Icahn Enterprises LP

NASDAQ:IEP

Earnings Call Transcript 2017-Q4

[Operator]

Good morning, and welcome to the Icahn Enterprises L.P. Q4 2017 Earnings Call with Jesse Lynn, General Counsel; Keith Cozza, President and CEO; 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. 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 hand it over to Keith Cozza, our Chief Executive Officer.

[Keith Cozza, CEO, President & Director]

Thanks, Jesse. Good morning, and welcome to the Fourth Quarter 2017 Icahn Enterprises Earnings Conference Call. Joining me on today's call is SungHwan Cho, our Chief Financial Officer. I will 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'll then be available to address your questions. Net income attributable to Icahn Enterprises for 2017 was a record $2.4 billion, or $14.80 per LP unit, compared to a net loss of $1.1 billion, or $8.07 per LP unit in 2016.

For Q4 2017, net income attributable to Icahn Enterprises was $298 million as compared to a net loss of $206 million in the prior year period. Adjusted EBITDA attributable to Icahn Enterprises for 2017 was $1.7 billion compared to approximately $842 million in 2016. Our investment funds had a negative return of 4.2% in Q4 of 2017, bringing our total return for the full year 2017 to a positive 2.1%. Q4 performance was significantly impacted by losses from our short equity and short credit positions. These were partially offset by gains in our long-core equity positions. We rebalanced our short equity positions during the fourth quarter in anticipation of tax reform legislation. We increased our net exposure to positive 14% as of year-end compared to negative 77% at the end of the third quarter.

Net sales and service revenues for our Automotive segment in Q4 2017 were $2.6 billion compared to $2.4 billion in the prior year period. The increase was primarily due to sales volumes at Federal-Mogul, acquisitions at Icahn Automotive Group and favorable foreign exchange rates. In Icahn Automotive Group, we continue to make acquisitions of auto service centers and maintained an active pipeline of additional acquisition opportunities. On October 2, we acquired American Driveline Systems, or ADS. ADS is the franchisor of AAMCO and Cottman Transmission & Total Auto Care service centers with approximately 680 locations. With the addition of ADS, Icahn Automotive Group operates approximately 1,900 owned and franchised locations.

In our energy segment, our Q4 2017 net sales were $1.6 billion and consolidated adjusted EBITDA was $81 million. CVR Refining had a solid fourth quarter, led by strong crack spreads and record operating rates, while CVR Partners results were hampered by continued low U.S. nitrogen fertilizer pricing. In our Railcar segment, we sold approximately 4,000 railcars for $522 million relating to the previously announced sale of American Railcar Leasing to SMBC Rail. This resulted in a $154 million gain in Q4.

In our Gaming Segment, Tropicana delivered solid results for the quarter and the full year, with strong performance -- performances at Atlantic City, Evansville and St. Louis properties. In December, IEP successfully refinanced its senior notes coming due in 2019, with new senior notes due in 2025 as well as an add-on to our 6.25% senior notes due in 2022. 2017 was an active year, highlighted by the sale of American Railcar Leasing and the former Las Vegas Fontainebleau project, resulting in significant gains for our unitholders. We saw improving performance in many of our operating segments, and the indicative net asset value of IEP, increased by 40% to $7.9 billion. Based on these outstanding results, the board has elected to increase our quarterly distribution by 17% to $1.75 per unit, or $7 per unit on an annualized basis.

With that, let me turn it over to Sung.

[SungHwan Cho, CFO]

Thanks, Keith. I will begin by briefly reviewing our consolidated results, and then highlight the performance of our operating segments and then comment on the strength of our balance sheet. In Q4 2017, net income attributable to Icahn Enterprises was $298 million compared to a net loss of $206 million in the prior year period. Full year net income attributable to Icahn Enterprises for 2017 was $2.4 billion, or $14.80 per LP unit compared to a net loss of $1.1 billion, or $8.07 per LP unit in the prior year period. As you can see on Slide 5, Q4 2017 IEP had net income of $298 million compared to a net loss from the prior year. Q4 2017 had tax deficits of approximately $500 million, which were related to the recent tax changes that were enacted in Q4 of '17. Adjusted EBITDA attributable to Icahn Enterprises for Q4 '17 was $167 million compared to $145 million in Q4 '16. For the full year 2017, we had net income attributable to IEP of $2.4 billion compared to a net loss of $1.1 billion in 2016.

IEP recorded approximately $2.2 billion of gains from the sale of ARL and real estate properties in 2017. IEP also had positive performance in the Investment Funds compared to a loss in the prior year. Adjusted EBITDA attributable to Icahn Enterprises for 2017 was $1.7 billion compared to $842 million to 2016. I will now provide more detail regarding the performance of our individual segments. Our Investment segment had a loss attributable to Icahn Enterprises of $132 million for Q4 2017, and a gain of $80 million for the full year. The Investment Funds had a loss of 4.2% in Q4 2017 compared to a 8.7% loss for Q4 2016. Long positions gained 9% for the current quarter, while short positions and other expenses had a negative performance attribution of 13.2%.

For the full year 2017, the Investment segment had a gain of 2.1% compared to a 20.3% loss in 2016. Long positions had a 5.4% gain for the full year '17, while short positions and other expenses had a negative performance attribution of 3.3%. Since inception, in November 2004 through the end of 2017, the Investment Funds gross return is 121%, or 6.2% annualized.

The Investment Funds continue to be hedged. At the end of 2017, the funds were net long 14% compared to net short 128% at the end of 2016, and net short 77% at the end of Q3 2017. In Q4 2017, we invested an additional $300 million into the funds, and our investment in the funds was $3 billion as of December 31, 2017. And now to the energy segment. For Q4 2017, our energy segment reported net sales of $1.6 billion and consolidated adjusted EBITDA of $81 million compared to net sales of $1.4 billion and consolidated adjusted EBITDA of $43 million for the prior year period.

CVR Refining had a solid fourth quarter, led by strong crack spreads and record operating rates, while CVR Partners results were hampered by continued low U.S. nitrogen fertilizer pricing. For the full year 2017, the energy segment reported net sales of $6 billion, and consolidated adjusted EBITDA of $429 million compared to sales of $4.8 billion and consolidated adjusted EBITDA of $313 million for 2016. CVR Refining reported Q4 2017 adjusted EBITDA of $76 million compared to $28 million in the prior year. Stronger crack spreads and record operating rates resulted in overall solid results for CVR Refining in Q4. Refining margin adjusted for FIFO impact, a non-GAAP financial measure was $18.87 per barrel in Q4 2017 compared to $7.32 per barrel in the prior year period. CVR Partners reported Q4 2017 adjusted EBITDA of $8 million compared to $18 million in Q4 '16. Q4 results were impacted by lower prices for nitrogen fertilizer. Average prices for UAN and ammonia were $132 per ton and $264 per ton, respectively, in Q4 2017, compared to $147 per ton and $352 per ton, respectively, for the same period in '16. So far in 2018, we have seen lower nitrogen product imports, steady customer demand and increasing prices for nitrogen.

Now turning to Automotive segment. Our Automotive segment's Q4 2017 net sales and service revenues were $2.6 billion, up 10% from the prior year period. The increase is primarily due to organic sales volume increases, sales and service volume increases from acquisitions as well as favorable effect of foreign currency exchange.

Net sales and service revenues for the full year 2017 were $10.4 billion, or 6% above 2016 results. Federal-Mogul, on a stand-alone basis, reported Q4 net sales of $2 billion compared to $1.8 billion in the comparable prior year period. The increase was due to higher OE sales, higher aftermarket sales in North America and Asia, and favorable foreign currency exchange. Operational EBITDA in Q4 of 2017 was $219 million, up $37 million from the prior year. At Icahn Automotive Group, Q4 2017 operating revenues were approximately $692 million compared to $638 million in Q4 '16.

As Keith mentioned, in October, we acquired American Driveline Systems, the franchisor of AAMCO and Cottman brands, which are the #1 and #2 transmission repair brands in the -- in North America. This transaction built on our acquisitions of Just Brakes in January and Precision Auto Care in July, and continues our path to becoming one of the largest auto service networks in the U.S.

Now turning to Railcar. Our Railcar segment had railcar shipments in 2017 of 4222 railcars, including 1,804 railcars to leasing customers, compared to 4721 railcars for the prior year period, of which 799 railcars were to leasing customers. As of December 31, 2017, ARI had a backlog of 1,940 railcars, including 389 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 58,000 railcars at the end of Q4 '17. 81% 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.

Total manufacturing revenue for 2017 decreased by $165 million, or 38% as compared to the prior year. The decrease was due to fewer shipments to nonleasing customers, and an overall decrease in the average selling prices due to more competitive pricing for both hopper and tank build cars. The segment's railcar leasing revenue declined in 2017 as compared to the prior year, due to the sale of ARL. Our remaining railcar lease fleet consists primarily of railcars owned by ARI. Proceeds from the ARL sales were $1.8 billion, resulting in a pretax gain of $1.7 billion recorded by our Railcar segment.

Adjusted EBITDA attributable to IEP for the Railcar segment was $223 million in 2017 compared to $379 million in the prior year period.

Now turning to Gaming Segment. Our Gaming Segment continues to perform well with significant gains at core properties within Tropicana Entertainment. For 2017, Tropicana operating revenues increased by 6% from the prior year, and consolidated adjusted EBITDA increased 30% to $192 million. These gains were primarily driven by performance in Atlantic City and St. Louis. Tropicana maintains a strong balance sheet, having repaid $150 million of debt and repurchased $36 million of stock in the second half of 2017. Even after these transactions, the company still maintains ample liquidity with $103 million of cash compared to $137 million of debt. Within Trump Entertainment, losses have been reduced due to the sale of Trump Taj Mahal in Q1 2017. We still hold the idle Trump Plaza location and continue to evaluate our options.

Now turning to Food Packaging. Net sales for 2017 increased by $63 million, or 19% compared to the prior year period. The increase was due to higher sales volumes, primarily from acquisitions, offset in part by unfavorable price and product mix in foreign currency exchange. Consolidated adjusted EBITDA was $62 million in 2017, which was $7 million above the prior year period. Gross margin, as a percentage of net sales was 24% in 2017, which was consistent with the prior year period.

And now to our Metals segment. Net sales for 2017 increased by $142 million, or 53% compared to the prior year. The net sales increase was driven by higher-selling prices and higher volumes for most product lines. Ferrous shipment volumes increased due to improved demand from domestic steel mills and improved flow of raw materials into our recycling yards, driven by the increased market pricing. Nonferrous shipment volumes increased primarily due to investment in aluminum processing facilities at one of our facilities.

Adjusted EBITDA was a positive $20 million in 2017 compared to a loss of $15 million in the prior year. Gross margin has improved due to a continued focus on disciplined buying, higher pricing for nonferrous auto residue, improved market pricing and by continued efforts to bring processing cost in line with volume and market pricing.

Now to Real Estate. Real Estate operating revenue was $87 million in 2017, which was in line with the prior year period. In Q4 2017, we sold 2 more net lease properties for $55 million, generating a gain of $37 million. This is an addition to the sale of the former Fontainebleau Las Vegas property for $600 million in Q3 '17, which generated a gain of $456 million. The Real Estate segment generated $47 million of adjusted EBITDA in 2017.

Now to Mining segment. Our Mining segment has been concentrating on sales in Brazil. In Q4 2017, sales decreased to $18 million compared to $22 million in the prior year. EBITDA was breakeven for Q4 2017, and $22 million for the full year 2017. This decline in Q4 performance was due to a lower net realized price as a result of lower prices for iron ore and higher discounts on impurities. Ferrous has adjusted its production to minimize leases discount and maximize its prices.

Now turning to Home Fashion. 2017 net sales for Home Fashion segment were down 6% as compared to 2016 due to lower sales volumes. Adjusted EBITDA was a loss of $9 million compared to a loss of $1 million in the prior year. Gross margin as a percentage of net sales was 11% for 2017 as compared to 14% in 2016. With the decrease primarily due to sales mix and inventory obsolescence.

Now I will discuss our liquidity position. We maintained ample liquidity at the holding company in each of our operating subsidiaries to take advantage of attractive opportunities. We ended Q4 2017 with cash, cash equivalents, and our investment in the Investment Funds and revolver availability totaling approximately $5.8 billion. Our subsidiaries have approximately $1.2 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 of our existing operating segments.

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

[Operator]

[Operator Instructions]. Your first question comes from the line of Adam Gui from Mangrove.

[Nathaniel August, Mangrove Partners]

This is Nathaniel on for Adam. My first question is that it appears that within the hedge fund, you've made a pretty substantial shift in terms of your net exposures. And I was hoping you could comment on why that shift has been made? And how you're thinking about what risks you're taking now as opposed to what you were taking a year ago?

[Keith Cozza, CEO, President & Director]

Sure. This is Keith. And yes, and so I think the biggest component of that shift is, as we ended the third quarter at about negative 77%, which was, obviously, very short. And leading into the fourth quarter, I think Carl had a constructive view that was, frankly, ahead of the curve related to the probability of tax reform getting past. And what that would ultimately mean for the economy and earnings in the S&P 500, and we aggressively covered some of these hedges, which -- it's all hindsight but that wound up saving the fund multiple hundreds and millions of dollars, obviously doing that. So it was really strictly driven by that view in the fourth quarter. We ended the year at positive 14%, which is -- I assume you understand that longs and shorts are fairly balanced there. So I think we're cautious -- I feel like we're always cautious, but I would say that this tax reform will have a significant earnings uplift on most public companies over the next couple of years. With that being said, we're cognizant of valuations being at all-time highs and so we're trying to keep it pretty balanced. But I think that was rebalancing effectively.

[Nathaniel August, Mangrove Partners]

And within your short portfolio, does that remain mostly CDS? Or is that index options and entity extended options, are you measuring that on notional? Or are you measuring that on a delta adjusted basis?

[Keith Cozza, CEO, President & Director]

No. First of all, it's pretty much -- majority of our hedging activities are delta 1, and we always measure on a notional basis on the equity side of things when it comes to credit hedging. We, obviously, performed various adjustments, given that it wouldn't -- it would dramatically overstate the net exposures on a credit basis, if you didn't kind of adjust -- if you just use notional. So -- but equity is primarily delta 1. If we do layering options against it, then we would delta adjust those.

[Nathaniel August, Mangrove Partners]

My next question is there's been a volatile start to the year, and I noticed that some of this larger investment in the portfolio has moved pretty significantly. Could you update us on investment returns through the first 2 months of the year?

[Keith Cozza, CEO, President & Director]

Yes. We don't provide mid-quarter guidance or anything. We'll all say is that we're -- we feel very good about how we have the portfolio position.

[Nathaniel August, Mangrove Partners]

Okay. And my final question is that when I look at the Automotive segment that you report and I try to desegregate Icahn Automotive from Federal-Mogul, it appears that EBITDA has turned negative within Icahn Automotive. So I was wondering if you could comment on the performance of Icahn Automotive, and then how you're thinking about the roughly $1.7 billion of equity value that you're attributing to that, to the extent that I'm correct that EBITDA has turned negative?

[Keith Cozza, CEO, President & Director]

Sure, sure. So you are correct that EBITDA was negative at Icahn Automotive Group in 2017. It was a significant restructuring year. Just to give you a kind of quick recap of the year, we -- first quarter Q1 of 2017, same-store sales were dramatically falling probably in the 5% to 7% negative same-store sales range. We aggressively swapped out the management team, bringing in a number of new talented executives to basically turn the top line around and they did that. So Q2 went to flat, Q3 went -- or Q2 was maybe negative 1%, Q3 was flat roughly and Q4 was positive same-store sales. So the top line is now -- and the new year is off to a very good start on a top line basis. And so in stabilizing the top line revenue growth in 2017, it required a number of initial spending that you need to do first in order to get the sale. And so there is a lag effect on that. And so a lot of those costs are captured in 2017, which kind of don't paint the full picture of a normalized run-rate basis. But the bottom line for 2000 -- so 2 comments, when you say how do we evaluate at $1.7 billion? That's the book value of the company, okay? On a GAAP basis and we feel real good about that. And the -- I assume you're referring to the NAV statement. And secondly, for 2018, now that we have top line literally growing, we are now in there, basically, optimizing the cost structure and they turn all these sales into profitability.

[Operator]

Your next question comes from the line of Seth Basham from Wedbush.

[Seth Basham, Wedbush Securities]

I want to follow up on the Auto segment, if you don't mind. Trying to understand a little bit more what types of moves you made to restructure that business in 2017? And what gives you confidence that will see continued growth in 2018? And as a follow up, if you could add a little bit more thought as to the vision for the Auto segment going forward, that would be really helpful.

[Keith Cozza, CEO, President & Director]

Sure, sure, thanks. Yes, so, I guess, what -- some of the initiatives beside replacing out significant members of the management team, significant Regional Directors, Area Directors, et cetera, and really upgrading the talent. The number one thing we did was invest in inventory to dramatically expand our parts availability on the store side to grow the commercial business. The commercial business is where the future is at, as I'm sure you know. But -- and frankly, having the parts inventory help stabilize the DIY business, which industry-wide is probably flat to moderate plus-1, minus-1 type business going forward. So investing in the -- we dramatically grew the commercial business by investing in the inventory. I'd say double-digit same-store sales growth, as we implemented all these commercial programs. As far as -- on the service side, again, it was getting the right sizing the labor, making sure we had the store, the service centers appropriately staffed with appropriate number of technicians on the right days, et cetera. And also having the parts availability ties into that as well, it leads to better customer service, leads to lower outbuys and higher profitability in the service segment.

[Seth Basham, Wedbush Securities]

And as you look forward to the future over the next 3 to 5 years, where do you see this business going?

[Keith Cozza, CEO, President & Director]

Well, again, our number one -- our main focus right now is really -- we're up to about just under 2000 repair shops across all of our different brands. And the industry has 260,000 repair shops in the U.S. and we're a top five right now at 2000. So obviously, it's a very fragmented industry, and we're aggressively trying to consolidate it. So I think 5 years from now, you're going to see us having dramatically more repair shops, as we roll them up or expand either through acquisitions or greenfield. But our goal -- look, it's not easy otherwise somebody would have already done it. But it's a great opportunity to have a national brand with 10,000 locations. We have a long way to go, but our -- that's our goal. That's where our number one focus is, is on expanding the service centers.

[Operator]

Your next question comes from the line of Dan Fannon from Jefferies.

[Daniel Fannon, Jefferies LLC]

I'd to like to start with a question about the Investment Fund. Just touching earlier on the question about volatility. Given that there has been a lot of volatility to start the year, does that potentially change your view on may be the positioning? Or how you might be thinking about it? Any color there would be helpful. And in that sense, how quickly can you -- give you use index options on the equity side? How quickly can you go from your current position, let's say, back to where you were in 3Q?

[Keith Cozza, CEO, President & Director]

Sure. Dan, first of all, as far as if we wanted to go back to negative 77%, you can do that over the course of literally a day or two. I mean, we're talking S&P 500. These are extremely large and liquid markets. So as far as eviting from the hedging point of view and moving the exposures around, that can be done very quickly. As far as volatility goes, it doesn't really change the way we look at -- the way Carl and the team looks at the investing process. I mean, it should -- we're not -- we've said this over the years, we're not traitors, right? So although, I get it, it makes for a good news story with stock prices moving up and down, much bigger moves versus the last few years, it doesn't really affect us on the -- the strategy is the same, as active as investors, and you'll see some new names coming out in the news maybe you've already even seen today. And as active as investors, look, we're going to look to unlock the value in certain long positions that we feel confident. We could be the catalyst to bridge the gap between current trading value and the ultimate intrinsic value. But at the same time, we have no idea where the market's going. Carl has openly said, no one can predict where the market's going. And so we try to hedge out as much macro risk as we can.

[Daniel Fannon, Jefferies LLC]

Understood. And then maybe just touching base on the automotive business again. You talked about it as the strategy here is the consolidating play in a highly fragmented industry. But as we look out longer term, how does the change in the back drop? If we get to more electric vehicles, where theoretically the demand for repair and those kinds of things is going to be less. Is part of the play on an aging fleet of existing cars at this point? Or is there a bigger macro risk that, let's say, electric usage of vehicles grows a lot faster than maybe people are anticipating?

[Keith Cozza, CEO, President & Director]

Yes. I don't think we agree with the risk related to electric as far as the effects on the repair business. Just to give you a little bit more color. The biggest categories of repairs that we are performing on a daily basis are tires, batteries, brakes, alignment, and as far as I -- last time I checked, every single one of those categories is still going to be involved. I assume electric vehicles are going to have wheels and brakes, right? And so from that perspective, we feel good. What if we tell a little bit less under the hood engine works, of course, obviously, the electrical vehicles don't have combustible engines. But the other point I would make there, that's not a huge part of our existing repair business right now. And at the same time, though, I would tell you the existing car fleet and electrics penetration, we don't subscribe to some of the estimates out there of how quickly that's going to switch over. You've got a multiple hundreds of millions of cars in the U.S. here that are not going to switch to -- that are going to require repairs for the next 10 to 12 years.

[Daniel Fannon, Jefferies LLC]

That's helpful. And then maybe just a bigger picture question here. In some of the segments, whether we look across this case, or the Home Fashion business, or some others, you've been involved with these segments for quite some time. They have tended to be, perhaps more in extended turnaround mode, or perhaps, flattish in terms of their growth profiles. What is the kind of the playbook here at this point? Is there a decision that's consciously being made that you guys are just simply being patient and waiting for a more perfect exit opportunity? Or is it better to maybe exit those businesses or whichever ones by design, and then better allocate the capital elsewhere? Or are those businesses really the best place to have that capital locked up?

[Keith Cozza, CEO, President & Director]

Yes, so it's a good question. I don't -- so we're not capital constrained. So maybe that's part of the reason that we don't really -- I understand what you're saying, that's not exactly how we look at it, because it's not like, we're not making other investment opportunities because we continue to hold one of the smaller segments. That is kind of still being operated for improvement. So that's one thing I would just say, we're not facing a ton of opportunity cost for the year. But with that being said, I think our goal is -- look, I mean, we're always evaluating, buying additional businesses, selling businesses, and improving what we have, and I think a bunch of them that we've had for a long time. Obviously, by the fact that we're still holding them, we believe that we can create more value over the long term by continuing to make operational improvements, potential tuck-on acquisitions, potential restructurings, or whatever the case may be, that will lead to more.

There's not a scenario where I could sell something today and I'm just like no, I don't want to do it because I'm going to get less value in the future. Obviously, we're managing the book to create the highest amount of value. If we thought we could selling starting today and that looked good versus the future value that we can create by holding it, we would do that. And I think we've shown over the last 20 years that we do, do that, right? I mean, a lot of times our businesses are -- we're selling at what we believe is a fair price to us, but that allows the acquirer can create more value under their structure, under their cost of capital, under their cost of debt, under their synergistic opportunities, whatever the case may be.

[Daniel Fannon, Jefferies LLC]

Understood, that's helpful. And then maybe just a final question on how you guys think about commodities? And in terms of your exposure, you guys actually have a decent amount of exposures through commodities. Whether it's through the segments, or even you did have through, at least, the Investment Funded, whether it was Freeport-McMoran at one point. I think you guys have exited that position. What is -- what, kind of, determines what the allocation you guys have to commodities and stuff relative to everything else? It just seems that you guys are more involved in that segment than perhaps than have been for some time at this point?

[Keith Cozza, CEO, President & Director]

Yes, I think our exposure is to commodities and making those investment decisions really just has -- it's a name-by-name basis, and the investment opportunity at the time. By the way, just to clarify, because I don't want to people to think, we are not out of Freeport-McMoran, just to be clear. I just want to...

[Daniel Fannon, Jefferies LLC]

Okay. It was just you guys got under the 5% threshold. Is that right or?

[Keith Cozza, CEO, President & Director]

Yes, that sounds correct. But I just want to read stories that we are out of it because that's not actually true. But in any event -- yes, we've paired exposure as we've had significant gains in it. But with respect to commodities, in general, with the case-by-case basis, I would also say that maybe we haven't articulated on it well, is that when we do have a name like Freeport or like an oil and gas producer or whatever the case may be. We also do put on name-specific hedges to derisk some of the commodity price movement. It could be short in copper, could be short in WTI, could be short in the basket of similar companies that operate at a higher level. There's a number of things that we do to manage that risk.

[Operator]

Your next question comes from the line of Jesse Freedman from Warlander.

[Jesse Freedman, Warlander]

Just two questions in regards to Tropicana. One, would just be interested in the strategy for the business going forward in the context of the current M&A environment. Seems like there are peak multiples being achieved from sellers in the current marketplace. And then the second one would be on the balance sheet. Just wanted to know what do you think the optimal capital structure would be for this company?

[Keith Cozza, CEO, President & Director]

Yes. I mean, our strategy with Tropicana is to continue to -- obviously, they filed their 10-K a day or two ago. They had a record earnings that has been the culmination of seven years of capital investment back into the business, and it's paying off dividends. We expect 2018 to be a great year for them. Look, manage -- I'm not going to comment on M&A activity other than to say that management is -- they've been out -- they've, over the years, looked at a number of opportunities that they could acquire, and harvest synergies and management does a pretty good job of operating casinos. And they are constantly looking for casinos that they believe are mismanaged, so to speak. And we're happy to support them in that. And as far as other M&A opportunities, it's just a matter of valuations. As far as the capital structure, it's something that we periodically look at, as you can imagine the number of investment bankers reach out. And so we're constantly evaluating the capital structure. We appreciate that there is not a ton of debt on Tropicana right now.

[Operator]

I currently have no more questions in queue.

[Keith Cozza, CEO, President & Director]

Okay. Thanks, everybody, for joining us, and we'll look forward to talking to you after first quarter results are released. Have a good day.

[Operator]

This concludes today's conference. You may now disconnect.