Icahn Enterprises LP (IEP) 2016 Q4 法說會逐字稿

Good morning. And welcome to the Icahn Enterprises LP Q4 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, Operator. 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 otherwise required by law. This presentation also includes certain non-GAAP financial measures. A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the back of this presentation.

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

Thanks, Jesse. Good morning. And welcome to the fourth 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 segment. We will then be able to address your questions.

Net loss attributable to Icahn Enterprises for 2016 was $1.1 billion, or $8.07 per LP unit compared to a net loss of $1.2 billion, or $9.29 per LP unit in 2015. For Q4 2016, the net loss attributable to Icahn Enterprises was $206 million, as compared to a net loss of $1.1 billion in the prior-year period. Adjusted EBITDA attributable to Icahn Enterprises for 2016 was $842 million, compared to approximately $930 million in 2015.

For the fourth quarter of 2016, indicative net asset value increased by $1.4 billion to $5.6 billion, compared to $4.2 billion as of September 30, 2016. Our investment funds had a negative return of 8.7% in the fourth quarter of 2016, and a negative return of 20.3% for the full year of 2016. Performance was driven by losses in our short equity exposure, offset in part by gains in our long equity positions, primarily in a few of our largest core holdings.

Net sales for our Automotive segment in Q4, 2016, were $2.3 billion, compared to $2 billion in the prior year period. This 16% net sales increase was primarily due to the Q1 2016 acquisition of Pep Boys. Net sales for full year 2016 were $9.4 billion, or 21% above 2015 results. In January 2017, Icahn Enterprises purchased the 18% of Federal-Mogul it did not already own for total consideration of $305 million. Federal-Mogul is now a private company 100% owned by Icahn Enterprises.

In our Energy segment, our Q4 2016 net sales were $1.4 billion, and consolidated adjusted EBITDA was $43 million. CVR Refining posted solid operational performance during the quarter with combined crude throughput of 207,000 barrels per day. CVR partners Coffeyville and East Dubuque facilities also recorded high on screen rates for their fertilizer operation. CVR Energy's fourth quarter earnings were negatively impacted by seasonally weak refining margin and increased (inaudible) expense.

In our Railcar segments, investments in our Railcar Services and Railcar Leasing businesses continue to compliment our manufacturing operations. The segments lease fleet was over 45,000 Railcars at the end of Q4 of 2016. In December of 2016, IEP announced the sale of American Railcar Leasing. The transaction values the business at approximately $3.4 billion. The initial sale of approximately 29,000 rail cars is expected to close in the second quarter of 2017 and generate net proceeds of approximately $1.1 billion. We have the ability to sell an additional 4,800 railcars for up to three years upon meeting certain conditions for a value of an additional $586 million as of the initial closing date.

In our Gaming segment, Tropicana finished 2016 on a strong note, delivering solid performance for the quarter. Our Atlantic City, Evansville and Laughlin properties recognized increased year-over-year revenue and profitability in 2016. Subsequent to year end, IEP issued approximately $1.2 billion of new senior unsecured notes maturing in 2022 and 2024 to refinance the 2017 notes that were maturing in Q1 of 2017.

Yesterday, we announced the completion of our previously announced equity rights offering, which raised proceeds of $600 million to support IEPs credit rating and to bolster the holding company's liquidity position. As you can see, it was a busy fourth quarter, which continued into the first quarter of this year, our balance sheet is strong with ample capital to deploy as we find new investment opportunities.

With that, let me turn it over to Sung.

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

In Q4 2016, the net loss attributable to Icahn Enterprises was $206 million, compared to a net loss of $1.1 billion in the prior-year period. Full year net loss attributable to Icahn Enterprises for 2016 was $1.1 billion, or $8.07 per LP unit, compared to a net loss of $1.2 billion, or $9.29 per LP unit in the prior year period.

As you can see on slide five, in Q4 2016, IEP had a decrease in our net loss from prior year. Q4 2015 had higher losses in the investment funds, and we also incurred significant non-cash impairments of assets, primarily in the auto, energy and mining segments. Adjusted EBITDA attributable to Icahn Enterprises for Q4 2016 was $153 million, compared to a loss of $239 million in Q4 2015.

For the full-year 2016, we had a net loss attributable to IEP of $1.1 billion, compared to a net loss of $1.2 billion in 2015. Lower impairments in our automotive and mining segments, as well as lower losses in the investment funds were partially offset by higher impairments in Energy and Gaming segments. Adjusted EBITDA attributable to Icahn Enterprises for 2016 was $842 million, compared to $930 million for 2015.

I will now provide detail regarding the performance of our individual segments. Our investment segment had a loss attributable to Icahn Enterprises of $158 million for Q4 2016, and a loss of $604 million for the full year. The investment funds had a loss of 8.7% in Q4 2016, compared to a loss of 15.6% in Q4 2015. Long positions gained 1.3% for the current quarter, while short positions and other expenses had a negative performance attribution of 10%. For the full-year 2016, the investment segment lost 20.3% compared to an 18% loss for 2015.

Long positions had a 16.3% gain for the full year 2016, while short positions and other expenses had negative performance attribution of 36.6%. Since the inception in November 2004 through the end of 2016, the investment funds gross return is 116%, or 6.5% annualized. The investment funds continue to be significantly hedged. At the end of 2016 the funds were net short 128%, compared to net short 25% at the end of 2015. IEP's investment in the funds was $1.7 billion as of December 31, 2016.

In Q1 2017, we redeemed $300 million from the funds to help fund the purchase of Federal Mogul shares. We plan on replenishing this investment with the proceeds of the recently completed rights offering.

And now to the Energy segment. For Q4 2006, our Energy segment reported revenues of $1.3 billion and consolidated adjusted EBITDA of $43 million, compared to revenues of $1 billion and consolidated adjusted EBITDA $53 million for the prior-year period.

Both the refining and fertilizer businesses had solid operational performance but earnings were negatively impacted by seasonal weak, refining margins and continued high (inaudible) expense. Low nitrogen fertilizer pricing and a decrease in ammonia shipments due to unfavorable application conditions further impacted results in the fertilizer segment.

For the full year 2016, the Energy segment reported revenues of $4.8 billion and consolidated adjusted EBITDA of $313 million, compared to revenue of $5.4 billion and consolidated adjusted EBITDA of $755 million in 2015. CVR refining reported Q4 2016 adjusted EBITDA of $28 million, compared to $16 million in the prior-year period. Refining margins adjusted for FIFO impact for crude oil throughput barrel, a non-GAAP financial measure, was $7.32 in Q4 2016, compared to $8.96 in the prior-year period. This decrease was primarily driven by lower regional crack spreads.

CVR Partners reported Q4 2016 adjusted EBITDA of $18 million compared to $28 million in Q4 2015. CVR Partners results for Q4 2016 included the results of East Dubuque fertilizer facility acquired in April 2016. While Q4 ammonia shipments from the east Dubuque plant were impacted by unfavorable fertilizer application conditions CVR Partners anticipates the tonnage that was not applied in the fall will be applied during the spring planting season.

Now, turning to our Automotive segment. Our Automotive segments Q4 2016 net sales were $2.3 billion, up 16% from the prior-year period. Net sales for the full-year 2016 were $9.4 billion, or 21% above the 2015 results. 2016 results include the operation of Pep Boys, which was acquired in Q1 of 2016. Federal-Mogul on a stand-alone basis reported Q4 net sales of $1.8 billion, which was consistent with the comparable prior-year period.

Higher OE sales were offset by lower after-market sales in North America and $27 million of negative impact from currency exchange rate fluctuations. Operational EBITDA in Q4 2016 was $182 million, up $18 million or 11% compared to Q4 2015.

For the full year, Federal-Mogul generated $7.4 billion of net sales, and $744 million of operational EBITDA, a 16% increase from 2015. As Keith mentioned earlier, IEP acquired the remaining non-controlling interest of Federal-Mogul during Q1 2017 for a total consideration of $305 million. IEH Auto and Pep Boys together had Q4 2016 revenue of approximately $638 million, and adjusted EBITDA of $14 million.

For the full year, which includes approximately 11 months of Pep Boys, IEH Auto and Pep Boys generated $2.5 billion of sales, and $103 million in adjusted EBITDA. Also, we completed an acquisition of a 134 location chain in January of 2017, and maintained an active pipeline of additional acquisition opportunities.

Now turning to our Railcar segment. Our Railcar segment had rail car shipments in 2016 of 4,721 rail cars, including 799 rail cars to leasing customers as compared to 8,903 Railcars for the prior-year period of which 5,063 Railcars were to leasing customers. As of December 31, 2016, ARI had a backlog of 3,813 rail cars, including 1,637 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 67,000 railcars at the end of 2016. 81% of the current industry backlog is comprised of tank cars and covered hopper cars, the two primary rail cars manufactured and leased by our Railcar segment.

Adjusted EBITDA attributable to IEP for the Railcar segment was $379 million in 2016, compared to $318 million in the prior year period. The leasing businesses within the Railcar segment continue to perform well. In 2016, we grew the combined leased car portfolios to roughly 45,800 cars from approximately 45,100 railcars at the end of 2015. Average lease rates in 2016 improved slightly from the prior year period.

In 2016, the Federal Railroad Administration, or FRA, issued a directive that requires inspection and repairs on certain tank cars manufactured by ARI. Our Railcar segment had discussions with the FRA regarding implementation of this directive and a revised directive was issued in November 2016. For the full year 2016, we have recorded a loss contingency of $16 million to cover the costs associated with the new directive.

In December 2016, IEP announced the sale of American Railcar leasing, which is expected to close in the second quarter of 2017. The initial sale of approximately 20,000 railcars is expected to generate $1.1 billion of net proceeds.

Now, turning to our Gaming segment. Total Gaming segment operating revenues were $944 million in 2016, compared to $811 million in 2015. The increase was primarily due to an increase in consolidated Gaming volumes of 17%, primarily due to the inclusion of results from Trump Entertainment Resorts in February of 2016, coupled with higher gaming volumes and table hold percentage at Trop, Atlantic City and Trop, Evansville.

At the beginning of Q4 2016, Trump Taj Mahal closed in Atlantic City. For 2016 we recorded impairments to the property and associated intangibles of approximately $106 million. Our gaming segments consolidated adjusted EBITDA for 2016 was $118 million. While EBITDA was roughly flat at Tropicana overall EBITDA for the segment was lower by $24 million from 2015 due to the losses at Trump Entertainment. Now, turning to our Food Packaging segment.

Net sales for 2016 decreased by $15 million or 4%, compared to the prior-year period. The decrease was primarily due to lower sales volume, unfavorable price, and product mix and unfavorable foreign currency translation. Consolidated adjusted EBITDA was $55 million in 2016, which was $4 million below the prior-year period. Gross margin as a percentage of net sales was 24% in 2016, which was consistent with the prior year.

In December 2016, this case purchased a plastic casing manufacturer in Poland and in January 2017, this case purchased a fibers and plastic casing manufacturer in Germany. Both transactions are expected to broaden this case's product portfolio and provide significant operational synergy's.

And now to our metals segment. Net sales for 2016 decreased by $94 million, a 26% compared to the prior year. The net sales decrease was driven by lower selling prices and lower shipping volumes across all product lines, with the exception of secondary plate. Adjusted EBITDA was a loss of $15 million in 2016, compared to a loss of $29 million in the prior year period. Scrap prices are still at low levels and volumes continue to be challenged in this market environment.

And now to real estate. Real estate revenues were $88 million in 2016, which was approximately $43 million below the prior year period. The decrease was primarily due to gains recorded in 2015 from the sales of net lease properties and the Oak Harbor operations. Operating revenues from our real estate segment were substantially derived from our resort and rental operations for both 2016 and 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 $41 million of adjusted EBITDA in 2016.

Now to mining. Our Mining segment has been concentrating its sales in Brazil. During 2016, international iron ore prices improved from an average of $48 per metric ton in Q1 2016 to an average of $71 per metric ton in Q4 2016. With the improved prices the business has returned to EBITDA positive in Q4. Iron ore prices have continued to increase in 2017 and near-term prices are in the high $80 per ton range.

Now turning to home fashion. 2016 net sales for our Home Fashion segment were up slightly from the prior-year period. Adjusted EBITDA was a loss of $1 million for 2016, compare to a gain of $6 million in the prior year. Gross margin as a percentage of net sales was 14% for 2016, as compared to 16% for 2015. The drop in gross margin percentage was primarily due to sales mix.

Now I will discuss liquidity. We maintain ample liquidity at the holding company and at each of our operating subsidiaries to take advantage of attractive opportunities. We ended Q4 2016 with cash, cash equivalents our investment in the funds and revolver availability totaling approximately $4.5 billion.

In 2017, we have successfully refinanced our upcoming holding company debt maturity and raised an additional $600 million via a rights offering. Our subsidiaries have approximately $1.6 billion of cash and $1 billion of (inaudible) 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 existing operating segments. Thank you. Operator, can you please open the call for questions, please?

(Operator Instructions). And our first question comes from Dan Fannon with Jeffries. Your line is now open.

Thanks. Good morning. I guess can you just kind of give us some other color around the other announcement this morning around the hiring of Dr. Mulligan to join the investment team and kind of update us on some of the other investment staff with Brett Icahn and others that you've been negotiating with or talked about bringing back previously?

Sure. Hey, Dan, it's Keith. The hiring of Dr. Mulligan was, you know, we've had -- We've known Dr. Mulligan for a long time. He was the Board nominee on several successful activist campaigns in the 2004 through 2007 time frame. We have a great amount of respect for him and he recently became available. And the biopharma investing segment is an area that we've played in over the last decade. And we couldn't think of a better person to help us pursue new investment ideas in that space. So really just broadening out the investment team and happy to have him on board.

As far as Dave and Brett, we continue to negotiate with them. There's not really a material update at this point. As we've said in the past the negotiations are moving along. They are going fairly slow, just given current market multiples and both our Chairman and their view of, you know, it's not the greatest time for, you know, long -- you know, large, long investments at all-time high multiples. We're taking it, you know -- the negotiations are going maybe a little bit slower than they normally would otherwise. But we continue to negotiate with them.

As far as anything else, we had a couple of employees that contracts expired at the end of 2016, that ultimately one retired and one left to pursue other opportunities.

Okay. That's helpful. And just broadly, obviously the positioning of the funds and highlights in your comments, previous about valuations, I guess, anything on asset class level? I know historically the negative view and high yield. Just wondering if there's any shifting in terms of where. Is it just valuation or if certain sub segments or portions of the market that you're more skeptical about?

I don't want to publicly call them out but there are certain industries we think are especially susceptible to potential border adjusted tax plans and other dynamics related to the retail space and certain industries that we continue to have strong views on valuation. Other than that, the majority of our short exposure has just been general macro emphasis. Obviously, it's a directional bet at this point, besides hedging all of our long exposure. Just at you know, very high market multiples. Market does seem priced for perfection, (inaudible) even further today. But we continue to have a fairly bearish view. I think net short exposure is down a little bit from third quarter, but still a very large number.

Got it. Thank you.

Thanks.

Thank you. (Operator Instructions). I currently have no more questions in queue. I'll now turn the call back to Keith Cozza for closing remarks.

Okay. Thanks, everybody, for joining us. And we'll look forward to talking to you in early May to discuss the first quarter results. Have a good day.

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