Icahn Enterprises LP

NASDAQ:IEP

Earnings Call Transcript 2021-Q1

[Operator]

Good morning and welcome to the Icahn Enterprises LP Q1, 2021 Earnings Call with Jesse Lynn, General Counsel; Keith Cozza, President and Chief Executive Officer; and SungHwan Cho, Chief Financial Officer. I would now like to hand the call over to Jesse Lynn, who will read the opening statement.

[Jesse Lynn, General Counsel]

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. Forward-looking statements may be identified by words such as expects, anticipates intends, plans, believes, seeks, estimates, will, or words of similar meaning and include but are not limited to statements about the expected future business and financial performance of Icahn Enterprises LP and its subsidiaries. Actual events, results and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties and other factors that are discussed in our filings with the Securities and Exchange Commission, including economic, competitive, legal and other factors including the severity, magnitude and duration of the COVID-19 pandemic.

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.

[Keith Cozza, President & Chief Executive Officer]

Thanks Jesse. Good morning and welcome to the First Quarter, 2021 Icahn Enterprises Earnings Conference Call. Joining me on today's call is SungHwan Cho, Chief Financial Officer. I will begin by providing some brief highlights; SungHwan 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 2021, we had net income attributable to Icahn Enterprises of $162 million or $0.65 per LP unit compared to a net loss of $1.4 billion or $6 34 per LP unit in the prior year period.

The quarterly net income was primarily driven by gains in our investment segment. Adjusted EBITDA attributable to Icahn Enterprises for Q1 2021 was $435 million compared to a loss of $1.3 billion in Q1 of 2020. Our investment funds are in the positive return of 9.2% Q1 of 2021 compared to a negative return of 17.6% for Q1 of 2020. The positive performance was driven by net gains in certain long positions, primarily in the energy industry offset in part by net losses in our short index and short single name equity positions.

Adjusted EBITDA attributable to Icahn Enterprises at our energy segment improved by $30 million, two negative $2 million for Q1 of 2021 compared to negative $32 million in the prior year period. Our petroleum business was positively impacted by increased volumes of the U S market for prime refined product improved as demand continued to recover and negatively impacted by exorbitant rent pricing and winter storm Yuri.

Net sales and service revenues for our automotive segment were $598 million for Q1 of 2021. We are beginning to see our automotive service business revenues returned to pre-pandemic levels. As a reminder, Icahn Automotive Group continues to push forward with the multi-year transformational plan to restructure the operations and improve profitability, which is illustrated by the significant reduction in losses in Q1 versus the prior year quarter.

We have substantially completed the legal separation of our automotive service business from our aftermarket parts business, which will provide the service business for new growth and value enhancing opportunities. In January of 2021, we issued $750 million of 4.38% senior unsecured notes due in 2029. And in April of 2021, we issued $455 million of 5.25% senior unsecured notes due in 2027. The proceeds were used to repay all of the $1.2 billion principal amount of 6.25% senior unsecured notes due in 2022.

We closed the quarter with cash and investments in the funds of over $6.6 billion. Last month in connection with the continuing consolidation of all of our operations into our Florida office, we announced the hiring of Eris Caucasian, the former Chief Investment Officer of General Electric Company as our new President and CEO. Eris is with us on today's call and will be available to answer any questions with that. Let me turn it over to SungHwan.

[SungHwan Cho, Chief Financial Officer]

Thank you. 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. For Q1 2021 net income attributable to Icahn Enterprises was $162 million as compared to a net loss of $1.4 billion in the prior year period. As you can see on slide five in Q1, 2021, the performance of the investment funds was a significant driver of our net income for the quarter.

Adjusted EBITDA attributable to Icahn Enterprises for Q1 2021 was $435 million compared to a loss of $1.3 billion in the prior year period. I'll now provide more detail regarding the performance of our individual segments. Our investment segment had net income attributable to Icahn Enterprises of $391 million for Q1 2021. The investment funds had a positive return of 9.2% in Q1, 2021, compared to a negative return of 17.6% for Q1 2020. Long positions had a positive performance attribution of 18.5% for the current quarter, all short positions and other positions had a negative performance attribution of 9.3%.

Since inception in November, 2004, through the end of Q1 21, the investment funds gross return is 89% or 3.9% annualized.

The investment funds had a net short notional exposure of 19% compared to a net short of 52% at the end of Q4, 2020. Our investment in the funds was $4.7 billion as of March 31, 2021.

And now it's our energy segment for Q1 2021. Our energy segment reported net sales at $1.5 billion and break even consolidated adjusted EBITDA compared to net sales at $1.1 billion and consolidated a dusty to have a loss of $38 million for the prior year period. The Q1 2021 adjusted EBITDA includes a gain of $62 million related to CVRs investment in Delek. Q1 2021 combined total throughput was approximately 186,000 barrels per day, compared to approximately 157,000 barrels per day for Q1 2020.

Refinery operations were severely impacted in February by winter storms, but have resumed full operations. Refining margin per throughput barrel was $3 05 in the first quarter of 2021 compared to a $0.52 during the same period in 2020. While increased crack spreads and volumes contributed to the improvement in refining margins, higher Renz expense offset, much of that benefit.

CVRs previously announced we knew about diesel project is expected to be completed in the third quarter and is expected to help mitigate future exposure to returns. CVR partners reported Q1 21 EBITDA of $5 million compared to $11 million in Q1, 2020. [ph] Corn plantings prices are attractive and are driving increases in fertilizer prices and demand.

Now turning to our automotive segment, one, 2021 net sales and service revenues for icon automotive group we're $598 million down $37 million from the prior year period Q1 2021. Adjusted EBITDA, which excludes the losses associated with closed or closing part stores was a loss of $9 million compared to a loss of $42 million in the prior year period.

Icahn auto continues to push forward with a multi-year transformational plan to restructure the operations and improve profitability. Store closers related to the transformation plan accounted for most of the sales decline for Q1 2021, when compared to the prior year period.

Now turning for food packaging segment, Q1 21 net sales increased by $3 million or 3% and Consolidated Adjusted EBITDA was $15 million compared to $14 million in the prior period. Net sales increased due to an increase in volumes and favorable effects on foreign exchange.

And now our metal segment, Q1, 2021 net sales increased by $34 million and adjusted EBITDA increased by $6 million compared to the prior year period. Volumes and prices continue to be strong driven by high demand from steel mills. Now it's our real estate segment, 2021 net operating revenues decreased by $5 million compared to the prior year. Adjusted EBITDA for the quarter decreased by $3 million compared to the prior period. Revenue from our real estate operations for both Q1 21 and Q1 2020 were substantially derived from sales of residential units and rental operations.

Now turning to home fashion Q1 2021 net sales decreased by $9 million compared to the comparable prior year period. Sales to hospitality customers were down significantly due to weak global travel what's points. Adjusted EBITDA was a loss of $2 million in Q1, 2021 compared to breakeven in the prior period.

Now turning to pharma, we started to consolidate the results of Visas beginning in December of 2020 within our new pharma segment. Q1 2021 net operating revenues were $30 million, including $13 million from a one-time transaction and adjusted EBITDA was $3 million. Now I will discuss our liquidity position. We maintain ample liquidity at the holding company and that each of our operating subs to take advantage of attractive opportunities. We ended Q1 2021 cash, cash equivalents and our investment in the funds and revolver availability totaling approximately $7.2 billion.

Our subsidiaries have approximately $808 million of cash and $586 million 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 operator, can you please open the call for questions

[Operator]

[Operator Instructions]. Our first question comes from the line of Dan Fannon with Jefferies. Your line is now open. Thanks.

[Dan Fannon, Jefferies]

Good morning. First I just wanted to say, I'm not sure if this is the last call for you guys before the transition, but it's really one of the, thanks. It was great working with you and wishing you the best of luck and future endeavors. My question is always kind of Keith to start, is this kind of the current backdrop and how you guys were thinking about new investments and, you know, and, and in terms of the, the risk of the fund, and I heard the net short positions, there may maybe some context around kind of the current backdrop and the thinking of a little bit forward thinking or the outlook based on where we sit today.

[Keith Cozza, President & Chief Executive Officer]

Yeah, sure. Thanks for the question, Dan, and thanks for the kind words. Yeah, this is my last earnings conference call. So just pivoting to the fund, Yeah, I think eight and you'll see in the 10 Q when it's released related later today and SungHwan referenced some of the exposure changes, but we did re you know, we ended the year at negative 52% net short when you aggregate both equities and credits and at March 31st, that number is, you know, negative 19%. So obviously reduced some hedges and added some longs. But I think when you even break down that detail further, you'll see, we found some equity spots. You know, if you look at our net equity short position at year end you know, it was around negative 30% and that pivoted and pivoted to positive 20% of the March 31st.

And, you know, we, so, and a lot of those names are public. You know, we've, we found interesting activist positions that we built in the beginning of this year in Q1, such as Bausch Health Companies and First Energy and even a non activist position that were public on in Dana Automotive Holdings.

So we're, we're finding spots of our pockets of value. And in the two activist cases, positions where we, you know, we, we were able to obtain board representation where we think we can help unlock value and help be the catalyst to improve, help improve those two situations. So, but that being said, the overall backdrop, you know, we're still, you know, moving hedges around and you have to be very cautious with market multiples where they're at.

[Dan Fannon, Jefferies]

Makes sense, appreciate that color. And then just on the auto segment, just curious about how the pandemic has potentially shifted that transition or change some of the factors in terms of how you're thinking about that business is going to look at the end of that multi-year transition?

[Keith Cozza, President & Chief Executive Officer]

Sure. I don't know, like from the pandemic point of view, you know, it'd probably help, I would say we, we accelerated the timeline of closing unprofitable parts stores on the, on the parts side of the business. But from the, I think the, although short head of it had enough with the pandemic had an effect on the service side of the business. The service side of the businesses where, you know, at the end of this restructuring is where we think there's the most opportunity. We have great secular tailwinds there. We've restructured that side of the business and, and you should see dramatic improvement in profitability.

On the service side, we have it separated where we're, we're managing it internally, totally separate from the parts business and what I would add. And I referenced in some of my opening commentary we're seeing a lot of pent up demand that we're capturing our Sheros on top line growth, where, where for Q1, we were back to Q1 of 2019 levels, not Q1 of 2020, obviously great growth for 2020, but, you know, that's nothing to brag about given the low bar from the pandemic.

And so we're excited about the growth profile. I mean, we've talked about this in songs, talked about this over the last year of the size of the car park, the age of the vehicle fleet in the U S and the, the secular tailwinds that should make the service business very valuable on a go-forward basis.

[Dan Fannon, Jefferies]

Great. Thank you. And then I think you mentioned Eris is on the call. So I guess we'd like to hear a bit about, maybe I'll be thinking about the combined entity and the enterprise going forward, and maybe how he thinks he can put his footprint, you know, kind of hand prints around this business or what we should think about potentially changes or lack thereof kind of going forward?

[Keith Cozza, President & Chief Executive Officer]

Yeah, sure. I think it'd be best for one. Eric, why don't you give Dan and the listeners a little bit of color on your background and, and, and a flavor for experience?

[Eris Caucasian, New President & Chief Executive Officer]

Yeah, well, look, Hi everybody. It's nice to be on the call. I spent a better part of three decades at GE. Most recently as the Chief Investment Officer of the company. I think my background is more of an M&A background, which I think bodes well for some of the activity that we've hoped to do in the company. I don't see any, any significant change in terms of strategy or direction of the company or the institution here in any way. I think it's more continuous progress in terms of the plans that Keith has laid out up to this point. But I'm looking forward to being part of part of the institution. I think it's got a great track record, great history, a great source of permanent capital and one that's well positioned for the future.

[Dan Fannon, Jefferies]

Great. Thank you as that's all my questions.

[Operator]

Thank you. [Operator Instructions]. Our next question comes from the line of Anthony Calderon from ICANN enterprises. Your line is now open.

[Anthony Calderon, ICANN enterprises]

Hi, how are you guys? Thank you so much for taking my question. I actually have one question, maybe a suggestion. I'm sure you guys are familiar with it. I believe, or I would like to suggest that maybe the company take a very small position in possibly a military contractor only because only because I'm sure you guys are familiar with now, the military contact is such as general dynamics. They make our tanks for the U S United States army. They make our nuclear submarines for the United States Navy. In my opinion, that's not going anywhere. They pay two and a half percent dividend as well. So that's just a thought, that's just a suggestion of mine. The other thing was I love how diversified the whole portfolio is the whole portfolio energy and real estate and everything. The energy sector. I would like to make another, maybe to possibly diversify the energy assets in green energy assets, just to diversify it a little bit, because oil is not going anywhere. That is absolutely we know oil is not going anywhere, but just a suggestion to possibly diversify.

[Keith Cozza, President & Chief Executive Officer]

All right. Thank you for the suggestions. Operator, can you move on to the next question?

[Operator]

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Keith Cozza for closing remarks.

[Keith Cozza, President & Chief Executive Officer]

Okay. Thank you operator and thank you everybody for your continued interest in Icahn Enterprises. And we'll be looking forward to speaking with you in August to discuss the second quarter results. Have a good day.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.