend yield, based on the closing price of our units yesterday; payable in either cash or additional depository units, at the election of each unitholder.

Both the dividend and providing additional liquidity in our units is part of our strategy to broaden and strengthen our shareholder base. We also believe creating more liquidity in IEP units will provide us more financial flexibility to pursue our strategy, and make our strategy even more effective.

Our strategy is quite simple. It's based on investing in undervalued companies. But unlike other value investors, we don't simply wait until the market recognizes value; but, rather, we become actively involved in the companies that we invest in. That activism may involve a broad range of activities, from private discussions with management or corporate boards, to proxy fights, to outright contest for control of the company, in order to bring out the change that we believe is required to unlock value.

In today's environment, we believe there's never been a better time for activism, particularly our style of activism. Corporate balance sheets are flush with cash. Credit is available at attractive rates. And companies in many sectors have limited organic growth opportunities. Synergistic M&A activity should flourish, in our opinion, in this environment.

However, in many cases entrenched management is unwilling to lose control of what they believe is their company, and value creating transactions never see the light of day. These situations require an external catalyst, and that's where we can step in to remove barriers to consolidation. The key, from our perspective, is not only the technical skills to execute the strategy, which we have; but a deep war chest, staying power, long-term perspective -- and, in appropriate circumstances, a willingness and an ability to become buyers of attractive companies ourselves.

Our investment in CVR Energy in 2012 was a prime example of our activism network. We believe that CVR was excellent company with an excellent management team. However, we believe that investors were underestimating the impact of increasing North American crude oil production on CVR's refining margins. And we thought CVR could be a good merger candidate for one of its competitors. In addition, CVR's refining assets were in a suboptimal corporate structure.

After months of waging an activist campaign, we acquired control of CVR Energy in May, 2012. Shortly thereafter, CVR dropped its refining and related logistics assets into a variable distribution MLP, similar to CVR Energy's fertilizer MLP; and subsequently completed a successful IPO of the refining MLP, which is called CVR Refining. The MLP structure appealed to investors who were looking for tax-efficient, high-yield vehicle, and led to an immediately higher valuation.

Since going public in January 2013, CVR Refining has increased its distribution guidance, and its unit price is up nearly 40%. CVR Energy stock price has increased to $54 versus our original tender offer price of $30. In addition, CVR Energy has paid a $5.50 special dividend, and announced a $3.00 annual dividend policy. Finally, CVR Partners, CVR Energy's 70% owned fertilizer MLP subsidiary, has performed well and has recently given distribution guidance for 2013 which reflects a 27% increase from 2012, at the midpoint of their range.

As most of you know, IEP is a very dynamic Company involved in many sectors, whether through our investment segment or our operating subsidiaries. We are relentlessly focused on creating long-term unitholder value by pursuing our activist strategy. And, as I mentioned earlier, we believe there's never been a better opportunity for our style of activism than we see today. As a result, we very much look forward to an active, and what we hope will be another successful year.

With that, I'll turn it over to Sung.

Thanks, Dan. I will begin by briefly reviewing our consolidated results for the fourth-quarter and full-year 2012; 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 2012 was $396 million compared to income of $750 million in 2011. For the fourth quarter, our net income attributable to Icahn Enterprises with $6 million as compared to net income of $260 million in the prior-year period.

We ended 2012 with consolidated cash and cash equivalents of approximately $3.1 billion. And our direct investment in the investment funds was $2.4 billion. As Dan mentioned earlier, we successfully completed an equity offering from which we raised approximately $200 million in cash in the first quarter of 2013. The offering helped bolster our liquidity, broadened our shareholder base, and strengthened our balance sheet.

I will now provide more detail regarding the performance of our individual segments. Our investment segment had income attributable to Icahn Enterprises of $157 million in 2012, due to the return on our direct investment in the investment funds. Excluding gains from CVR after early May, when we acquired control, the investment funds had a gross return of 6.6% for 2012. The funds' aggregate gross return for 2012 would have been 20.2% if the investment funds had elected not to distribute shares of CVR to one of our subsidiaries, and if additional purchases had been made by the investment funds instead of through Icahn Enterprises.

For the fourth quarter of 2012, the investment funds had a gross return of 1.5% compared to 12.3% for the fourth quarter of 2011. Year-to-date in 2013, the investment funds are up approximately 12%. During 2012, our net equity exposure decreased from 13% from 21% at the end of 2011. Our long equity exposure had a 20% return for the year, while our short equity exposure had a negative return of 14%.

Our net credit exposure at the end of 2012 was approximately 10%, and generated a return of 3%. As of December 31, 2012, our investment segment had approximately $5.9 billion of assets under management, including IEP's $2.4 billion investment in the funds.

Now turning to Federal-Mogul. Federal-Mogul net sales for 2012 decreased by $246 million, or 4% compared to 2011. The decline was comprised of a 1% constant dollar increase, offset by an adverse currency impact of 5%. Consolidated adjusted EBITDA for 2012 was $508 million compared to $688 million for 2011.

For the fourth-quarter 2012, sales were $1.6 billion, which was 4% lower than the fourth quarter of 2011, or 2% lower on a constant dollar basis. Consolidated adjusted EBITDA for Q4 2012 was $84 million compared to $158 million for the prior-year period.

Federal-Mogul's results for the full-year and fourth-quarter 2012 were significantly impacted by the weak European economy. Light vehicle and commercial vehicle production in Europe were down 14% in Q4. And this was compounded by an unfavorable product mix, as end users gravitated towards cheaper gasoline-engine cars instead of diesel engines.

In Q2 2012, Federal-Mogul announced a $60 million restructuring program involving three plant closures and one downsizing. Federal-Mogul also recently announced plans to commence an additional multi-site restructuring program involving the potential closure of downsizing of manufacturing facilities, primarily in Western Europe. The plan will be implemented from 2013 to 2015, and involves shifting capacity and equipment to existing lower-cost sites in Eastern Europe, Asia, and Mexico.

And now to our energy segment. Icahn Enterprises acquired a controlling interest in CVR on May 4, 2012; and, therefore, our results for 2012 include CVR's operating results subsequent to that date. Net sales for the petroleum business for the period May 5 through December 31, 2012, was approximately $5.5 billion. The petroleum business reported fourth-quarter 2012 net sales of $1.8 billion.

In the fourth quarter, NYMEX 2-1-1 crack spread averaged $33 a barrel. And the Brent-WTI differential averaged $22 a barrel. Our Q4 refining margin, adjusted for FIFO, was $26 a barrel. Fourth-quarter 2012 performance was impacted by a major scheduled turnaround at the Wynnewood refinery, which cost $89 million in Q4.

Net sales for the fertilizer business for the period May 5 through December 31, 2012, were $191 million, of which $53 million and $138 million were attributable to ammonia and UAN, respectively. For the period May 5 through December 31, 2012, CVR sold 82,000 and 416,000 tons of ammonia and UAN, respectively, with an average plant gate price of $621 and $298, respectively.

The fertilizer business reported fourth-quarter 2012 net sales of $67.6 million. The fertilizer business results were impacted by its biannual turnaround and the expansion of its ability to upgrade ammonia to higher-value UAN.

Consolidated adjusted EBITDA for the period of May 4 through December 31, 2012, was $977 million, and was driven by wide crack spreads and strong operational performance at the refineries. For Q4 2012, consolidated adjusted EBITDA was $219 million, and was impacted by turnarounds at the Wynnewood refinery and the fertilizer plant that I previously mentioned.

Subsequent to year-end, CVR completed an IPO of its refinery business, raising $200 million. -- or raising $600 million. Also, CVR Energy adopted a $3.00 annual dividend and paid a special dividend of $5.50.

Now turning to our gaming segment -- net revenues were down just under 2% for 2012, primarily due to a drop in casino revenues. The decrease in casino revenues was primarily due to a 16.1% decrease in consolidated table volumes. Profitability improved, however; and certain cost cutting measures, particularly in respect of payroll and related benefits, helped the income from continuing operations improve by approximately 25%.

Tropicana's consolidated adjusted EBITDA for 2012 was $79 million, compared to $72 million for the prior year. The increase in EBITDA was attributable to Tropicana's continued focus on expense management and creating operating efficiencies. Tropicana is entering 2013 with a solid balance sheet. And we believe there are attractive consolidation and partnership opportunities where we can leverage our brands, customer lists, and operating experience in neighboring regional markets.

One final point -- in late February, Governor Christie legalized online gaming in New Jersey. We think there is a great opportunity for future online gaming, and Tropicana is in the later stages of evaluating its options.

Now turning to our railcar segment -- our railcar segment is primarily comprised of our controlling interest in American Railcar Industries, or ARI, in addition to a small but growing railcar lease fleet at our holding company. IEP's holding company lease fleet at the end of 2012 consisted of 474 cars purchased from ARI.

Industry demand remains particularly strong for tank cars, with production slots at major manufacturers sold through mid-2014. Covered hopper production slots are less tight right now, with production available in 2013. ARI's revenue for 2012 was $712 million, compared to $519 million in 2011. The increase in revenues was primarily due to an increase in manufacturing segment revenues.

ARI shipped approximately 7880 railcars, including approximately 2100 rail cars to ARI's leasing customers during 2012, which was 51% higher than the approximately 5200 rail cars shipped during 2011, of which approximately 350 were to leasing customers. ARI's lease fleet had approximately 2600 rail cars in its lease fleet at the end of 2012.

As of December 31, 2012, ARI had a backlog of approximately 7060 railcars, including approximately 1800 rail cars for ARI's lease customers, and 1800 rail cars for the IEP lease fleet, as compared to a backlog of approximately 6500 railcars as of the end of December 31, 2011.

In response to changes in customer demand, our railcar segment continues to adjust production rates at its railcar manufacturing facilities. Adjusted EBITDA for ARI, which excludes stock-based compensation, was a record of $150 million for 2012, triple the 2011 operating results. ARI's operating margins were a record 17% in 2012, compared to 6% in 2011. Revenues and profits on cars put into the lease fleet are eliminated in consolidation. And the cost associated with those cars are recognized on the balance sheet in PP&E.

Our railcar segment's liquidity position is strong, with $207 million of cash and cash equivalents as of December 31, 2012. ARI redeemed $100 million of its 7.5% senior notes during the third quarter of 2012, and redeemed the remaining $175 million on their notes on March 1, 2013, using cash on hand and borrowing capacity on their leased railcar facility.

Now, turning to our food packaging segment -- net sales for 2012 increased by $4 million, or 1%, compared to 2011. The increase was due to an increase of $8 million attributable to volume, and $13 million attributable to price and product mix, offset in part by $17 million attributable to foreign currency translation.

Viskase continues to be driven by emerging market growth. Emerging market sales have grown from 36% to almost 50% of total sales over the last five years. Consolidated adjusted EBITDA was $57 million, an increase of $9 million compared to last year, primarily due to improved manufacturing efficiencies, partially offset by higher raw material costs.

2011 and 2012 have been years of investment. Viskase's shirring plant in the Philippines is operational and is ramping up volumes. In addition, Viskase has relocated to a larger facility in Brazil, and increased capacity at other plants. Some of this capacity came online in the latter part of 2012. And you can begin to see the benefits in Q4, where EBITDA increased from $6 million in Q4 2011, to $17 million in Q4 2012.

And now to our metals segment -- net sales for 2012 increased by $7 million, or 1%, as compared to the prior-year period. The increase was due to acquisitions made; an increase in brokerage transactions; and an increase in comparable nonferrous volumes, offset in part by lower comparable ferrous and secondary shipment volumes, and lower selling prices in all product lines.

Adjusted EBITDA declined to loss of $16 million in 2012, from a positive $26 million in 2011. Material margins were compressed in 2012, with high competition for obsolete grades of scrap and low iron ore prices, putting a cap on prices for prime scrap. North American steel demand continues to recover, with strength in autos and recovery in non-residential construction.

And now to our real estate segment -- 2012 real estate revenues were $88 million, down slightly from the comparable prior-year period. Revenues from our real estate operations for 2012 and 2011 are substantially derived from our rental and resort operations. Our net lease portfolio continues to drive earnings in this segment, with its 29 properties generating strong cash flows.

Now to our home fashion segment -- 2012 net sales decreased by $94 million compared to the prior year. The decline in sales reflects the impact of the loss of largely unprofitable programs, as the Company focuses on products and customers that match its manufacturing and distribution strengths. Despite the decrease in sales, EBITDA has been close to breakeven for all of 2012 compared to a loss -- a consolidated loss of $31 million in the prior year. So we have great improvements in profitability during 2012 by narrowing our business to select, profitable customers.

Gross margins increased from 5% to 10%, and WestPoint continued to rationalize it expense structure. We believe the management team is on the right track by focusing on core customers. WestPoint continued to build cash through Q4 as it works down its working capital and sells discontinued plants. At the end of Q4, WestPoint had $67 million of cash compared to $55 million at the end of 2011.

Now, I will highlight our liquidity position. We continue to maintain excellent liquidity as we ended 2012 with cash and cash equivalents, liquid assets, and our investment in the investment funds totaling approximately $5.4 billion. In addition to our strong cash position, our subsidiaries have undrawn credit facilities totaling $857 million as of December 31, 2012.

In summary, we continue to focus on building asset value and maintaining ample liquidity to enable us to capitalize on opportunities within and outside of our existing operating segments.

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

(Operator Instructions). [Charles Fisher, LF Partners].

Good morning, gentlemen. I have a quick question. As part of your secondary -- you put together a slide deck which had a couple of slides which were very helpful, and provided information that was previously hard to obtain for Icahn Enterprises, including a particular breakdown of our ownership in the public equities, plus our percentage ownership of Icahn, plus a very detailed NAV. And I was just hoping that you could provide that on a quarterly basis moving forward.

Yes, if you look at the press release, there is a --

There is a NAV at the bottom.

Yes. There's an NAV at the end of the press release, which hopefully is very helpful to you.

Yes, but we take your point. And we'll be happy to include that stuff in the investor deck going forward.

That would be fantastic. Great work, guys. Thanks a lot.

All right. Thanks, Charles.

(Operator Instructions). Ken Bann, Jefferies & Company.

Good morning. I was just wondering if you might want to -- can talk about Federal-Mogul and maybe other cost reductions, or restructuring programs that might be undergoing -- ongoing there, to turn around results while the European market remains soft. And also talk about a little bit in the metals segment, what you might be able to do there to improve results in the metals segment.

Yes, hey, Ken. This is Dan. On Federal-Mogul, I think there are a number of cost reduction opportunities, both on the SG&A side and on their in manufacturing and engineering footprint. So, breaking the segment into OE and aftermarket, sort of exposed, to us at least, some inefficiencies in their cost structure, particularly on the SG&A side.

We announced last year the first phase of the manufacturing footprint restructuring; $60 million last summer. And we talked about a multi-site restructuring program that's underway right now, in addition to that. So, we think that will take 2, 2.5 years to complete. But the paybacks on it are very positive. But I would see their overall cost structure go down pretty significantly.

On the metals side, really we've just had headwinds in the market. The steel mill operating rates started out last year pretty strong, and then they tapered off during the course of the year. There has been scrap substitution. With iron ore prices where they are, that's impacted the prime grades. Obviously the nonferrous business has been growing significantly; it even grew last year. But copper and aluminum prices were down.

So there, it's less about, I think, the cost structure than the macroeconomic environment. But having said that, we brought in a new management team last year, and they are also identifying reductions in the cost structure. We took an action in the fourth quarter, which we didn't really break out, but it was a relatively significant headcount reduction, and we are streamlining the operations in each region.

And then in the food packaging, obviously you've done a great job turning that around and improving results this year, after some of the problems last year. Any thoughts about monetizing that investment in food packaging, now that they are hitting such strong results?

Well, we're seeing that capacity -- the capacity just started to come online in the fourth quarter. So obviously you're not seeing a full run rate there. We're very bullish on 2013, just catching up on the inventory, frankly, because there is -- on the NOJAX side, there was unmet demand last year.

We do think that there is one more stage in consolidation in that area. And we expect to participate in it in one way or another. So we think it's a good opportunity, whether we grow the business or sell the business. But we're actually just very bullish on it overall.

Okay, great. And then the railcar lease fleet, does that show up within the holding company segment? Or will that be showing up as you increase the fleet?

The railcar lease feet that's owned by IEP shows up within the railcar segment. And so the sales from ARI to IEP, when IEP purchases cars for its fleet, are canceled out in consolidation. And it all shows up net within our railcar segment.

Okay, okay, great. All right, thanks a lot.

(Operator Instructions). And we have no further questions in queue at this time.

All right. Well, thank you, everybody, for joining the call. Like I said earlier, we look forward to a great year. And we thank all the employees and members of the team, and look forward to talking to you in a couple months. Take care.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone have a good day.