Icahn Enterprises LP (IEP) 2013 Q4 法說會逐字稿

Good morning and welcome to the Icahn Enterprises LP fourth-quarter 2013 earnings call with: Jesse Lynn, Assistant General Counsel; Keith Cozza, President and CEO; and SungHwan Cho, Chief Financial Officer.

I'd like to hand the call over to Jesse Lynn, who will read the opening statements.

Good morning. I'll now read the Safe Harbor 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 required by law.

This presentation also includes certain non-GAAP financial measures.

And now I'd like to turn over the program to Keith Cozza, our President and CEO.

Thanks, Jesse. Good morning, and welcome to the fourth-quarter 2013 Icahn Enterprises earnings conference call. Joining me on today's call is SungHwan Cho, our Chief Financial Officer.

As we announced in a press release earlier last month, Dan Ninivaggi, our former President and CEO, has taken a position as the co-Chief Executive Officer of Federal-Mogul Corporation, a subsidiary of Icahn Enterprises. Dan will continue to serve as a Director of Icahn Enterprises GP, Inc, the general partner of Icahn Enterprises, as well as certain affiliates of Icahn Enterprises. Dan has done an excellent job as our President and CEO over the past four years, and we are confident he will be successful in his new role.

I would like to begin by providing some brief highlights. Sung will then provide an in-depth review of our financial results and the performance of our business segments. We will then be available to address your questions.

We continue to employee an activist strategy within our investment segment and across all of our operating segments, which has aided Icahn Enterprises in delivering outstanding results over the past decade. We are finding no shortage of investment opportunities involving situations where our activist strategy can be used as the catalyst to unlock value for all shareholders.

Our Chairman, Carl Icahn, has released a letter to our shareholders discussing our strategy and our 2013 results. I encourage all of our stakeholders to read the letter, which is available at www.ielp.com and www.shareholderssquaretable.com. We are proud of our 2013 results, and excited about the solid start we are seeing in 2014, which has led our Board of Directors to increase the annual distribution policy from $5 per unit to $6 per unit in 2014.

Now, turning to the fourth-quarter and full-year results. Net income attributable to Icahn Enterprises for 2013 was $1 billion, or $9.07 per LP unit, a 144% increase in earnings per LP unit compared to income of $396 million, or $3.72 per LP unit, in 2012. For the fourth quarter of 2013, our net income attributable to Icahn Enterprises was $222 million, as compared to net income of $6 million in the prior-year period. EBITDA attributable to Icahn Enterprises for 2013 was approximately $1.9 billion compared to approximately $1.5 billion in 2012.

We are very pleased with the operating results of our segments in 2013. A large driver of earnings for 2013 was the strong performance of the investment segment, which benefited from large equity positions in Netflix, Forest Labs, Chesapeake, and Herbalife, amongst others. Our investment funds had a return of approximately 31% for 2013, while maintaining limited net equity exposures throughout the year.

Q4 results for Federal-Mogul improved from prior-year period, driven by strong conversion on higher sales, and substantially improved operating performance.

Powertrain continued to gain market share in all regions in the quarter, with revenue growth eclipsing the growth of both global light-vehicle production and commercial-vehicle production. Financial results of the after-market business have stabilized, and management is aggressively investing in Federal-Mogul's VCS product portfolio, improving distribution infrastructure and pursuing growth initiatives, including Federal-Mogul's recent acquisition agreements for the Honeywell Friction and Affinia Chassis businesses.

In our energy segment, the refining and fertilizer MLPs had excellent operational performance in the fourth quarter. CVR refining had record combined crude throughput rates for the quarter. And the fertilizer subsidy, CVR Partners, posted high on-stream rates and record UAM production for the quarter and year.

Our railcar segment had strong tank railcar shipments in 2013, driving manufacturing margins to 23%, a 4% improvement over the prior year. The segment also continues to build its lease fleet, which was nearly 35,000 rail cars by year end, which includes the lease fleet added from the ARL acquisition at the beginning of the fourth quarter.

In our food packaging segment, Viskase is enjoying a record year, largely from the expected benefits from recent investments in capacity expansion.

Our gaming segment -- Tropicana closed a new term loan facility in Q4 2013, which will provide the financing for Tropicana's previously announced pending acquisition of Lumiere Place casino and hotel complex in St. Louis, Missouri. This transaction will make a great addition to Tropicana's already diversified regional gaming operations.

We made significant progress in 2013, improving the trading liquidity in our LP units, expanding our shareholder base, and bolstering our balance sheet by executing three separate equity offerings for a total of approximately $600 million of new capital. We also issued new debt totaling $500 million in July of 2013, which effectively replaced our $555 million of convertible debt that we defeased in January of 2013.

We issued $5 billion of new notes in January of 2014, which refinanced $3.5 billion of existing senior notes, and provided $1.3 billion of additional liquidity to the balance sheet. The lower coupons on our new debt will result in substantial interest savings over the next several years. We are well positioned to seek out investment opportunities, both organic and external, that will strengthen our Companies in the long term.

With that, let me turn it over to Sung.

Thanks, Keith. I will begin by briefly reviewing our consolidated results for the fourth-quarter and full-year 2013, and then highlight the performance of our operating segments, and comment on the strength of our balance sheet.

In Q4 2013, our net income attributable to Icahn Enterprises was $222 million compared to net income of $6 million in the prior-year period. In Q4 2013, we reversed the tax valuation allowances at Viskase due to its improved profitability, and at Federal-Mogul due to its tax consolidation into IEP.

We are proud to say that 2013 was a record year for net income attributable to Icahn Enterprises. Full-year 2013 net income attributable to Icahn Enterprises was over $1 billion compared to income of $396 million in 2012. As you can see on slide 5, the change in 2013 net income from prior year was primarily due to the strong performances of the investment and automotive segments. 2013 was also a record year for adjusted EBITDA, led by the performance of the investment funds.

I will now provide more detail regarding the performance of our individual segments. On slide 6, our investment segment had a gain attributable to Icahn Enterprises of $812 million for 2013, due to the strong performance of our direct investment in the investment funds. For Q4 2013, the investment funds had a gross return of 3.5% compared to 1.5% for Q4 2012. For the full-year 2013, the investment funds had a gross return of 30.8% compared to 6.6% in 2012.

Our long positions had a 65% return for the year, while our short positions and others expenses had a negative performance attribution of 34%. Since inception in November 2004, the investment funds gross return is 257% through the end of 2013, or 15% annualized. At the end of 2013, our net equity exposure was 6% compared to 13% at the end of 2012.

As of December 31, 2013, our investment segment had approximately $8.3 billion of assets under management, including IEP's $3.7-billion investment in the funds. The investment segment is off to a strong start in 2014, with a 4.8% return through February, compared to 1.0% for the S&P 500.

And now to our energy segment: For Q4 2013, our energy segment reported revenues of $2.3 billion and adjusted EBITDA of $160 million. For the full year, the energy segment reported revenues of $9.1 billion and adjusted EBITDA of $869 million. Q4 performance was driven by strong operational performance at both the refineries and the fertilizer plants.

CVR refining reported Q4 2013 adjusted EBITDA of $118 million, compared to $196 million in the prior-year period. The decline is due to significantly lower refining margins, which were $11.48 in Q4 2013, compared to $26 in Q4 2012, due primarily to the decline of the NYMEX 2-1-1 crack spread and negative product basis. Offsetting this was the exceptional operational performance at both of the refineries. The Coffeyville and Wynnewood refineries combined to produce record crude throughput rates of over 200,000 barrels per day.

CVR Partners reported Q4 2013 adjusted EBITDA of $37 million, compared to $27 million in Q4 2012. During Q4 2013, CVR Partners had very high utilization rates, and produced record volumes of UAN. Offsetting this were lower average realized plant gate prices for UAN and ammonia, which were $253 per ton and $478 per ton, respectively. CVR Energy declared its regular dividend for Q4 2013, bringing total dividends paid in 2013 to Icahn Enterprises up to more than $1 billion.

Now turning to our automotive segment: Our automotive segment's Q4 2013 sales were $1.7 billion, up 10% from the prior-year period. Our automotive segment net sales for the full-year 2013 were $6.8 billion, up 5% over the prior year's results.

Operational EBITDA also improved for the quarterly and year-over-year comparisons. Operational EBITDA was $140 million in Q4 2013, up $47 million, or 50%, versus Q4 2012. Full-year 2013 operational EBITDA was $587 million, up $74 million, or 14%, from the prior year.

On a global basis, powertrain continued to gain market share, and had revenue of over $1 billion in Q4 2013, a 10% increase on a constant-dollar basis from Q4 2012. During the same comparison periods, both global light-vehicle production and commercial-vehicle production increased 4%. Powertrain is well positioned to benefit from any recovery from European light-vehicle and global commercial-vehicle markets.

The vehicle component segment, or VCS, had revenue of $727 million in Q4 2013, an increase of 5% on a constant-dollar basis from Q4 2012. Revenue in Europe was up 17%, primarily due to the increased sales from the ignition product distribution agreement. North American sales were up 1%. VCS revenue for the quarter was impacted by a reduction in original equipment sales, as well as a decline in the export business, mainly due to the current economic situation in Venezuela.

Federal-Mogul pre-paid $250 million of debt during the fourth quarter, and had a cash balance of $761 million at the end of the year, in addition to an undrawn revolver of $550 million. The Company is continuing to monitor the debt markets, and will refinance its debt when market conditions warrant.

Now turning to our railcar segment: Our railcar segment is comprised of our controlling interest in American Railcar Industries, or ARI, and American Railcar Leasing, or ARL. ARL is a railcar leasing company that has historically been owned and controlled by Carl Icahn. In the beginning of the fourth quarter of 2013, IEP obtained a 75% controlling interest in ARL, and has accounted for the transaction as an entity under common control. Accordingly, IEP's consolidated financial statements and footnotes include the assets and operations of ARL for all periods presented.

The combined lease fleet of the railcar segment totaled almost 35,000 railcars at the end of 2013. Growing our railcar leasing revenues for the railcar segment will help offset the cyclical nature of earnings generated by ARI's railcar manufacturing operations.

Railcar shipments for 2013 were approximately 6,900 railcars, including approximately 3,960 railcars to leasing customers, as compared to 7,880 railcars for the prior year, of which approximately 2,950 railcars were to leasing customers. As of December 31, 2013, ARI had a backlog of approximately 8,560 railcars, including 3,570 railcars for lease customers.

According to the Railway Supply Institute, the railcar manufacturing backlog increased to 73,000 railcars at the end of 2013, compared to 60,000 a year ago. 92% of the backlog is comprised of tank cars and covered hopper cars, the two primary railcar types manufactured and leased by our railcar segment.

Total manufacturing revenues for 2013 increased by $11 million over the comparable prior-year period, before elimination of railcar sales to our railcar segment's leasing operations. The increase was primarily due to higher mix of tank railcars sold, which generally sell at higher prices than hopper cars.

Gross margin from manufacturing operations before inter-company eliminations for 2013 was $197 million, compared to $163 million for the comparable prior-year period. Gross margin from manufacturing operations as a percentage of manufacturing revenues increased to 23% for 2013 from 19% in 2012. The increase in margin was primarily due to a shift in the sales mix to a higher mix of tank cars.

The leasing businesses within the railcar segment continued to perform well, as well. In 2013, we grew the combined lease car portfolios to roughly 35,000 cars, from approximately 30,000 cars at the end of 2012. Lease rates remained strong, driven by demand from the energy sector. Our railcar segment's liquidity position is strong, with $417 million of cash at the end of 2013. Subsequent to year end, we were able to complete attractive financings at both ARI and ARL.

Now turning to our gaming segment: Total gaming segment revenues were $571 million in 2013, compared to $611 million in 2012, primarily due to a drop in casino revenues. The decrease in casino revenues was primarily due to a 7.6% decrease in consolidated gaming volumes, primarily due to lower gaming volumes at Atlantic City and Baton Rouge.

Tropicana's consolidated gaming hold percentage was 9.8% for both 2013 and 2012. Tropicana's consolidated adjusted EBITDA for 2013 was $66 million compared to $79 million in the prior year. The decrease in EBITDA was primarily due to lower revenues in Atlantic City and Baton Rouge.

In November 2013, Tropicana entered into a senior secured term loan facility with an aggregate principal amount of $300 million, and a senior secured first lien revolving credit facility with an aggregate amount of $15 million. A portion of the net proceeds from the new credit facilities were used to repay existing debt. A portion of the proceeds from the new credit facilities is also intended to be used for our pending acquisition of Lumiere Place Casino in St. Louis. Tropicana has a solid balance sheet, with $359 million in cash and cash equivalents as of December 31, 2013.

Now turning to our food packaging segment: Net sales for 2013 increased by $28 million, or 8%, compared to the prior year. The increase was primarily due to higher volume, in addition to favorable pricing and product mix, offset, in part, by unfavorable foreign currency translation. Emerging markets continue to drive the growth in our Business, and now constitute over 50% of global sales, and have been growing 12.5% per year since 2008.

Consolidated adjusted EBITDA of $67 million in 2013 was a $10-million improvement over the prior-year period. We are seeing the benefits year over year of the capital spending we made in 2011 and 2012. In January 2014, Viskase completed a $275-million term loan facility. A portion of the proceeds from the term loan were used to pay off existing debt.

Now to our metals segment: Net sales for the year ended 2013 decreased by $173 million, or 16%, compared to the prior year. The decrease was primarily driven by lower ferrous and non-ferrous shipment volumes and selling prices. Shipment volumes were lower in 2013 than in 2012 for all product lines, except secondary plate. The scrap market was weak in 2013, with lower steel plant utilization versus 2012, and weak export markets, in particular Turkey, which drives previously exported East Coast scrap back into the Midwest.

Adjusted EBITDA declined to a loss of $18 million in 2013, from a loss of $16 million in 2012. PSC has taken measures to align our costs to the environment, including idling several yards and shredders running below capacity.

Now to our real estate segment: 2013 real estate revenues were $85 million, which was slightly below the comparable prior year. Revenues from our real estate operations for both periods were 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. The real estate segment generated $46 million of adjusted EBITDA in 2013. We began to see more interest at our development properties, and have restarted sales activities in New Seabury and in Vero Beach.

Now turning to our home fashion segment: 2013 net sales decreased by $44 million compared to the prior-year period. The decline in sales reflects the Company's focus on products and customers that match its manufacturing and distribution strengths. Looking forward, we are excited by the new brands, and believe we will have solid placements in 2014. Despite the sales decrease, adjusted EBITDA was a positive $1 million in 2013, compared to a loss of $3 million in the prior year.

Gross margin as a percentage of sales was 12% in 2013, compared to 10% in 2012. The improvement was primarily due to the effects of exiting certain unprofitable programs and customers. At the end of 2013, WestPoint had $16 million of unrestricted cash.

Now I will discuss our liquidity position. We maintain ample liquidity at the holding company, and at each of our operating subsidiaries, to take advantage of attractive opportunities. We ended 2013 with cash, cash equivalents and liquid assets, and our investment in the investment funds, totaling approximately $7 billion.

As Keith mentioned earlier, the holding company raised a significant amount of capital in 2013 and early 2014. We raised $1.1 billion in cash through debt and equity offerings in 2013. We also issued an additional $5 billion of senior unsecured notes subsequent to year end to refinance $3.5 billion of existing debt at significantly lower rates, and add over $1.3 billion of liquidity to our balance sheet. Our subsidiaries have approximately $2.5 billion of cash and $1.1 billion of undrawn credit facilities to enable them to take advantage of attractive opportunities.

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, with that, can you please open it up for questions?

(Operator Instructions)

Dan [Stamp], Jefferies.

First question is on the NAV disclosures. If you could walk us through the step-up in the AEP Leasing from quarter over quarter from roughly $214 million to the $754 million?

Thanks, Dan. That is primarily related to early in Q4 we acquired our 75% interest in ARL. That was approximately 27,000 cars in that portfolio with significant equity value in those cars.

The step-up in value there primarily relates to that transaction. It's the increased value from the ARL fleet, as well as there is $300 million-plus of cash within ARL post-close of that transaction.

Did you not disclose that? I guess the ownership stake then before that you broke out within the last couple of quarters for the first time was not 75% for the ownership stake just picked up? Is that the difference?

That is right. The transaction closed in October. So for Q3, ARL was not part of IEP. That represented only the under 3,000 cars that were held directly within AEP leasing.

Okay. Then just thinking about the movements in the other subsidiaries that are non-public, quarter over quarter, even year over year, I guess if we're just thinking about the quarter-over-quarter movements with Tropicana coming down, and this case going up, should we think about that as public comp changes, or really more the underlying changes within the business with regards to the cash flows and other metrics you guys look at?

It's really the public comp valuations that I think we disclosed in the footnotes to the NAV table, the multiples that we use for each of those periods. You can see in Q4 for Tropicana is a lower multiple that we used than Q3, and that is based upon trading comps for other gaming companies.

Then just thinking about, you guys obviously have been very active over the last year within the investment portfolio within the hedge fund. Is it reasonable to assume over the next, as we think about 2014, that your wholly owned subsidiaries would increase, or do expect to be more active just within the liquid side within the fund?

Dan, it is Keith. I think the answer is both. I think you will continue to see us be very active in the investment segment as you have already in the early parts of this year, but I don't think we view it as one or the other.

I think we are seeing a lot of opportunity in our operating segments. You saw in the Federal-Mogul segment, we had two bolt-on acquisitions of the Honeywell brake business and the Affinia chassis business.

Late last year we announced a bolt-on acquisition of the Lumiere Casino in the gaming segment. We are always on the lookout for expansion opportunities in all of our segments. It just seems like the investment segment gets a little bit more of the media's attention, but I think you will see both.

Ken Bann, Jefferies.

Could you talk about the swing in EBITDA at the holding company level? What does that do, is that on currency or what's --

No. In the fourth quarter we had made a distribution of some derivative hedging transactions out of the funds to all the partners in the funds, and IEP being one of those partners. It wound up having some losses related to both derivative positions. They're on the underlying S&P 500 index.

And this is all laid out in our 10-K. But at the end of the day, it was the movement in the S&P related to those distributions that caused that swing for the fourth quarter.

Okay. And sorry if I missed this. Did you give an update on where your cash and investment in the funds are now, post the financing you have done so far in the first quarter?

No, we didn't.

No we didn't. I suppose we did lay out all of the components so it's fairly easy to do. We added $1.3 billion of cash to the balance sheet from financings in January of 2014. You can roll it forward.

All that is remaining at cash at the holding company at this point?

Some of it was invested into the investment segment, but we haven't disclosed exactly how much.

Andrew Berg, Post Advisory Group.

On the real estate side, you've seen pick up in the business there. Is that stuff you're going to develop, or are just looking to sell the raw lots?

No, no. We have started -- we've (inaudible) with some development as demand's picked up, specifically in New Seabury. We're going at a measured pace, but our early market read is that the returns are fairly compelling and meet our internal hurdle. So we are going at a measured pace to develop out, not just raw land, but to develop out full units.

How does that play out timing-wise in terms of capital you'll commit to that bid-out process, and when do you hope to be able to start marketing properties for sale?

It is very minimal use of cash, and we have already starting marketing. We have maintained an inventory of properties throughout this last several years. So we continue our marketing efforts on the existing inventory, as well as a few more houses that we are putting up right now.

Okay. (inaudible) big capital commitment?

Yes, it's insignificant to IEP, yes.

(Operator Instructions)

I currently have no more questions in the queue.

Okay, great. Thanks everybody, and we will look forward to speaking with you to discuss first-quarter results.

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.