Icahn Enterprises LP (IEP) 2013 Q1 法說會逐字稿

Good morning and welcome to Icahn Enterprises L.P. first quarter 2013 earnings call with Felicia Buebel, Assistant General Counsel; Daniel Ninivaggi, President ; and SungHwan Cho, Chief Financial Officer. I would now like to hand the call over to Felicia Buebel, who will read the opening statements.

Good morning, and welcome to the first quarter 2013 earnings call.

I will 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 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.

Thank you. I would now like to turn the presentation over to our President and CEO Daniel Ninivaggi.

Thanks, Felicia. Good morning, and welcome to the first quarter 2013 Icahn Enterprises earnings conference call. Joining me on today's call are SungHwan Cho, our Chief Financial Officer; and Keith Cozza, our Executive Vice President.

I'd like to begin by providing some brief highlights. Sung will then provide an in-d depth review of our financial results and the performance of our business segments. We will then beavailable to take your questions.

Icahn Enterprises net income for the first quarter of 2013 was $277 million or $2.50 per depository unit compared to net income of $49 million or $0.48 per depository unit in the prior year period. The strong quarterly results were driven by the performance of our Investment and Energy segment . Our Investment funds had a return of 9.7% for the first quarter with strong returns generated by several of our core long positions.

In the Energy segment performance was exceptional at both CVR Refining and CVR Partners. CVR Refining distributable cash flow per unit for the full quarter was $1.76, and exceed both its IPO guidance in January and the more recent guidance provided in mid March. CVR Partners distributed cash flow was a record $0.61 per unit a 17% increase from Q1 2012.

In Other segments Federal-Mogul had a solid quarter considering the weak environment in Europe and lower commercial vehicle production globally. ARI's profitability and outlook remain strong due tank car demand while the Company continues to build its lease fleet and repair services. In this case is achieving expected benefits from recent investments in capacity expansion in the U.S. and its shearing facilities in the Philippines.

At the holding company level we completed a public equity offering of IEP units in the first quarter. We also adopted a $4.00 annual dividend policy resulting in a very attractive yield to our unit holders. Providing additional liquidity in IEP units and our new dividend policy are 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 activist strategy and make it even more effective. With that, I will turn it over to Sung, and then, as I said, we will take your questions.

Thank you, Dan. I will begin by briefly reviewing our consolidated results for Q1 2013 and then highlight the performance of our operating segments and comment on the strength of our balance sheet.

Net income attributable Icahn Enterprises for Q1 2013 was $277 million compared to income of $49 million in the prior year period. We ended Q1 with consolidated cash and cash equivalents of approximately $2.4 billion, and our direct investment in the investment funds was $2.6 billion. I will now provide more detail regarding the performance of our individual segments.

Our Investment segment had income attributable to Icahn Enterprises of $233 million for Q1 2013 due to the return on our direct investment and the investment funds. The investment funds had a return of 9.7% for Q1 2013compared to 1.0% for the prior year period. Since inception in November 2004 the investment funds gross return is 199% through the end of for Q1 2013 or 14% per year. During Q1 2013 our net equity exposure remained unchanged at 13% from the end of 2012. Our long equity exposure had a 19% return for first quarter 2013 will our short equity exposure had a negative return of 9%. Our net credit exposure at the end of Q1 2013 was approximately 8% and generated a return of under 1%. As of March 31, 2013, our Investment segment had approximately $6.5 billion of assets under management including IEP's $2.6 billion investment in the funds.

Now turning to Federal-Mogul. Federal-Mogul's Q1 2013 sales were $1.7 billion down slightly versus Q1 2012. The powertrain segment reported sales of $1.1 billion which is down 2% in consent dollar terms from the prior year. This was driven by weakness in Europe which was down 5%, and global commercial vehicles which was down 13% . Federal-Mogul continues to adjust labor and closely manage other cost factors in this challenging environment.

The Vehicle Component Solution segment, VCS, reported sales of $0.7 billion down 2% in constant dollar terms. North American VCS revenue was down 7% due to the secession of selected non strategic business contracts and the decline of export shipments into Venezuela . VCS segment is on schedule with its footprint rationalization and shift to lower cost manufacturing countries. Operational EBITDA in Q1 2013 was $141 million down from $165 million in Q1 2012. However EBITDA margins in both powertrain and VCS improved from Q3 and Q4 of 2012.

During the first quarter 2013 Federal-Mogul divested its Sintertech business consisting of three manufacturing plants in France. In 2012 the Sintertech business contributed negative operational EBITDA of $13 million and a net loss of $21 million to Federal-Mogul results. This divestiture eliminates a substantial non core business from the Federal-Mogul portfolio.

Now to our Energy segment. Q1 was a very busy quarter for CVR Energy. The Company completed an IPO of its refining business, retired higher cost debt, initiated a $3.00 per share annual dividend and paid a special dividend of $5.50 per share totalling $478 million . Operating performance at both the petroleum and fertilizer businesses continues to be strong. Consolidated adjusted EBITDA for Q1 2013 was $351 million. As a reminder we began consolidated CVR in May of 2012, so any prior year comparisons discussed here compare against a period when CVR was not consolidated in to IEP results.

Net sales for CVR Refining, the petroleum business, were approximately $2.3 billion in Q1 2013. In Q1 CVR refining achieve a record crude throughput rate of 195,000 barrels per day and also gather over 50,000 barrels per day. Refining margin before FIFO impact remained strong at over $26 per barrel compared to $19 per barrel in Q1 2012. CVR Refining adjusted EBITDA for Q1 2013 was $310 million compared to $145 million in Q1 2012. Q1 2012 was impacted by the schedule turnaround at the Coffeyville refinery.

Net sales for CVR Partners, the fertilizer business, were $81 million in Q1 2013. CVR Partners completed its expansion of its UAN capacity earlier this year. CVR Partners adjusted EBITDA was $44 million up 15% over the prior year. CVR Partners still projects a 19% to 35% increase in distributions to unit holders in 2013 over 2012.

Now turning to our Gaming segment. Net revenues were $143 million in Q1 2013 compared to $155 million in Q1 2012, primarily due to lower volumes at Tropicana, A.C. and Baton Rouge. Tropicana's consolidated adjusted EBITDA for Q1 2013 was $18 million compared to $21 million in the prior year, primary due to the entrance of a new competitor in Baton Rouge.

The Atlantic City market remains challenging. Based on market data the Atlantic City market experienced a year-over-year decline in casino win of 12.9% in Q1 2013. In addition Revel open in the second quarter 2012 resulting in increased competition. All in all Tropicana A.C. fared well on a relative basis with gaming revenue down only 4.5% on a year-over-year basis. The first quarter was also negatively impacted by the lingering affects of Hurricane Sandy.

Although Tropicana A.C. did not suffer any significant damage, business interruptions to Atlantic City has been significant. During the first quarter 2013 Governor Christie legalized online gaming within New Jersey. We think there is a great deal of opportunity here with future online gaming, and Tropicana is in the latter stages of evaluating its options. On April 25th Tropicana entered into an agreement to sale the River Palms property in Laughlin, Nevada for $7 million. The transaction is subject to regulatory approvals and expect it to close in Q3 in 2013.

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 growing lease fleet at our holding company. IEP's lease fleet at the end of Q1 2013 consisted of 975 cars purchased from ARI. In addition, we have placed orders for an additional 1,530 cars for delivery later this year and in 2014. This is in addition to the lease fleet of 3,120 cars as of March 31, 2013 held directly by ARI.

Industry demand remains strong for tank cars with over 19,000 tank cars ordered during Q1 2013, and industry backlog for tank car growing to approximately 60,000 at the end of March. Covered hopper production slots are less tight right now, with production still available in 2013. Manufacturing revenue were $228 million in Q1 2012 an increase of 8% over the $212 million for the same period in 2012. The primarily reason for the increase was a shift in the sales mix to more tank cars partially offset by a decrease in the volume of hopper railcar shipments.

Manufacturing segment revenues for Q1 2013 include estimate revenues of $118 million related to railcars built for the segments lease fleet compared to estimated revenues of $48 million in Q1 2012. Railcar shipments for Q1 2013 were approximately 1,900 railcars including approximately 1,030 railcars to leasing customers as opposed to 2,200 railcars for the comparable period last year including approximately 460 railcars to leasing customers. As of March 31, 2013, ARI had a backlog of approximately 6,400 railcars including approximately 2,280 railcars for ARI's lease customers and 1,530 railcars for IEP lease fleet.

ARI adjusted EBITDA was $43 million for the first quarter 2013 compared to $30 million for the comparable quarter in 2012. The increase was driven by strong tank railcar sales with favorable margins partially offset by losses incurred by ARI's joint ventures. Gross margin from manufacturing operations were 20% in Q1 2013 compared to 17% in the prior year. Revenues and profits on cars put in to 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 segments liquidity position is strong with $57 million of cash and cash equivalent as of March 31, 2013. ARI regained $175 million of their senior notes during the quarter using cash on hand and borrowing capacity on their lease railcar facility.

Now turning to Food Packaging . Net sales for Q1 2013 increased by $5 million or 6% compared to the prior year period. The increase was due to higher volume and favorable product mix offset in part by unfavorable foreign currency translation. Consolidated adjusted EBITDA of $16 million in Q1 2013 was $3 million higher than the prior year primarily due to growth in volumes partially offset by higher raw material costs and energy prices. We are seeing the benefits year-over-year of the capital spending we made in 2011 and 2012. Cash and cash equivalent for our Food Packaging segment were $18 million as of March 31, 2013.

Now to our Metal segment. Net sales for Q1 2013 decreased by $68 million or 20% compared to the prior year. The decrease was primarily driven by lower ferrous shipments and selling prices in large part tied to weak export demand and lower domestic steel capacity utilization. Although non ferrous shipment volumes increased in Q1 2013 from the prior year, declining prices squeezed margins and impacted profitability. Adjusted EBITDA declined to a loss of $5 million in Q1 2013 from break even in Q1 2012. Material margins continue to be compressed as a weak selling environment and competition for [feed stock] continues to negatively impact margin.

Now to our Real Estate segment. Q1 2013 Real Estate revenues were $21 million which is in line with the comparable period last year. Revenues from our Real Estate operation for both periods were substantially derived from our rental and resort operations. Our net lease portfolio continues to drive earnings in the segment with its 29 properties generating strong cash flow and our resort operations remain profitable.

Now turning to Home Fashions. Q1 2013 net sales decreased by $10 million compared to the prior year. The decline in sales reflects the impact of the loss of large unprofitable programs as the Company focuses on products and customer that match its manufacturing and distribution strengths. Despite the decrease in sale, EBITDA was close to break even in the first quarter 2013 compared to a loss of $5 million in the prior year, so we have made great improvements in profitable by narrowing our business to select profitable customers.

Gross margins increased from 4% to 11%, and WestPoint continued to rationalize its expense structure. We believe the management team is on the right track here by focusing on these core customers. As of March 31, 2013 WestPoint had $12 million of unrestricted cash after paying a $45 million dividend to an IEP subsidiary during the quarter.

Now I will discuss our liquidity position. We continue to maintain excellent liquidity as we ended the first quarter 2013 with cash and cash equivalents, liquid assets and our investment in the investment fund totaling approximately $5 million . At the end of Q1, the holding company maintained sizable cash position of $755 million even after putting over $600 million in restricted cash to decrease our convertible notes. In addition to our strong cash position, our subsidiaries have undrawn credit facilities totaling $910 million as of March 31.

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, can you please open it up for questions.

Thank you. (Operator Instructions). You have a question from Daniel Fannon of Jefferies . Your line is open.

Good morning, and congratulation on a great quarter. I was just hoping to touch base on two of the drivers for the strong results this morning ; the CVR Energy segment as well as the hedge fund. Can you talk a little about looking ahead we have seen a narrowing in the crack spread, and I know you have a big percentage. I think it is about 60% that is hedgedfor the year. Do you have a bias in terms of which way you think crack spreads might move and what you strategy is? Do you generally keep at least about one year of activity hedged out or how does that work for you?

Hi, Dan . How are you ? Dan Ninivaggi. Crack spreads are going to be volatile. We know that as pipeline capacity comes in or other take away capacity crack spreads tend to narrow and then as the production out paces the pipeline capacity they tend to go up. I think if you listened to Jack's call yesterday I think he said he thinks we are at lower point in the year and he expects crack spreads to rebound, but that is just part of the cycle . We have had some pipeline capacity come in and obviously the Brent-WTI differential has narrowed, but we think that is likely to reverse and crack spreads are likely to expand during the course of the year.

Okay. So that certainly would be a situation where you would perhaps limit your hedging activity at this point looking ahead?

Hedging, I think you said you thought we were 60% hedged . I don't think we are that hedged . It is somewhat lower than that. If you take a look at again the CVR Earnings deck yesterday they have the exact numbers in there. We will look at the hedging. We do it opportunistically. I think we said earlier in the year they tend to target around 40% on average, but that will obviously move up and down based on market conditions.

Perfect. Thank you. Are you able to talk a little bit about the dynamics of the hedge fund? In the sense that you said there were a couple of positions which generated most of the gains. Just looking through some of your filings it seems like the bulk of them came from through Netflix. Is there any comments you can make on that?

No, we can't comment on our specific positions. Obviously Netflix is a public position and it has been very successful. It was big driver in the first quarter, but we can't really comment beyond that.

Fair enough. Thank you. And one additional question, this is more perhaps for modeling purposes . There was a number of movements in your cash during the quarter. Can you walk me through quarter-over-quarter changes in for the cash?

Dan, is there anything specific that you are looking at?

At the (Inaudible) level, but maybe that is something we can take off line if it makes more sense to take that off line.

We can go through the details off line. The big drivers are we obviously got a large special dividend from CVR, we had the equity offering and we had the defeasance of the notes, so those are the three big drivers of the cash in the quarter. But we are happy to go through more detail off line if you would like.

Fair enough. Perhaps one more thing, this is perhaps more macro look . How do you see the M&A environment at this point in terms of potential exits or just activity? I know that previously with so much cash on the balance sheet at so many companies it looks like a pretty attractive opportunity, but just some thoughts as how things have been evolving since the beginning of the year?

In short slower than we would have expected. The debt markets continue to be very, very strong. And Carl has talked during the course of the year on how this should be an excellent opportunity for M&A but it obviously has been slower than most people predicted. We do think it will pick up. It is function of two things primarily. One is the capacity to do deals and the debt market certainly fuel that. The second is confidence. So the confidence has been a bit up and down, and that is probably what is inhibiting it a bit. But we do feel very strongly that there is a great environment for M&A and that there will be a multi year M&A cycle here and we will be able to participate in that.

Excellent. And once again congrats on the wonderful quarter. That is it for my questions.

Thanks for getting on.

Thank you . Our next question is from Andrew Berg of Post Advisory . Your line is open.

Hi. Just a quick question on Gaming. With the sell of River Palms can you talk about the EBITDA that was associated with that?

I would say in a word negligible. We have two properties as you know in Laughlin, and we decided to invest in the better of the two properties. So that is why we divested it.

And in Baton Rouge can you talk about anything you are doing to try to mitigate some of the impacts from the competitor opening there at this point?

So Pinnacle has had an impact, but it actually hasn't been as bad as we feared I guess, and we have cut costs significantly. We are driving -- the local gaming has been pretty strong, and on a relative basis we have done better than the third competitor in that market and we think it will be fine. Obviously Pinnacle's property is a high end property catering to more regional resort destination type travelers. We are more of a locals market property, and we think the property is doing okay.

Do you feel like it has stabilized at this point?

Yes, it has definitely stabilized. Last year's EBITDA was very strong driven by a number of things. This year it should stabilize in the $8 million to $9 million EBITDA range.

Okay. And then $620 million (Inaudible) cash was that all the bond defeasment?

Yes, it is. And we actually had to defease the whole bond including the piece that IEP has owned, so some of that money is going to come back and come back to our cash balance in July.

Okay. Can you say how much?

About $43 million, $44 million.

Okay, great . Thank you guys.

Take care, Andrew.

Thank you. (Operator Instructions). We have a question from Ken Bann of Jefferies . Your line is open.

Good morning. I was just wondering the dividend from WestPoint does that reflect -- you have improved operations there quite a bit over the years, but does that reflect your optimism about their ability to continue to improve going forward and what liquidity do they still have at that operations in addition to $12 million of cash that is left there?

So they have the $12 million . Basically they were carrying a large working capital balance for a while, so we have really managed the working capital down very well and that is really what generated the dividend . And we think the $12 million is more than sufficient to cover the liquidity going forward. If we had to, we could put a revolver in or something, but we don't think that will be necessary.

Right. And do you think we will get to a positive EBITDA in the future on this operation?

Yes. We are hopefully that we will be solidly positive EBITDA this year.

Okay,great. Thank you very much.

Thanks, Ken.

Thank you. I'm not showing any current questions in the queue . I would like to turn the call back over to management for any further remarks.

Thank you everyone for joining the call, and we look forward to a successful remainder of the year.

Ladies and gentlemen, thanks for participating in today's conference. This concludes today's program. You may now disconnect. Everyone have a great day.