Icahn Enterprises LP (IEP) 2014 Q3 法說會逐字稿

Good morning, and welcome to the Icahn Enterprises LP Q3 2014 Earnings Call with Jesse Lynn, Assistant General Counsel; Keith Cozza, President and CEO; and SungHwan Cho, Chief Financial Officer. I would now like to hand the call over to Jesse Lynn, who will read the opening statement.

Thank you. 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 statement should circumstances change, except as otherwise required by law. This presentation also includes certain non-GAAP financial measures.

I'll now turn the presentation over to Keith Cozza, our Chief Financial Officer.

Thanks, Jesse. Good morning, and welcome to the third-quarter 2014 Icahn Enterprises earnings conference call. Joining me on today's call is SungHwan Cho, our Chief Financial Officer. I'd 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.

For the third quarter of 2014, Icahn Enterprises recorded a net loss attributable to Icahn Enterprises of $355 million, or $2.90 per LP unit, compared to net income of $472 million, or $4.10 per LP unit, in the prior-year period. Icahn Enterprises investment results for the third quarter of 2014 were impacted by a significant decline in our core energy positions. The Investment Funds recorded a total return of negative 5.3% for the quarter compared to a return of 18.4% in the prior-year quarter. Year-to-date, the Investment Funds remain up 4.4% compared to prior year of 26.3%.

Q3 of 2014 sales and operating EBITDA for Federal-Mogul improved from the prior-year period, driven by higher sales volumes and market share gains in our Powertrain division. In September, Federal-Mogul announced its plan to separate its Powertrain and Motorparts divisions into two independent, publicly-traded companies by spinning off the Motorparts division to current shareholders. The spin-off will provide additional operating and financial flexibility for each division to aggressively grow and improve this distinct business.

In our Energy segment, Q3 performance was impacted by the downtime caused by a fire at one of the refineries in late July. In spite of the downturn, combined refinery total throughput was over 176,000 barrels per day for the quarter. At CVR Partners, realized fertilizer prices for Q3 were in line with expectations, while UAN production was somewhat lower than anticipated.

Our Railcar segment continues to have strong tank railcar and hopper railcar shipments in Q3 of 2014. The segment also continues to build its lease fleet, which has grown to over 38,000 railcars at the end of the quarter.

In our Gaming segment, Tropicana's earnings have been solid despite weakness in the broader Atlantic City market. Trop AC has benefited from the closure of a competitor in Atlantic City, as well as from Internet gaming revenues which commenced in November of 2013. IEP ended the quarter with substantial liquidity with cash and liquid investments of the holding company totaling over -- approximately $5.9 billion. We continue to identify and execute on various investment opportunities across a number of our segments, which we believe will produce compelling returns over the long term.

With that, let me turn it over to Sung to discuss the financial results.

Thanks, Keith. I will briefly begin by reviewing our consolidated results for Q3 2014 and then highlight the performance of our operating segments.

In Q3 2014, the net loss attributable to Icahn Enterprises was $355 million, due primarily to the performance of the Investment Funds, as Keith mentioned earlier. As you can see on slide 5, Q3 2014 adjusted EBITDA attributable to IEP was a loss of $2 million compared to a gain of $714 million in the prior year. Most of the decrease was tied to the performance of the Investment segment in their respective periods.

I will now provide more detail regarding the performance of our individual segments.

Our Investment segment had a loss attributable to Icahn Enterprises of $270 million for Q3 2014. The Investment Funds that we manage had a return of negative 5.3% in Q3 2014 compared to a return of positive 18.4% in Q3 2013. Long positions had a negative 6.4% return for the current quarter, while short positions and other expenses had a positive performance attribution of 1.1%.

Year-to-date, the Investment segment has generated a 4.4% return compared to 26.3% in the first nine months of 2013. Since inception in November of 2004 through the end of Q3 2014, the Investment Funds' gross return is 273% or 14% annualized.

The Investment Funds continue to be significantly hedged. At the end of Q3 2014, net long exposure was 4% compared to 13% at the end of 2013. IEP's investment in the funds was $4.8 billion as of September 30, 2014.

And now to our Energy segment. For Q3 2014, our Energy segment reported net sales of $2.3 billion and consolidated adjusted EBITDA of $144 million. Q3 results were impacted by a fire that occurred in late July at CVR's Coffeyville refinery. Even with the downtime, the Coffeyville and Wynnewood refineries posted combined total crude throughput of 176,000 barrels per day for the quarter.

CVR Refining reported Q3 2014 adjusted EBITDA of $130 million compared to $34 million in the prior-year period. The increase is due to higher refining margins adjusted for FIFO, which were $13 per barrel in Q3 2014 compared to $8 per barrel in Q3 2013 as well as a higher quarter-over-quarter throughput rate.

CVR Partners reported Q3 2014 adjusted EBITDA of $21 million compared to $28 million in Q3 2013. Results for the third quarter were impacted by slightly lower-than-expected production due to an approximately five days of unplanned downtime in late July -- late August. Q3 2014 average realized plant gate price for UAN was $254 per ton compared to $259 per ton for the same period in 2013.

Now turning to our Automotive segment. Our Automotive segment's Q3 2014 sales were $1.9 billion compared to $1.7 billion for the prior-year period. Operational EBITDA was $152 million in Q3 2014, up 3% from Q3 2013. Federal-Mogul's improved financial results for the quarter were driven by higher sales volumes and market share gains in the Powertrain division as well as continued improvements in operational performance.

On a global basis, Powertrain had revenue of $1.1 billion in Q3 2014 compared to $1.0 billion in the prior-year period, due to increased volume and new business wins. Revenues increased by 4% in Europe, 7% in North America. Powertrain revenues in the rest of the world were up 11%, driven by strong sales in China and India. Year-over-year, global light vehicle production increased by 3% and commercial vehicle production declined by 3%.

Powertrain operational EBITDA continued to improve as the division recorded $104 million in Q3 2014, an increase of $10 million over the same period in 2013. In September, Federal-Mogul's Powertrain division signed a definitive purchase agreement to acquire TRW's engine valve business, which brings a new product line to the portfolio. The transaction is subject to regulatory and other approvals and is expected to close in the first quarter of 2015.

The Motorparts division had revenue of $859 million in Q3 2014, which is down from the prior year, excluding sales from two acquisitions. North American sales declined due to the exit of certain unprofitable businesses as well as lower sales in Mexico. European sales declined largely as a result of weaker aftermarket and service channels, including a significant decline in Eastern Europe. Sales in the rest of the world increased by 7%, driven by continued strong growth in Asia.

Motorparts' operational EBITDA was $48 million in Q3 2014, down $5 million in Q3 2013. The division continued to make progress strengthening its product portfolio. Integration of the recently-acquired Affinia chassis and Honeywell brake component businesses are underway and we see continued progress revamping Motorparts' distribution and service platforms.

Now turning to our Railcar segment. Railcar shipments for Q3 2014 were approximately 2,150 railcars, including approximately 1,920 railcars to the leasing customers as compared to 1,640 railcars for the prior-year period; of which, approximately 860 railcars were to leasing customers. The industry delivered approximately 18,000 railcars in Q3, according to the Railway Supply Institute with tank railcars accounting for the majority of railcars delivered.

Orders for covered hoppers, however, have been gaining momentum. Covered hoppers now represent 43% of industry backlog, up from 16% at the end of 2013, driven by strong demand for frac sand and plastic pellet cars. According to the Railway Supply Institute, the railcar manufacturing backlog increased to an all-time high of over 124,000 railcars at the end of Q3, compared to $73,000 at the end of 2013.

ARI's order backlog also grew to its highest point since 2007 with approximately 11,400 railcars in its backlog as of September 30, 2014. Total manufacturing revenues before intercompany eliminations for Q3 2014 increased by $67 million over the comparable prior-year period. The increase was primarily due to increased hopper railcar shipments and strong market conditions for tank railcars.

Railcar leasing revenues increased for Q3 2014 compared to the prior year due to an increase in the number of railcars leased to customers and an increase in the average lease rate. The lease fleet grew from approximately 33,000 railcars at the end of Q3 2013 to approximately 38,800 railcars at the end of Q3 2014. Lease rates remained strong, driven by strong demand from the energy sector.

Adjusted EBITDA attributable to IEP grew to $66 million compared to $16 million in the prior year. As a reminder, we acquired a 75% ownership in ARL in late 2013 and, therefore, adjusted EBITDA attributable to IEP for Q3 2013 does not include the EBITDA related to ARL for that period.

Now turning to the Gaming segment. Q3 2014 Gaming segment revenue and EBITDA improved from the prior year due to an increase in consolidated gaming volumes and the acquisition of Lumiere Place. Even without Lumiere, Tropicana saw growth at most of its properties. In particular, despite market pressures in Atlantic City, Tropicana AC increased revenue by 33% due to higher gaming volumes.

Tropicana's consolidated adjusted EBITDA for Q3 2014 was $37 million, more than double the EBITDA in Q3 2013. During the quarter, Tropicana was able to sell the River Palms property in Laughlin, Nevada, for $7 million. Tropicana finished the quarter with $184 million in cash and cash equivalents as of the end of the quarter.

Now turning to our Food Packaging segment. Net sales for Q3 2014 were flat at $95 million and adjusted EBITDA of $16 million in Q3 2014 was slightly below the prior-year period. The company was impacted by the political turmoil in Eastern Europe and diverted volumes to other areas of the world. Viskase's cash balance at the end of Q3 was $37 million.

Now to our Metals segment. Net sales for Q3 2014 decreased by $57 million compared to the prior-year period. Adjusted EBITDA was breakeven in Q3 2014 compared to a loss of $1 million in the prior year. The decrease in sales was primarily due to lower shipment volumes of ferrous and non-ferrous.

The market environment remains challenging as a weak export market, declining iron ore prices and competition for shredder feedstock impact the operating results of PSC. The company continues to invest in its operations with a focus on strengthening our competitive position within our existing markets.

And now to our Real Estate segment. Q3 2014 Real Estate revenues were $27 million, which was $4 million above the comparable prior-year period. Most of this increase was due to the residential unit sales in our Cape Cod development operations. The majority of our revenues from the Real Estate segment continue to be 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 $12 million of adjusted EBITDA in Q3 2014.

And now turning to Home Fashion. Net sales for Q3 2014 increased by $1 million, or 2%, compared to the prior-year period. The increase was primarily due to improved sales volume with certain key customers.

Looking forward, we are excited by new brands and believe we will have solid placements, which will help continue to improve topline growth. Adjusted EBITDA was $1 million in Q3 2014 compared to $2 million in the prior year period. Gross margin, as a percentage of net sales, was 14% for Q3 2014 as compared to 16% in the prior year. The decrease was primarily due to a change in sales mix.

As of September 30, 2014, WestPoint had $19 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 Q3 2014 with consolidated cash and our investment in the funds totaling approximately $7.9 billion. Our subsidiaries have approximately $2 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 segments. Thank you very much.

Now, operator, can you please open up the call for questions please.

Thank you. We'll now take questions as part of our Q&A session. (Operator Instructions) Dan Fannon, Jefferies.

I guess just on a high level, has anything changed as you think about the macro environment or just from an investment perspective, your idea about the environment in terms of how you're seeing opportunities, sourcing those opportunities and just looking at investments today versus how bullish you guys have been earlier in the year or even last year?

Hey, Dan. It's Keith. I don't think much has changed from our perspective. I think the environment continues to be robust from a point of view of what we do, our activist strategy. There is no shortage of opportunities and where we continue to identify new toehold positions that we think we could be the catalyst to unlock value.

But as far as the macro environment goes in general, we've been saying this for many years, we're always very cautious. We can never predict where markets are going to trade at and so we tend to keep the book pretty hedged.

You probably noticed or you will notice in the Q and I think Sung mentioned that we dramatically reduced our net long exposures. We ended the quarter at 4%, which is effectively flat versus -- I'm doing it from memory, but I believe last quarter was more in the 35% to 36% range, maybe 39%. So we're even a little bit more cautious on the macro environment, but on -- as far as stock picking and finding opportunities, where we can skew the results in our favor, so to speak, where we think we have a competitive advantage using activism, we're still seeing a robust pipeline of opportunities.

Great. And I guess any update on kind of performance thus far into the fourth quarter?

Yeah, we're -- you know the rules, the lawyers don't let us update it, so you are going to have to wait on that.

Fair enough. And then I guess just on the dividend, I guess, you guys have for in the last several years raised your payout. I guess as Carl and the Board think about going into 2015, any thoughts around updating the policy or any changes?

The Board reviews the policy every quarter, and then we'll have an even more robust discussion for the -- at the January Board meeting. So we don't have anything set in stone.

But I can tell you the Board's goal is to absolutely maintain the existing dividend at this level. And then we'll have a healthy debate based on the results and the outlook as to whether or not to increase that. But our goal certainly is to maintain the existing dividend.

(Operator Instructions) Mark Heiman, Saguaro Capital Advisors.

First question just on the Gaming segment, given that it's the first full quarter with Lumiere, would you be able to just strip out that EBITDA from comparisons so we can just see an apples-to-apples comparison?

I'm going to ask Sung if he has in front of us. Otherwise, we'll have to get back to you offline.

Yeah, I don't have the specific breakdown, so we can come back to you on that one.

Okay, that's fine. And then my second question, recent I guess press reports on the Trump bankruptcy; is that debt position held in the fund or is that a separate investment?

Half of the investment is held in the funds and half of it is held at the holding company level.

Okay, got it. And this may be premature, but is that with an eye to put it into the Gaming segment as part of Tropicana, or is it just too premature to think about that?

It's slightly premature, but I think you're thinking about it in the correct way and if -- as we work our way through the bankruptcy process, if we wind up owning -- consolidating greater than 50% position, it wouldn't be our goal to hold that in our Investment Funds. It would be part of the Gaming segment. That would be the goal, but it's probably a touch premature to speculate, giving all the moving pieces.

So, I mean obviously reported in the Gaming segment, but I mean would it -- but actually as part of Tropicana at the Company?

No, no, no, I'm sorry, let me be clear about that. Tropicana is its own public company. I just meant from a reporting standpoint.

But if we own -- so we own approximately 68% of Tropicana, and if we owned a greater than 50% position in the Trump equity, it would be at the segment level. It would be moved out of the Investment Funds.

Right. Of course, of course. Okay.

No, there is absolutely no plans right now or anything of that nature to combine with Trop or anything like that. It's just too premature; we're not even thinking along those lines right now.

Got it, got it. So right now it's an investment. Great. Okay, thanks very much.

I currently have no more questions in the queue.

Okay. Thanks a lot everybody, we'll look forward to talking to you after the New Year.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect.