Q3 2019 Earnings Call
Good morning, and welcome to the Icahn Enterprises LP Q3, 2019 earnings call.
Jesse Lynn General Counsel, Keith Cozza, President and CEO and someone Cho Chief Financial Officer.
When I look to handover the call to Jesse Lynn will read the opening statements.
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 on plans for businesses and potential acquisitions. These forward looking statements involve risks and uncertainties that are discussed in our filings with securities and Exchange Commission.
Economic competitive legal and other factors Accordingly, there was no assurance that our expectations will be realized.
We assume no obligation to update or revise any forward looking statements trying circumstances change, except as otherwise required by law.
This presentation also include 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 keep close our Chief Executive Officer.
Thanks, Jesse good morning, everyone and welcome to the third quarter 2019, Icahn Enterprises earnings Conference call. Joining me on todays call if someone Cho, our chief financial Officer I.
I'll begin by providing some brief highlights sung will then provide an in depth review of our financial results from the performance of our business segment. We will then be available to address your question.
For Q3, 2019, we had a net loss attributable to Icahn enterprises, a 49 million were 24 cents per LP unit compared to net income of 118 million or 64 cents per LP unit in the prior year period.
The quarterly loss was primarily driven by losses in our investment funds offset in part by the gain from the sale of ferrous resources, which closed during the quarter.
Adjusted EBITDA attributable to Icahn enterprises for Q3, 2019 was a loss of 121 million compared to a gain of 5 million for Q3 of 2018.
Our investment funds had a negative return of 7.4% in Q3 2019 compared to a negative return of 6.3% for the prior year period.
Our negative performance in Q3 was driven by net losses in our short equity index positions and certain poor long equity position.
The investment funds continue to be defensively positioned finishing the quarter with net short exposure of 16%.
In our energy segment, our Q3 2019 net sales were 1.6 billion and consolidated adjusted EBITDA was 235 million.
CVR energy had a strong third quarter led by improved capture rates high throughput volumes and increased fertilizer sales volumes and pricing.
Last week CBR announce an increase in its quarterly dividend from 75 cents per share the 80 cents per share as well as the authorization of a 300 million dollar stock repurchase program.
Net sales and service revenues for our automotive segment in Q3, 2019 were 744 million compared to 735 million in the prior year period.
The increase was primarily due to higher automotive service revenues offset in part by a decrease in aftermarket parts sales.
Icon automotive group continues to push forward with the multiyear transformational plan to restructure the operations and improved profitability.
During Q3, IP issued 500 million of new senior notes due in 2024 at a coupon of 4.75%.
We also paid down 1.7 billion of IP senior notes due in 2020 in Q3 with cash on hand.
Total debt outstanding at the holding company now stands at 5.6 billion.
In Q3, we closed on our previously announced agreements to merge ferrous resources with a wholly owned subsidiary of Valley.
IP received proceeds of approximately 450 million for our equity and debt interest in ferrous resources subject to future closing adjustments realizing a gain of approximately 250 million.
We closed the quarter with a strong balance sheet and continue to search for undervalued investment opportunities across all of our business segments.
With that let me turn it over to song.
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 Q3, 2019 net loss attributable to Icahn enterprises was $49 million compared to net income of $118 million in the prior year period.
As you can see on slide five.
In Q3 2019, the performance of our investment funds was a significant driver of our net loss for the quarter.
This was partially offset by the gain recorded on the sale of ferrous resources that Keith mentioned earlier.
Adjusted EBITDA attributable to Icahn enterprises for Q3, 2019 was a loss of $121 million compared to a gain of $5 million in Q3 18.
I will now provide more detail regarding the performance of our segments.
Our investments that segment had a loss attributable to Icahn enterprises, a $342 million for Q3 2019.
The investment funds had a return of negative 7.4% in Q3 2019 compared to a negative 6.3% for Q3 2018.
Long positions had a negative performance attribution of 5.2% for the current quarter, while short positions and other expenses had a negative performance attribution of 2.2%.
Since inception in November 2004 through the end of Q3 19, the investment fund gross return is 101% or approximately 4.8% annualized.
The investment funds continue to be significantly hedged at the end of Q3 2019, net short exposure was 16% compared to a net short exposure of 37% at the end of Q2 2019.
As investment in the funds was $4.3 billion as of September Thirtyth 2019.
Now to our energy segment.
For Q3 2019, our energy segment reported net sales of $1.6 billion and consolidated adjusted EBITDA of $235 million.
Net sales were down 16% from the prior year period, while adjusted EBITDA was flat.
CVR refining had a solid third quarter performance.
Despite tighter credit spreads and crude differentials in the third quarter. This year CBR generated strong quarterly results through improved capture rates and higher throughput volumes.
CVR refining reported Q3, 2019, adjusted EBITDA of $228 million compared to $219 million in the prior year period.
Combined total throughput was approximately 222000 barrels per day for the quarter, which was slightly above the prior year period refining margin per total throughput barrel was $16.34 in Q3 19 compared to $15.70 per barrel in the prior year period.
CVR partners reported Q3, 2019, adjusted EBITDA of $18 million adjust for turnaround expenses compared to $19 million for Q3 2018.
East Dubuque successfully completed its planned turnaround in October and is now coming back up to full production.
CVR energy recently announced a 300 million dollar stock repurchase program and increased its quarterly cash dividend by 7% to 80 cents per share, which represents an annualized dividend yield of approximately 7%.
Now to our automotive segment.
Q3, 2019, net sales and service revenue for icon automotive group were $744 million up 1% from the prior year period.
The increase is attributable to higher automotive service revenues, partially offset by decrease.
Aftermarket parts sales.
Higher service revenues were due to growing do it for me and fleet businesses.
Adjusted EBITDA attributable to IP for the automotive segment was a loss of $23 million in Q3, 2019 compared to a gain of $8 million in the prior year period.
Profitability was impacted by margin rate contraction for services and parts businesses due to the reduction in vendor support funds and other unfavorable margin adjustments.
As previously disclosed icon automotive is implementing a plan to separate its aftermarket parts business from the service business. We have started to execute on a multiyear transformation plan to improve profitability in our parts business and continue to invest in our growing service business.
Now turning to our food packaging segment.
Net sales for Q3 2019 were flat with the prior year period.
Favorable price and product mix was offset by unfavorable foreign exchange and lower sales volumes.
Consolidated adjusted EBITDA was $12 million in Q3, 2019, which was down $2 million from the prior year period.
Gross margin as a percentage of net sales was $18 million for Q3 19 compared to 21% in the prior year period.
Thanks.
Now to our metal segment.
Net sales for Q3, 2019 decreased by $38 million or 32% compared to the prior year period.
Net sales decrease was due to lower volumes and lower average pricing for all product lines.
Nonferrous shipment volumes continued to be significantly impacted by the ongoing trade dispute with China.
Adjusted EBITDA was $1 million for Q3, 19, which was $4 million below the prior year period.
Now to our real estate segment.
Real estate operating revenues were $28 million in Q3 hundred 19, which was $1 million below the prior year period.
Revenue from our real estate operations for both Q3 19 in Q3 18 were substantially derived from income from club and rental operations.
The real estate segment generated $7 million of adjusted EBITDA in Q3 19.
The decline from 18 is due to the loss of income related to several properties that were sold.
And the loss of income due to the repayment of alone related to the sale of the former Fontainebleau property in Las Vegas.
Now turning to our home fashion segment.
Q3, 19 net sales for our home fashion segment were up 34% compared to the prior year period due to higher sales volumes attributable to the VSS acquisition in Q2 19.
As previously disclosed the VSS acquisition strengthens west points focus in the institutional and hospitality businesses and extends its addressable market to international markets outside of the U.S.
Adjusted EBITDA adjusted EBITDA was a loss of $2 million for the quarter.
Compared to a loss of $1 million for the prior year period gross margin as a percentage of net sales was 16% for Q3 2019 as compared to 13% for Q3 2018.
Now I will discuss our liquidity position.
We maintain ample liquidity at the holding company in at each of our operating subs to take advantage of attractive opportunities.
We ended Q3 19 with cash cash equivalents, our investment in the investment funds and revolver availability totaling approximately $8.2 billion.
Our subsidiaries have approximately $800 million of cash and $600 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.
Thank you ladies and gentlemen, if you have a question at this time. Please press the star followed by the number one.
Your question telephone if your question has been answered or you wish to remove yourself from the Q. Please press the pound key once again to ask a question. Please press Star then one now.
And our first question comes from Dan Fannon from Jefferies. Your line is open.
Hey, this is actually James steel filling in for Dan Good morning.
Hi, James.
So my question just on.
Kind of your outlook on valuation, noting that the hedge fund is getting less net short got regardless net short throughout the quarter. So.
Just kind of wondering what the house view is on valuation and how you're approaching things there.
Yes sure.
Doug described the adjustment of net exposures from.
Previous quarter end to this quarter end as sort of.
Specific view on the that we basically had at the end of August beginning of September regarding.
Trade trade negotiations and.
And whether progress would be made and so I would describe that more as attack the goal trading opportunity, which we do once in awhile I described is rarely.
But I would I would even say that some of those shorts have been sort of re established at higher level. It was sort of over the short term view for the month of September related to China trade negotiations.
Understood and then just yes for valuation charge. So your second part of your question for valuations I mean look at.
We've been pretty consistent there are certain pockets that certain investment gains within the fund that were seeing where the activists model can.
Can create a good favorable risk reward profile, but broadly speaking, yes, we're finding less opportunities than in a market that would be 25% lower that sort of goes without saying, but we're still fine and picking spots here or there, but it's.
It's been very long in the cycle. This bull market, you're approaching 10, and a half 11 years valuations are brought the where were much. We as you know we have a value approach value investing approach and so a little bit harder to find names but.
I think we're still doing okay.
Got it.
Secondly, I guess since the last time.
We heard from from you guys the outlook for interest rates is sort of changed so.
Knowing that you just finished paying down debt issuing some more data and have some more cash on the balance sheet from Ferris just curious what what the appetite might be for.
Or what the need might be for more debt just given the outlook for future acquisitions.
Yeah, I think it I think we'll really approach that on an opportunistic basis. So what I mean by that as I'm sure you're familiar with our current.
Debt stack or debt maturity ladder, and it's pretty pretty well balanced from 2022 through 2026.
We get closer to two 2022, obviously, we'll we'll look to do some normal refinancings.
You know eventually and as far as adding incremental debt.
It will really just be.
What the market looks like from a from from a rate perspective, meaning if we can add some new seven or eight year debt.
Pelling rates, we will we will do that I mean, we liked we view, we view cash as our raw material effectively and.
We don't mind stockpiling of for short periods of time or even intermediate period of time, while we look for.
Investment opportunities inevitably there will be another market correction, there will be another recession there'll be some great opportunities and it's always better to have the money on the balance sheet when that happens rather than to go search for it at that time. So I think you can see us again to the depend on.
The opportunity set but.
It wouldn't be surprising if we were back in the marketplace.
Looking to extend out maturity.
Got it and then just lastly, there were some headlines throughout the quarter on Mr icon moving down to Florida that has any impact on the financials with operations in the business.
Sure.
I don't think so it's been a fairly smooth process, it's something we rolled out.
Around may and and the move will take place at the end of Q1 of next year and.
I think we have a number of plans and employees moving and.
We certainly don't expect any disruption to operations, our financials or anything like that.
Perfect. Thank you.
Thanks.
Thank you and as a reminder, ladies and gentlemen to ask a question. Please press star and then one now.
And I'm showing no further questions from our phone lines.
Okay. Thanks, everybody, we'll look forward to speaking with you in the new year to discuss Q4 results have a good day.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program you may all disconnect everyone have a wonderful day.