Icahn Enterprises LP (IEP) 2016 Q1 法說會逐字稿

Good morning, and welcome to the Icahn Enterprises L.P. Q1 2016 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. Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for forward-looking statements we make in this presentation, including statements regarding our future performance and plans for our businesses and potential acquisitions. These forward-looking statements involve risks and uncertainties that are discussed in our filings with the Securities and Exchange Commission, including economic, competitive, legal, and other factors. Accordingly, there is no assurance that our expectations will be realized.

We assume no obligation to update or revise any forward-looking statements should circumstances change, except as otherwise required by law. This presentation also includes certain non-GAAP financial measures.

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

Thanks, Jesse. Good morning, and welcome to the first-quarter 2016 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 segments. We will then be available to address your questions.

For Q1 2016, the net loss attributable to Icahn Enterprises was $837 million or $6.21 per L.P. unit compared to net income of $161 million or $1.27 per L.P. unit in the prior-year period. The Q1 net loss attributable to Icahn Enterprises included a $334 million non-cash goodwill impairment charge at our Energy segment.

Adjusted EBITDA attributable to Icahn Enterprises for Q1 2016 was a loss of $80 million compared to a gain of $586 million in Q1 of 2015. Our investment funds had a negative return of 12.8% in Q1 of 2016 versus the positive return of 4.3% in Q1 of 2015. Returns were hampered by the decline in value of certain core long equity positions and the increase in value of certain short equity positions, including various market hedges. First-quarter 2016 sales for our automotive segment were $2.3 billion, an increase of 26% over first-quarter of 2015.

During Q1, Icahn Enterprises acquired 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 store footprint and significantly enhanced our distribution capabilities. We are in the early stages of integrating the operations of both Pep Boys and Auto Plus, and are encouraged by the significant synergies we have identified.

In our Energy segment, Q1 results were impacted by the downtime associated with the final phase of a major scheduled turnaround at CVR Refining's Coffeyville refinery, as well as the aforementioned full impairment of goodwill associated with the refinery business. For Q1 2016, consolidated EBITDA was $61 million compared to $236 million in Q1 of 2015.

Subsequent to quarter-end, CBR Partners completed its acquisition of Rentech Nitrogen's East Dubuque fertilizer facility. We believe that CBR Partners will benefit from the geographic and feedstock diversification that will come with the additional facility.

In our Rail Car segment, investments in our railcar services and railcar leasing businesses continued to complement our manufacturing operations, with both business lines helping to offset the lower volume of new railcar shipments. The segment's lease fleet was over 45,000 railcars at the end of Q1 2016, with average lease rates improving from the prior-year period. Also, during Q1, IEP acquired the remaining 25% economic interest in American Railcar leasing not already owned by us, in exchange for the issuance of IEP depository units.

In our Gaming segment, Tropicana had a strong operational quarter across several of its properties, especially in Atlantic City. Trop AC experienced higher gaming volumes, as it has benefited from the closure of competitors and recent capital investments. Additionally, we have added another operating casino in Atlantic City market to our Gaming segment with the acquisition of Trump Taj Mahal upon its emergence from bankruptcy in February of 2016.

In March, Tropicana entered into an agreement to manage the Trump Taj Mahal Casino. We are optimistic that Tropicana management team can create significant value at Taj Mahal and help the property reach its full potential. We were very active in the first quarter, closing several acquisitions in a number of our segments, and we remain focused on integrating these businesses into our existing operations.

With that, let me turn it over to Sung.

Thanks, Keith. I will begin by briefly reviewing our consolidated results, and then highlight the performance of our operating segments and comment on the strength of our balance sheet.

In Q1 2016, the net loss attributable to Icahn Enterprises was $837 million compared to a net income of $161 million in the prior-year period. As you can see on slide 5, in Q1 2016, the net loss was driven by the performance of the investment funds in our Energy segment. Our investment funds were negatively impacted by the performance of some of the core holdings, particularly in the Energy sector.

In our Energy segment, we incurred a full impairment of goodwill associated with the refinery business. Adjusted EBITDA attributable to Icahn Enterprises for Q1 2016 was a loss of $80 million compared to a gain of $586 million in Q1 2015.

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

Our Investment segment had a loss attributable to Icahn Enterprises of $450 million for Q1 2016. The investment funds had a return of negative 12.8% in Q1 2016 compared to a return of a positive 4.3% for Q1 2015. Long positions had a negative 2.7% return for the current quarter, while short positions and other expenses had a negative performance attribution of 10.1%.

Since inception in November 2004 through the end of Q1 2016, the investment funds gross return is 136% or 8% annualized. The investment funds continue to be significantly hedged. At the end of Q1 2016, net short exposure was 149% compared to a net short exposure of 25% at the end of 2015.

IEP's investment in the funds was $1.8 billion as of March 31, 2016. During the first quarter, we redeemed $1.05 billion from the funds to fund the acquisition of Pep Boys.

And now to our Energy segment. For Q1 2016, our Energy segment reported revenues of $905 million and consolidated adjusted EBITDA of $61 million compared to revenues of $1.4 billion and consolidated adjusted EBITDA of $236 million for the prior-year period.

Operating results for Q1 2016 were negatively impacted by the downtime associated with the final phase of a major scheduled turnaround at CVR Refining's Coffeyville refinery. CVR Refining reported Q1 2016 adjusted EBITDA of $35 million compared to $162 million in the prior-year period. The decline is due to the Coffeyville refinery turnaround downtime as well as weak crack spreads.

Refining margin adjusted for FIFO impact per crude oil throughput barrel, a non-GAAP financial measure, was $7.19 in Q1 2016 compared to $15.03 in the prior-year period. This decrease was primarily driven by lower regional crack spreads. Due to the challenging pricing environment during Q1 2016, we performed interim impairment testing for the goodwill associated with the refining operations, and wrote off the entire balance of $574 million.

CBR Partners reported Q1 2016 adjusted EBITDA of $28 million compared to $38 million for Q1 2015. The Coffeyville fertilizer plant continued to operate well, following last year's turnaround, and has maintained its performance since posting record production rates for the fourth-quarter of 2015. For Q1 2016, average realized gate prices for UAN and ammonia were $209 per ton and $367 per ton, respectively, compared to $263 per ton and $553 per ton, respectively, for the same period in 2015.

Now turning to our Automotive segment. Our Automotive segment's Q1 2016 net sales were $2.3 billion, up 26% from the prior-year period, primarily due to the inclusion of Pep Boys and IEH Auto businesses. During Q1 2016, Icahn Enterprises acquired Pep Boys, a leading provider of automotive service, tires, parts and accessories across the US and Puerto Rico.

Pep Boys and IEH Auto were being operated together in order to grow their sales to the do-it-for-me distributors and service professionals to grow their automotive service business, and to maintain their do-it-yourself customer based by offering the broadest product assortment in the automotive aftermarket. Consolidated adjusted EBITDA for our Automotive segment was $208 million in Q1 2016 compared to $142 million in Q1 2015.

Federal mobile on a standalone basis reported Q1 sales of $1.9 million -- $1.9 billion, up 3% over the comparable period last year. Net sales increases from the acquired Valvetrain business, as well as strong US and Canadian domestic aftermarket sales, were partially offset by the impact of currency exchange rate fluctuations.

Operational EBITDA in Q1 2016 was $193 million, up $51 million or 36% compared to Q1 of 2015. IEH Auto and Pep Boys on a standalone basis had Q1 2016 revenue of approximately $520 million and adjusted EBITDA of $24 million. Please note that Pep Boys results include only two months of operations since the acquisition at the beginning of February 2016. Neither company was included in the financials for Q1 2015.

Now, turning to the Railcar segment. Our Railcar segment had railcar shipments in Q1 2016 of approximately 1,330 railcars, including approximately 200 railcars to leasing customers as compared to 2,670 railcars for the prior-year period, of which approximately 1,780 railcars were to leasing customers.

As of March 31, 2016, ARI had a backlog of 5,958 railcars, including 1,360 railcars for lease customers. According to the Railway Supply Institute, the railcar manufacturing backlog has decreased from a record level of nearly 143,000 railcars at the end of 2014, down to approximately 95,000 railcars at the end of Q1 2016. 78% of the current industry backlog is comprised of tank cars and covered hopper railcars, the two primary railcar types manufactured and leased by our Railcar segment.

The leasing businesses within the Railcar segment continue to perform well. In Q1 2016, we grew the combined leased car portfolios to roughly 45,000 railcars from approximately 41,000 railcars at the end of Q1 2015. Average lease rates in Q1 2016 improved from the prior-year period. During Q1 2016, IEP acquired the remaining 25% economic interest in American Railcar Leasing not already owned by us via the issuance of additional IEP depository units.

Adjusted EBITDA attributable to IEP for the Railcar segment grew to $97 million in Q1 2016 compared to $68 million in the prior-year period. The increase was primarily driven by the growth in increased ownership of the leasing businesses.

Now, turning to our Gaming segment. During Q1 2016, we obtained control and began consolidating the results of Trump Entertainment Resorts, which owns and operates Trump Taj Mahal Casino Resort in Atlantic City, New Jersey. Q1 2016 financials include approximately one month of results from Trump Entertainment.

Total Gaming segment operating revenues were $218 million in Q1 2016 compared to $193 million in Q1 2015. The increase was primarily due to higher gaming volumes at Trop AC as well as the impact of the Trump acquisition in February of 2016. Trop AC casino revenues have benefited from a capital renovation project that was completed in the middle of 2015.

The Atlantic City market experienced year-over-year increases in casino wins of 3.1%. Tropicana's slot hold percentage was 9.6% for Q1 2016 compared to 9.4% for Q1 2015. Tropicana's table game hold percentage was 18.6% for Q1 2016 compared to 17.5% for Q1 2015.

Our Gaming segment's consolidated adjusted EBITDA for Q1 2016 was $34 million compared to $30 million in the prior-year period. The increase in EBITDA was primarily due to higher revenues in Atlantic City as well as improved performance at Lumiere Place and Trop Evansville.

Now turning to our Food Packaging segment. Net sales for Q1 2016 decreased by $8 million or 9% compared to the prior-year period. The decrease was primarily due to unfavorable foreign currency translation, lower sales volume, and unfavorable price and product mix. Pricing globally has been weak, due to competitors with weaker functional currencies and some excess capacity.

Consolidated adjusted EBITDA of $10 million in Q1 2016 was down $3 million from the prior-year period. Gross margin as a percentage of net sales was 21% in Q1 2016 compared to 22% in Q1 2015.

Now to our Metal segment. Net sales for Q1 2016 decreased by $48 million or 45% compared to the prior-year period. The net sales decrease was driven by lower shipment volumes and lower selling prices across all product lines. Adjusted EBITDA was a loss of $6 million in Q1 2016 compared to a loss of $9 million in the prior-year period.

Gross margin as a percentage of net sales was a loss of 10% for Q1 2016 compared to a loss of 9% for the prior-year. Although scrap prices have started to recover, prices are still at low levels and volumes continue to be challenging in this market environment.

And now, to our Real Estate segment. Real Estate revenues were $19 million in Q1 2016, which was $19 million below the comparable prior-year period. In Q1 2015, a $19 million gain was recorded from the sale of a net lease property. Operating revenue from our Real Estate segment were substantially derived from our resort and rental operations for both Q1 2016 and Q1 2015.

Our net lease portfolio continues to drive earnings in this segment with its 15 properties generating strong cash flows. The Real Estate segment generated $9 million of adjusted EBITDA in Q1 of 2016.

Now to our Mining segment. Our Mining segment has been concentrating on sales in Brazil where the best margins are being captured. Iron ore prices have rebounded significantly from year-end based upon increased demand in China.

Now turning to the Home Fashion segment. Q1 2016 net sales increased by $3 million compared to the prior-year, due to higher sales volumes. We are continuing to concentrate on higher-margin lines, and believe we will have solid placements for the remainder of 2016. Adjusted EBITDA was $2 million in Q1 2016, which was consistent with the prior-year period. Gross margin as a percentage of net sales was 16% for Q1 2016 as compared to 15% for Q1 2015.

Now I will discuss our liquidity position. We maintain ample liquidity at the holding company and at each of our operating subs to take advantage of attractive opportunities. We ended Q1 2016 with cash, cash equivalents, liquid assets, and our investment in the investment funds, and revolver availability totaling approximately $4.5 billion. Our subsidiaries have approximately $1.7 billion of cash and $0.8 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 the opportunities within and outside of our existing operating segments. Thank you.

Operator, can you please open it up for questions?

(Operator Instructions) Dan Fannon, Jefferies.

I guess just on the fund, can you first give us some timing of when some of the capital might come back into the vehicle with -- post the Pep Boys, I think it was $1 billion you referenced that went to finance that?

And then I get the numbers around the positioning net short. I guess just broadly, if you could just give some context around how you guys are thinking about the markets a little bit today? Obviously, that positioning is more negative certainly than where you were at the end of the year. So just kind of give us a little bit more color, would be helpful.

Sure. Hey, Dan, it's Keith. Your first -- with respect to your first question, we continue to work with various banks on the capital structure of Pep Boys, which is effectively unlevered at this point. And we think we'll have at least Phase 1 of the capital structure probably put in place sometime this summer, which will probably be in the form of some sort of asset-backed loan, just given the sizable levels of inventory and receivables that both Auto Plus and Pep Boys carry.

So, it's pretty ripe for an ABL and it's cost-effective. So we'll work to probably implement that sometime this summer.

We continue to explore options related to the real estate. And depending on the level of proceeds received from these various financings we're considering, it will involve some portion of the cash going back up to Holdco, the holding company. And effectively, we'll evaluate the liquidity at holding company, and some of it very well could go back into the Investment segment.

As far as the positioning of the funds, I think Carl has been fairly vocal in recent weeks in the media that it reflects our views of the markets of very high multiple market S&P's trading -- I would use the term frothy. And I think it reflects our concern related to -- we are much more concerned about the market going down 20% than we are it going up 20%. And so the significant weighting to the short side reflects that.

Sung mentioned earlier -- and you will see in the 10-Q when it's released -- significant net short equity exposures. I would add on top of that, we have a number of long commission -- long positions that are linked to commodities that have a very high beta relative to the market. And so, although the number can look significant from a net short position, in balancing it out and trying to hedge out macro risk, some of our long positions do have significantly -- significant amount of volatility compared to the general market. So, part of it is that as well.

Great, that's helpful. And I guess just thinking about the distributions that are coming out from the Holdco's -- the CVR not paying a distribution, I think, in the first quarter. And then thinking about that covering the corporate interest expense and kind of the Holdco cost, could you just give us an update as to what the overall kind of dividend outlook from your ownership across your various businesses, how you think about that progressing this year?

Sure. So, I just want to clarify one point, though. Although CVRR did not pay a dividend this quarter, CVI maintained its dividend policy. It maintained its dividend of $0.50 and did pay a $0.50 dividend up to IEP. So I just wanted to clarify that. Because CVI runs with significant excess liquidity.

But, that being said, our -- we are continuing to take distributions from ARI. They continue to have a decent pipeline of cash flow that I don't foresee any reason that that would change. And CVI has ample access liquidity and cash, but we're going to -- the Board of CVI reevaluates that quarterly. Because, as you pointed out, the underlying refinery, with crack spreads where they are, has definitely been challenged in the first quarter.

But they do run excess cash where they are going to reconsider it every quarter. But we are hopeful that cracks improve a little bit and we'll be able to maintain the dividend there, which will be ample cash flow up to IEP.

One additional thing that's happened in the quarter that we mentioned was the American Railcar Leasing, which has significant excess cash, and actually moved $125 million up to the holding company -- Icahn Enterprises Holding Company. American Railcar Leasing, now that they own 100% of it, they will enjoy the benefits of even bigger dividends from the railcar operation, from the leasing operation.

Great. Thank you.

Yes. Thanks, Dan.

Thank you. (Operator Instructions) And at this time, I'm showing no further questions. I'd like to turn the call back over to management for any closing remarks.

Okay. Thank you. We look forward to speaking with everybody to discuss our second-quarter results in a few months. And thanks for your interest in IEP. Talk soon.

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