Icahn Enterprises LP (IEP) 2015 Q4 法說會逐字稿

Good morning and welcome to the Icahn Enterprises LP Q4 2015 earnings call with Jesse Lynn, 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 on 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.

I'll now turn the call over to Keith Cozza, our Chief Executive Officer.

Thanks, Jesse. Good morning and welcome to the fourth-quarter 2015 Icahn Enterprises earnings conference call. Joining me on today's call is SungHwan Cho, our Chief Financial Officer.

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 segment. We will then be available to address your questions.

Adjusted net loss attributable to Icahn Enterprises for 2015 was $1.2 billion or $9.28 per LP unit, compared to adjusted net loss of $221 million or $1.82 per LP unit in 2014. For Q4 2015, the net loss attributable to Icahn Enterprises was $1.1 billion as compared to a net loss of $478 million in the prior year period. Adjusted EBITDA attributable to Icahn Enterprises for 2015 was $929 million compared to approximately $1 billion in 2014.

Our investment fund had a negative return of 18% in 2015 with returns being hampered by the performance of our long equity positions with significant exposure to the commodity market. Fourth-quarter 2015 sales for our Automotive segment were $2 billion, an increase of 9% over the fourth quarter of 2014. Net sales for the full-year 2015 were $7.8 billion or 6% above 2014 results. In addition to Federal-Mogul, 2015 results include the operations of IEH Auto, the auto parts distribution business acquired in the second quarter of 2015.

Subsequent to year-end, Icahn Enterprises acquired a majority of the outstanding shares of Pep Boys, a leading aftermarket provider of automotive service, tires, parts and accessories across the United States and Puerto Rico. This acquisition has tripled our corporate owned storefront -- footprint. And significantly enhanced our distribution capabilities. We are in the early stages of integrating Pep Boys with Auto Plus and are excited about the opportunities to grow revenue and market share in both the do-it-yourself and do-it-for-me markets.

To finance the purchase we redeemed capital from our investment in the fund. Similar to prior acquisitions, we will look to put in an appropriate capital structure at Pep Boys. We believe that we will be able to finance at attractive rates, taking advantage of the inventory and real estate assets of Pep Boys. We plan to redistribute cash back to IEP level in order to increase liquidity at the holding company and replenish our investment in the fund.

Yesterday, Icahn Enterprises delivered to the Board of Federal-Mogul an offer to acquire the remaining shares outstanding of Federal-Mogul common stock for $7.00 in cash. Federal-Mogul announced this morning that the Board will appoint the special committee of independent directors who, in consultation with independent financial and legal advisors, will carefully review and evaluate our proposal.

In our Energy segment, fourth-quarter results were impacted by the downtime associated with a major scheduled turnaround at CVR Refining's Coffeyville refinery. For the full year 2015, consolidated adjusted EBITDA was $755 million compared to $716 million in 2014. CVR Partners continue to make progress in planning for the integration of Rentech Nitrogen East Dubuque facility. Earlier this month, Rentech Nitrogen's unitholders approved the completion of the merger subject to the sale or spin out of Rentech Nitrogen's Pasadena facility prior to close.

Our Railcar segment had record railcar shipments of approximately 8,900 railcars in 2015. The segment continues to build its lease fleet with over 45,000 railcars at year-end. Lease rates were consistent with the prior year.

And finally in our Gaming segment, Tropicana had a strong operational year, especially at its Atlantic City property. Trop AC experienced higher gaming volumes as it has benefited from the closure of competitors and recent capital investment.

2015 was a challenging year, to say the least. We are very disappointed in our results but quite optimistic regarding the existing composition of our portfolio and the opportunity for value creation going forward. 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 2015 and then highlight the performance of our operating segments and comment on the strength of our balance sheet.

In Q4 2015, the net loss attributable to Icahn Enterprises was $1.1 billion compared to a net loss of $478 million in the prior year period. Full-year adjusted net loss attributable to Icahn Enterprises for 2015 after adding back the loss on extinguishment of debt was $1.2 billion, or $9.28 per LP unit compared to an adjusted net loss of $221 million or $1.82 per LP unit in the prior year period.

As you can see on slide 5, in Q4 2015 the increase in our net loss from prior year was driven by the performance of the investment funds which were negatively impacted by the performance of some of our core holdings, particularly in the energy sector. Also, we incurred significant non-cash impairments of assets primarily in the Auto, Energy and Mining segments. Adjusted EBITDA attributable to Icahn Enterprises for Q4 2015 was a loss of $240 million compared to a loss of $221 million in Q4 2014.

For the full year the increase in our 2015 net loss from prior year's results was primarily due to the net losses from the investment activities and the non-cash asset impairments in our Auto, Energy and Mining segments. Adjusted EBITDA attributable to Icahn Enterprises for 2015 was $929 million compared to $1 billion in 2014.

I will now provide more detail regarding the performance of our individual segments. Our Investment segment had a loss attributable to Icahn Enterprises of $641 million for Q4 2015, and a loss of $760 million for the full year. The investment funds that we managed had a loss of 15.6% in Q4 2015 compared to a 11.3% loss in Q4 2014.

Long positions lost 7.7% for the current quarter while short positions and other expenses had a negative performance attribution of 7.9%. For the full-year 2015, the Investment segment lost 18% compared to a 7.4% loss for 2014. Long positions had an 18.1% loss for the full-year 2015 while short positions and other expenses has a positive performance attribution of 0.1%.

Since inception in November 2004 through the end of 2015, the investment funds gross return is 171% or 9.3% annualized. The investment funds continue to be significantly hedged. At the end of 2015, the funds were net short 25% compared to a net long 14% at the end of 2014. IEP's investment in the funds was $3.4 billion as of December 31, 2015.

In Q1 2016, we redeemed $1.05 billion from the funds to fund the purchase of our Pep Boys acquisition.

And now to the Energy segment. For Q4 2014 -- or for Q4 2015, the Energy segment reported revenues of $1 billion in consolidated adjusted EBITDA $53 million compared to revenues of $1.9 billion and consolidated adjusted EBITDA of $133 million for the prior year period. Fourth-quarter operating results were net negatively affected by the downtime associated with the major scheduled turnaround at CVR Refining's Coffeyville refinery.

For the full-year 2015, the Energy segment reported revenues of $5.4 billion and consolidated adjusted EBITDA of $755 million compared to revenues of $9.3 billion and consolidated adjusted EBITDA of $716 million for 2014. CVR Refining reported Q4 2015 adjusted EBITDA of $16 million compared to $105 million in the prior-year period. The decline is primarily due to Coffeyville refinery turnaround downtime I mentioned earlier as well as narrowing crack spreads. Refining margin adjusted for FIFO impact for crude oil throughput barrel, a non-GAAP financial measure, was $8.96 in Q4 2015 compared to $11.28 in the prior-year period. This decrease is primarily driven by lower regional crack spreads. CVR Partners reported Q4 2015 adjusted EBITDA of $29 million compared to $34 million in Q4 2014. CVR Partners experienced record production levels for both ammonia and UI and in Q4 made possible by the maintenance and upgrades made during the Q3 turnaround for the fertilizer facility.

For Q4 2015 average realized gate prices for UAN and ammonia were $221 per ton and $479 per ton, respectively, compared to $247 per ton and $547 per ton, respectively, for the same period in 2014.

Due to the challenging price environment for nitrogen fertilizer during Q4 2015, we performed interim impairment testing for the goodwill associated with the fertilizer operations and determined that we need to write off the entire goodwill balance of $253 million. Also during Q4 2015, CVR Partners continued to make progress in planning for the integration of Rentech Nitrogen's East Dubuque facility.

Despite the challenging price environment, we continue to believe that the CVR Partners will benefit from the geographic and feedstock diversification that will come with the additional facility.

Now turning to our Automotive segment. Our Automotive segment's Q4 2015 net sales were $2 billion, up 9% from the prior-year period. Net sales for the full-year 2015 were $7.8 billion or 6% above 2014 results. 2015 results included the operations of IEH Auto, the auto parts distribution business acquired in Q2 2015. Consolidated adjusted EBITDA for our Automotive segment was $169 million in Q4 2015 compared to $119 in Q4 2014. For the full-year 2015, consolidated adjusted EBITDA was $650 million compared to $630 million for 2014.

Federal-Mogul on a standalone basis reported Q4 sales of $1.8 billion, which was in line with the comparable prior-year period. Net sales increased -- net sale increases, driven largely from the acquired Valvetrain business as well as strong US and Canada domestic aftermarket sales were offset by the impact of currency exchange rate fluctuations.

Operational EBITDA in Q4 2015 was $164 million, up $45 million or 38% compared to Q4 $12 million of negative EBITDA impact due to currency exchange rate fluctuations. IEH auto on a standalone basis had Q4 2015 net sales of approximately $175 million and adjusted EBITDA of $5 million. We put in place an asset-backed revolver facility in Q4 2015. We closed on an initial $125 million in Q4 and subsequently in Q1 2016 expanded the facility to a total of $210 million. We have drawn down on $100 million from the facility and have distributed the proceeds back to IEP $75 million in Q4 2015 and $25 million in Q1 2016.

During Q4 2015, we performed our annual impairment testing of goodwill for the automotive segment and recorded a $312 million goodwill impairment associated with the motor parts division.

Now turning to our Railcar segment. Our Railcar segment had record railcar shipments in 2015 of approximately 8,900 railcars including approximately 5,060 railcars to leasing customers, as compared to 8,000 railcars for the prior year of which approximately 5,200 railcars were to leasing customers.

As of December 31, 2015, ARI had a backlog of approximately 7,080 railcars, including 1,450 railcars for leased customers. According to the Railway Supply Institute, the railcar manufacturing backlog decreased from a record level of nearly 143,000 railcars at the end of 2014, down to approximately 111 railcars at the end of 2015. 79% of the current industry backlog is comprised of tank cars and covered Hopper cars, the two primary railcar types manufactured and leased by our Railcar segment.

The leasing businesses within the Railcar segment continue to perform well. in 2015 we grew the combined lease car portfolios to roughly 45,000 cars from approximately 39,000 cars at the end of 2014.

Lease rates in 2015 were consistent with the prior year. Adjusted EBITDA attributable to IEP grew to $318 million in 2015 compared to $269 million in the prior year. The increase was primarily driven by the growth of the leasing businesses. Our Railcar segments liquidity position is strong with $623 million of cash at the end of 2015.

Now turning to our Gaming segment. Total Gaming segment operating revenues were $811 million in 2015 compared to $759 million in 2014. The increase was primarily due to higher gaming volumes at Trop Atlantic City as well as the impact of the [Lumiere] acquisition in April 2014.

Tropicana Atlantic City casino revenues have benefited from the closure of several competitors in 2014. The Atlantic City market experienced year-over-year declines in casino win of 6.5%. Tropicana's slot hold percentage was 9.6% for 2015 compared to 9.5% for 2014, and their table game hold percentage was 16.8% for 2015 compared to 17.6% for 2014.

Tropicana's consolidated adjusted EBITDA for 2015 was $142 million compared to $99 million in the prior year. The increase in EBITDA was primarily due to higher revenues in Atlantic City, and a full year of the Lumiere acquisition.

We continue to reinvest in our properties. We've completed major renovations in our Atlantic City and lake Tahoe locations with positive results and have recently announced a $50 million investment to bring Lance iGaming to our location at Evansville Indiana. Tropicana has a solid balance sheet with $217 million in cash and cash equivalents as of December 31, 2015.

Now turning to food packaging. Net sales for 2015 decreased by $21 million or 6% compared to the prior year. The decrease is primarily due to unfavorable foreign currency translation in country sales mix, offset in part by increased sales volume. Pricing globally has been weak due to competitors with weaker functional currencies and some excess capacity.

Consolidated adjusted EBITDA of $59 million in 2015 was down $7 million from the prior-year period. Gross margin as a percentage of net sales was 24% in 2015, compared to 25% in 2014. This case's cash balance at the end of 2015 was $37 million.

And now to the Metals segment. Net sales for the year ended December 31, 2015 decreased by $350 million or 49% compared to the prior year. Shipment volumes and selling prices were lower in 2015 than in 2014 for all product lines with the exception of nonferrous brokerage volume. The net sales decrease was primarily driven by lower ferrous and nonferrous shipment volumes and selling prices.

Adjusted EBITDA was a loss of $29 million in 2015 compared to a loss of $15 million in 2014. Gross margin as a percentage of net sales was a loss of 12% for 2015 compared to a loss of 2% for the prior year. The market environment remains challenging with reduced demand from domestic steel mills, a weak export market declining iron ore prices and the competition for shredder feedstock.

The Company continues to invest in its operations with a focus on strengthening our competitive position within our existing markets.

And now to Real Estate. 2015 Real Estate revenues were $131 million which was $30 million above the comparable prior-year period. The increase was primarily due to gains recorded from the sales of net lease properties and the Oak Harbor operations in 2015 offset partially by lower development sales, club revenues and net lease income.

In 2015, we sold 14 net lease properties for net proceeds of $55 million generating a gain of $37 million. Net lease income is down year-over-year due to the sales of properties in the real estate net lease portfolio. Revenues from our Club operations were down from their prior year due to the sale of Oak Harbor operations in Q2 2015. Our net lease portfolio continues to drive earnings in the segment with its 15 properties generating strong cash flows. The Real Estate segment generated $45 million of adjusted EBITDA in 2015.

Now turning to mining. As we discussed in our Q2 2015 earnings call, IAP obtained control of Ferrous Resources Limited during the second quarter 2015 through a tender offer for outstanding shares. Ferrous Resources owns rights to certain iron ore mineral resources in Brazil and develops mining operations to produce and sell iron ore products in the global steel industry. Our Mining segment has been concentrating sales in Brazil where the best margins are being captured.

During the second half of 2015 both domestic and global steel industries continued to show weakness as steel mill utilizations rates have not recovered in the seaborne iron ore prices fell to under $45 per metric ton by year-end. Our Mining segment expects the foreseeable future to be challenging for the steel industry as it contends with slowing growth, overcapacity and increased competition.

As a result of deteriorating market conditions, IAP recorded impairments to PP&E and fully impaired the small amount of goodwill recorded with the purchase of the mining operations for Q2 2015.

Now turning to home fashion. 2015 net sales increased by $17 million compared to the prior-year period due to higher sales volumes. We are continuing to concentrate on higher margin volumes and believe we will have solid placements in 2016.

Adjusted EBITDA was $6 million in 2015 compared to $5 million in the prior year. Gross margin as a percentage of net sales was 16% for 2015 as compared to 14% in 2014. The improvement was primarily due to higher margins on more profitable programs and customers. As of the end of 2015, WestPoint had $14 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 2015 with cash, cash equivalent, liquid assets, our investment in the funds and availability on the revolver of approximately $6.3 billion. Our subsidiaries have approximately $1.9 billion in cash and $0.7 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 of our existing operating segments. Thank you very much.

Operator, can you please open the call for questions, please?

(Operator Instructions). Dan Fannon, Jefferies.

Thanks, good morning. First just on liquidity, I guess maybe if you could kind of give us an update on discussions with the rating agencies and I believe you mentioned a little bit over $1 billion that came out of the fund to fund the Pep Boys. Can we talk about just how subsequent to that you think about repayment of that or how we can see the fund potentially grow, subsequent to that happening?

Sure. As far as conversations with the rating agencies, we have those regularly. Obviously, S&P issued the note putting us on negative watch, and I think it pertains today they recently issued in December if I'm not mistaken new criteria covering holding companies that we've been classified as; we are a bit of a unique company, as you know, so it's hard to fit us into any particular criteria.

But nevertheless, one of the items in the new criteria relates to total asset value coverage versus debt in that ratio, and I think they put out in their note that it was around -- hovering around the percentage that they were comfortable with, and since then the percentage has increased a little bit based on the publicly available trading prices and some of the subsidiaries, and that's what prompted them to put it on credit watch.

So we continue to talk to them. Generally, if you have any questions or give them how we are thinking about the world, and the availability of liquidity and things of that nature. And they will make their decision in the next 90 days, I guess, one way or the other.

As far as liquidity at Pep Boys and getting it back up, I would say this. We paid approximately $1 billion for Pep Boys, and they have a great owned real estate portfolio, they have rough numbers $500 million to $600 million of inventory, our other business Auto Plus has $300 million plus of inventory, and we are working on integrating both businesses and harvesting additional synergies.

So that, obviously, when you have all that as background information, that capital structure would be pretty inefficient to be all equity. So we are working with banks on all avenues, whether it be the ABL market, the term loan market, whether it be something in the real estate market with sale-leasebacks or something of that nature, to come up with what the optimal structure would be from a cost perspective, and the use -- so we will determine that probably in the next three to six months. And the use of those proceeds, a good portion of them would be to return it back to the holding company, and replenish the balance sheet, and we don't want to maintain too much at the balance sheet, so a good portion of that would inevitably go back into the fund.

So that's kind of how we are thinking about it.

That's helpful. And on the fund itself, looks like the short position, the hedges is kind of consistent with last quarter. I assume they are working more in your favor to start the year. Could you give any color on kind of year-to-date either the fund?

I can't. I think you ask that every quarter but we're just not in a position to comment on forward-looking guidance regarding the fund. But as far as year-end goes, we've continued to maintain that cautious view of the general macro environment, which is illustrated by the debt exposures.

And I guess within the Energy segment, just hedging within that, I assume there's not a lot of forward hedging going on, given some of the actual commodity prices. But things that potentially that were put on last year that potentially still provides some help in terms of the current decline in commodity prices?

Yes. They have a handful, it's not a large number but they have a handful of hedges put on from whether 12 to 18 months ago that obviously are way in the money and it will provide some benefit. You can see it on CBI's financials probably recorded as unrealized gains on hedges. Something along those lines. But it's not material. As far as putting anything on at these levels, to us, it doesn't make sense.

Got it. Thanks.

(Operator Instructions). Andrew Berg, Post Advisory Group.

Just a question going back to Pep Boys. I think you said $500 million, $600 million inventory at PBY, I know $300 million at Auto Plus, and then you made a comment with respect to the real estate. Can you provide any ballpark estimates of what the phone value of the real estate is, what the value of the owned real estate is, excuse me?

In Pep Boys, if you go through their old public disclosures, they had appraisals that put their owned real estate north of $700 million.

Okay. So, in terms of capital and what you could potentially bring back up through the holdco, and either put down the hedge fund, you get the inventory then plus that, that real estate amount? So it's a fair amount of borrowing capacity down there.

That's right, yes.

Just want to confirm that. Thank you.

Josh Lipchin, Eaton Vance.

Great. If you're successful with the Federal-Mogul tender, how would you fund that?

So it's not a tender, first of all. But if we ultimately can work out the acquisition to a mutually agreed deal with the special committee, it would be funded from cash at holdco. The answer just depends on timing. If we were closing it tomorrow we would probably take a couple hundred million dollars out of the Investment segment to fund it. But I told you, as we stated regarding Pep Boys, our intention over the next three to six months are to significantly optimize that capital structure, which should lead to some cash excesses at holdco. So it just really depends on timing. But it's not -- everything is relative, but it's not a $1 billion acquisition at the $7.00 offer price, it's approximately $210 million.

Are there any circumstances which you would consider issuing additional shares out of IEP?

I mean, it just depends. The answer is, it depends. Historically we have shown a willingness to do that if we think it's at a fair valuation. I'm doing this from memory, I believe we did a rights offering in 2012, and we obviously did the re-separate equity offerings in 2013, I believe. So it really just depends on our view evaluation and balancing between valuation and dilution and the opportunity set at hand.

Thank you.

I currently have no more questions in queue.

Thanks, everybody. We look forward to talking to you after the first-quarter results. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, you may all disconnect. Everyone have a great day.