Q4 2019 Earnings Call

[music].

Good morning, welcome to the Icahn Enterprises LP fourth quarter 2019 earnings call with pure Reich, Chief Accounting Officer.

Kozak, President and CEO and someone Cho Chief Financial Officer.

I'd now like to hand over the course of Peter right read the opening statement.

Thank you operator.

The private Securities Litigation Reform Act at 1995 provides a safe harbor for forward looking statements. We make in this presentation, including statements regarding our future performance.

Plans for 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 was 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 or.

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 now I'll turn it over to Keith Cozza.

Thanks, Peter Good morning, welcome to the fourth quarter 2019, Icahn Enterprises earnings Conference call.

Joining me on todays call someone Cho, our chief financial Officer.

I will begin by providing some brief highlights sung will then provide an in depth review of our.

Compared to net income of 930 million in the prior year period, the quarterly loss was primarily driven by holding company.

Interest expense and losses that are up at our automotive segment.

Net loss attributable to Icahn enterprises for 2019 was 1.1 billion $5.38 per LP unit compared to net income of one and a half billion for $11.33 per LP unit in 2018.

The full year loss was driven by interest expense losses in the investment in automotive segments offset by strong results in our energy segment.

Adjusted EBITDA attributable to Icahn enterprises for 2019 was a loss of 462 million compared to a gain of 557 million in 2018.

Our investment funds earned a positive return of 0.2% Q4 2019, bringing our total return for the full year in 2019 to negative 15.4%.

2019 performance was driven by losses from our short equity index position.

Partially offset by gains from our long core equity positions.

We ended 2019 with net short notional exposure and 56% compared to net short notional exposure of 24% at the end of 2018.

Our energy segment had a solid year 2019, net sales were 6.4 billion and consolidated adjusted EBITDA was 880 million.

CBR as petroleum segment's performance was driven by higher throughput rates increased capture rates and higher refining margin despite lower crack spreads.

CBR its fertilizer segment achieved year over year increases in net income and EBITDA.

Benefited from higher fertilizer sales volumes and stronger product pricing.

Net sales and service revenues for our automotive segment were 2.9 billion in 2019.

I can't automotive group continues to push for the year transformational plan to restructure the operations and improved profitability.

During Q4, IP issued 750 million of new senior notes due in 2027.

With a coupon of five in a quarter percent.

Subsequent to year end, we issued 850 million of add on to our 2024 in 2027 senior notes and paid down approximately 1.35 billion over IP senior notes due in 2022.

Our total debt outstanding at the holding company currently stands at 5.8 billion.

We closed this we closed the quarter with strong balance sheet and we believe we are well positioned to navigate these volatile financial markets.

With that let me turn it over to sell.

Thanks Keith.

I will begin by briefly reviewing our consolidated results then highlight the performance over operating segments.

Comment on our balance sheet.

For Q4 2019.

Loss attributable to Icahn enterprises was $157 million as compared to net income of $930 million in the prior year period.

Full year net loss attributable to Icahn enterprises for 2019 was $1.1 billion compared to net income of $1.5 billion in 2018.

As you can see on slide five [noise].

In 2019 or the performance of our investment funds and holding company investments was a significant driver of our net loss for the year.

Holding company losses were driven by the Mark to market loss on trying to go and the holding company interest expense.

This was partially offset by the gain on the sale of ferrous resources recorded in the third quarter of 2019.

Adjusted EBITDA attributable to Icahn enterprises for 2019 was a loss of $462 million compared to a gain of $557 million in 2018.

For Q4, 2019, adjusted EBITDA attributable to Icahn enterprises was $111 million compared to a loss of $108 million prior year period.

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

[noise] aren't investment segment had a gain attributable to icahn enterprises of $10 million for Q4, 2019, and a loss of $775 million for the full year.

The investment funds had a gain of 0.2% in Q4 2019 compared to a 4.3% gain for Q4 2018.

Long positions gains, 12%, 12.6% for the current quarter fall short positions and other.

Performance attributes had a negative.

Performance attribution of 12.4%.

For the full year 2019, the investments segment had a loss of 13.4% compared to a gain of 7.9% in 2008.

Long positions had a 16.4% gain for the full year 2019.

While short positions had a negative performance attribution of 31.8%.

Since inception in 2004 through the end of 2019, the investment funds gross return is 101% for 4.7% annualized.

The investment funds continue to be hedged at the end of 2019, the funds were not short, 56% compared to net short and 24% of the.

As an 18 and net short 16% at the end of Q3 2019.

Our investment in the funds was $4.3 billion as of December 31, 2019.

Subsequent to year end, we invested an additional $1 billion and the funds.

With cash on hand at the holding company.

And now to the energy segment.

For Q4 2019, our energy segment reported net sales of $1.6 billion and consolidated adjusted EBITDA of $142 million compared to net sales of $1.7 billion and consolidated adjusted EBITDA of $202 million for the prior.

The year period.

CVR refining had a solid fourth quarter generating $135 million of adjusted EBITDA for the period compared to $172 million in the prior year.

CVR Refinings refining margin was $12.47 per barrel in Q4, 19 compared to $13.67 per barrel in the prior year period.

Crude differentials tighten significantly compared to 2018 due to the startup of pipe pipelines in the Midland to the Gulf Coast and production quotas in Canada.

CVR partners reported Q4, 2019, adjusted EBITDA of $14 million compared to $33 million in Q4 80.

For the full year nine 2019, the energy segment reported net sales of $6.4 billion and consolidated adjusted EBITDA of $880 million.

At the sales of $7.1 billion and consolidated adjusted EBITDA of $821 million in 2018.

Now turning to the automotive segment.

Q4, 2019, net sales and service revenues for icon automotive group were $703 million up slightly from the prior year period.

Increase was attributable to higher automotive service revenues, partially offset by a decrease in the aftermarket parts sales.

Higher service revenues were due to growing do it for me and fleet businesses.

Q4, 2019, adjusted EBITDA was a loss of $31 million compared to a loss of $56 million for the prior year period.

Full year 2019, net sales and service revenues were $2.9 billion up 1% from the prior year period.

Adjusted EBITDA for the automotive segment was a loss of $80 million in 2019 compared to a loss of $48 million for the prior year period.

Profitability is impacted by margin rate contraction for service and parts business due to the reduction and vendor support funds and other unfavorable margin adjustments.

As previously disclosed icon automotive is implementing a plan to separate it's aftermarket parts business from the service business.

I have accelerated restructuring the store in DC footprint of our parts business and continued to invest in our growing service business.

Now turning to our food packaging segment.

Q4, 2019, net sales decreased by $3 million and consolidated adjusted EBITDA decreased by $4 million compared to the prior year period.

For the full year 2019, net sales decreased by $12 million, a 3% from the prior year period.

The decrease was primarily due to lower volumes and the unfavorable effects of foreign exchange offset in part by increases due to price and product mix.

Consolidated adjusted EBITDA was $47 million for 2019, which was down $7 million from the prior year period gross margin as a percentage of net sales was 19% for 2019 compared to 20% in the prior year period.

And now to our metal segment.

Q4, 2019, net sales decreased by $26 million and adjusted EBITDA was down $5 million compared to the prior year.

Nonferrous shipment volumes and pricing continued to be significantly impacted by low demand from China.

Net sales for the full year 2019 decreased by $126 million or 27% compared to the prior.

The net sales decrease was due to lower shipment volumes of ferrous and nonferrous materials and lower market selling prices for most grades of metal.

Adjusted EBITDA was $2 million in 2019, which was $22 million.

Below the prior year period.

And now to our real estate.

Q4, 2019, net operating revenues decreased by $5 million were 19% compared to the prior year adjusted EBITDA for Q4 decreased by $3 million compared to the prior year period.

For the full year 2019 real estate operating revenues were $98 million, which was $8 million below the prior year.

Revenue from our real estate operations for both 2019 and 18 for substantially derived from income from club and rental operations.

The real estate segment generated $24 million of adjusted EBITDA in 2019, compared to 20 $48 million in 2018.

This reflects the changing mix of our portfolio with the sale of several net lease properties and receivable income for 2018 related to property sales.

Now turning to our home fashion segment.

Q4, 2019, net sales were up 15% compared to the prior year period.

Yes points higher sales volume was attributable to the VSS acquisition in Q2, 2019 offset in part by lower organic net sales.

As previously disclosed the VSS acquisition strengthens west points focused on the institutional hospitality business and extends its addressable market to international markets outside of the you us.

Full year 2019, net sales for home fashion segment were up 9% compared to the prior year period. Adjusted EBITDA was a loss of $6 million for 2019 compared to breakeven for the prior year period.

Gross margins as a percentage of net sales was 15% for 19 as compared to 16% in 18.

Now I will discuss our liquidity position.

We maintain ample liquidity at the holding company and that each of our operating subsidiaries to take advantage of attractive opportunities in 2019, and so far in 2020, we were able to refinanced $3 billion of debt and extended debt maturities out.

Into 2027.

We ended Q4 2019 with cash cash equivalents, our investment in the investment funds and revolver availability totaling approximately $8.7 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 our existing operating segments. Thank you.

Operator can you please open the call for questions.

Thank you.

However, today's session to ask a question you only the press star one on your telephone to withdraw your question pressed the parakeet. Please standby compile the Q and a roster.

And our first question comes from Peter below with mangrove. Please proceed with your question.

Hi, This business annual August on for Peter Thank you for taking my question.

It's been a pretty volatile market out there could you give us an update on how the hedge fund has performed quarter to date through the first two months. Please.

Yeah, we don't we don't provide a inter quarter inter quarter guidance on the.

On the fund performance.

We just do it on the balance sheet date.

Okay and.

Looking at your hedge fund investment I see that it's about $4.3 billion at the ended the year.

Is the is the fund itself leveraged so that that's like the net asset value and to the extent that the net asset value could you.

How it give us some insight into how much gross investment for every dollar of equity to fund has so it does it have one dollar $2 or $3 invested.

You know for every dollar of of equity in hedge fund.

Yeah.

You'll see when we file our 10-K later today I mean, it's using a very very modest amount of leverage just to give you. Some context. Our investment segment has just over 11 billion of assets.

And.

2.5 billion of liabilities and both liability half of those liabilities related to security. So short so when you think of it like that it's a pretty small amount of implied leverage I think is the way to answer your question right. So the the investment portfolio itself.

Our the left side of the balance sheet of 11 billion versus total capital of 9 billion.

You can sort of do the math.

Okay.

To then you're not.

More than 100%.

Gross long as well.

No we're actually grow on a gross basis.

No on a gross basis on an absolute basis, what growth would be over 100% because you take the absolute value of the longs and shorts right.

So I was talking about just along side.

Just belongs.

Yes, I guess you could say on just alongside were roughly 110%.

Okay. So then the net short exposure that you achieve is that mostly through credit derivatives.

It's actually majority of that would be through equity derivatives.

Okay, Okay great.

And and then just turning to the auto Division. It seems like this strategy there has changed a little bit from when you originally acquired Pep boys and decided to.

To integrate those businesses could you just help us understand what you saw from an industrial perspective that drove that decision.

Yeah, I think well you know it to try to summarize it at a high level from the strategy from four years ago is I think that.

We thought that we could grow not only the service side, but the store side and and ultimately compete with some of the bigger players by expanding our commercial programs and I think what we've sort of determined over the last two years is that we can compete on.

The store side against the big guys in certain markets, where we have decent store density, but it's going to be very difficult to compete on a national level with with the likes of an advanced or in autos owner and O'reilly is right and so I think what we would that change in strategy has basically been too.

Split pare down the store side of the business and focus and certain core markets, where we are very competitive and have a and have a decent commercial position and separate out.

Service side of the business, where we are doing quite well and have a lot of growth tailwind.

And then lastly, I know, it's a small part of your business, but within real estate I noticed that EBITDA was down a fair amount year over year, but.

Any of these actually up a little bit could you give us some color on on what's happening there, especially sort of.

What's driving NPD to move in the opposite direction is as earnings.

Yes, so on real estate.

We've been pretty active in terms of selling.

Certain assets that fit from the net lease portfolio.

And so I think you'll see over the last couple of years, we've realized significant gains related to the net lease portfolio, but as we sell properties.

We lose the the lease income stream from those properties.

So that's one of the reasons why.

We're going to see a decline in the.

Reported EBITDA, but also in there.

It could be a little lumpy, depending on the sales of us development properties and houses within the development operations.

Okay. So then are you using the proceeds from the attractive sales that you've made of the net lease properties to repay debt within the real estate division and hence NPV is going up a little bit.

Well there is no that's in the.

Real estate Division.

And all that cash is.

Essentially distributed back up to the holding company cash.

Okay. Thank you for answering my questions.

Thank you and your next question comes from Dan Fannon with Jefferies. Please proceed with your question.

Hey, good morning, I guess.

A question just on the billion dollars that.

I think the rough number that you said went into the funds from the parents.

Post year end I guess, if you could talk a little bit about just kind of the macro view you guys have obviously the net short position, we got as of year end not necessarily an update on performance, but if there are sectors are kind of areas that you might be more excited about are doing.

Or think about 2020, just kind of it at a high level some of the themes or views you're looking for from an investment perspective.

Yeah, Hey, Dan it's Keith.

Well I.

I think the answer to that question is in turned upside down fairly based on.

The last two weeks.

But so there's a lot of obviously uncertainty related to the.

Reach and extensive.

Contraction of economic activity related to the virus, so it's hard to comment.

But I would say that.

There is there certain there's certain large core positions that were actively engaged on and their part I mean, there are no secret.

[music].

With.

Some of our core positions in some upcoming proxy fight that we're very excited about the potential for some of those large investments and that's sort of where our focus is on I think the way to think about the billion dollars being contributed in as there was just significant excess cash at the holdco level and.

Yeah, when they have that much excess cash in the fund is.

The other fund had some opportunities on the horizon, they put money down into the fund so thats really all $1 billion was but I think where.

Although we are always exploring for new on new opportunities I think we have a couple a.

A large core positions that we've held for a while that were Ah.

Trying to be the catalyst to unlock some value.

Understood. Thank you.

Thank you and again, ladies and gentlemen to ask a question you will need to press Star One and our next question comes from Andrew Berg with Post Advisory Group. Please proceed with your question.

Hey, guys Keys I know you, let me give an update on intra quarter on the edge from came to potentially give us any commentary there or whether that net short position increased in one Q.

Yes, I'm not going to update the net short position other than to say that you know obviously were.

It's been quite helpful.

Thanks.

Good day.

I am ads are my we've been fairly open about those mid majority of that net short position is S&P 500, yeah, sorry to say okay. Thank you.

Thank you.

And I currently have no more questions in queue.

Okay. Thanks, everybody. We appreciate your interest in Icahn enterprises, and we'll look forward to talking to you a about first quarter results in may.

Okay.

Ladies and gentlemen. This concludes today's conference. Thank you for participation you may now disconnect.

[music].