Q1 2020 Earnings Call

Enterprises LP Q1, 2020 earnings call was Jesse Lynn General Counsel, Keith Cozza, President and CEO and some Wong 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 forward looking statements may be identified by words, such as expects anticipates and.

Tens plans believes seeks estimates will or words of similar meaning and include but are not limited to statements about expected future business and financial performance of Icahn Enterprises LP and its subsidiaries.

Actual events or 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 related to the severity magnitude and duration of.

The covert 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 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 Kozar, our Chief Executive Officer.

Thanks Jesse.

Good morning, and welcome to the first quarter 2020, Icahn Enterprises earnings Conference call joining me on todays call someone Cho, our chief Financial Officer.

I'll begin by providing some brief highlights sung will then provide an in depth review of our financial results on the performance of our business segments.

We will then be available to address your question.

For Q1, 2020, we had a net loss attributable to Icahn enterprises of 1.4 billion or $6.34 per LP unit compared to net loss of 394 million or $2 in two cents per LP unit in the prior year period.

The loss was primarily driven by investment losses at both the investment and holding company segment.

Adjusted EBITDA attributable to Icahn enterprises for Q1, 2020 was a loss of 1.3 billion compared to a loss of 195 million in Q1 of 2019.

Our investment funds earned a negative return of 17.6% in Q1 of 2020 compared to a negative return of 5.8% for Q1 of 2019.

Performance was negatively impacted by certain large long equity positions, which were disproportionately impacted by the cobot 19 pandemic.

Offset by significant gains in our short equity and credit index positions.

Net sales for our energy segment decreased by 356 million for Q1 of 2020 compared to the prior year period.

Our petroleum segment within CVR energy was negatively impacted by the global crude oil price war lower throughput volumes due to the planned turnaround at the Coffeyville refinery and unprecedented refined product demand destruction caused by the cobot 19 pandemic.

CVR completed a $1 billion senior unsecured notes offering in January.

Refinancing 500 million of existing senior unsecured notes and adding 500 million of cash to the balance sheet.

Net sales and service revenues for our automotive segment were 635 million for Q1 or 2020.

The cobot 19 pandemic and the impacts of the actions taken by governments and others have significantly contributed to the decline in revenues in particular, the automotive services revenue and commercial sales revenue, which until recently, we are experiencing growth on an organic basis.

Icon automotive group continues to push for with the multiyear transformational plan to restructure the operations and improved profitability.

During Q1, IP issued 850 million of add on 2024 in 2027 senior notes and paid down 1.35 billion of senior notes due 2022.

Total debt outstanding at the holding company now stands at $5.8 billion.

We closed the quarter with a strong liquidity position and are actively pursuing a number of opportunities, resulting from various market an economic dislocation.

With that let me turn it over to sung.

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.

For Q1, 2020 net loss attributable to Icahn enterprises.

$1.38 billion.

Compared to that loss of $394 million in the prior year period.

As you can see on slide five in 2020, the performance of our investment funds and holding company investments was a significant driver of our net loss for the quarter.

Adjusted EBITDA attributable to Icahn enterprises for Q1, 2020 was a loss of $1.3 billion compared to a loss of $195 million the prior period.

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

Our investment segment had a loss attributable to Icahn enterprises of $926 million for Q1 2020.

The investment funds had a negative return of 17.6% in Q1 2020 compared to a negative return of 5.8% for Q1 2019.

Long positions had a negative performance attribution of 46.7% for the current quarter, while short positions and other other attributes had a leg and that positive performance attribution of 29.1%.

Since inception in November 2004 through the end of Q1 2020, the investment funds gross return of 66% or 3.3% annualized.

Investment funds continue to be hedged.

At the end of Q1 2020, the funds one that short 73% compared to net short 56% at the end of Q4 2019.

Our investment in the funds was $4.4 billion as of March 31, 2040.

Subsequent to the quarter, and we redeemed $250 million from the fine.

And now to our energy segment.

For Q1 2020, our energy segment reported net sales of $1.1 billion and consolidated adjusted EBITDA loss of $38 million compared to net sales of $1.5 billion and consolidated adjusted EBITDA of $230 million for the prior year period.

Good.

The combination of lower throughput volumes as a result of the plan at Coffeyville turnaround the dramatic decline in crude oil prices and the classic product demand due to covert 19 pandemic all severely impacted our results for the quarter.

Refining margin per barrel was $1.52 cents in the first quarter of 2020 compared to $16 at 55 cents during the same period in 2019.

The refining margin was significantly impacted by dramatic drop in crude oil pricing during the quarter that led to a inventory valuation impact of $136 million.

In addition, domestic crude differentials were tighter due to the start of new pipelines from West, Texas to the Gulf Coast.

Excluding the impact of inventory valuation adjustments refining margin per barrel was $11.06 compared to $14, an 87 cents in the prior year.

Petroleum EBITDA without the inventory valuation adjustment was $59 million compared to $177 million than the prior year.

CVR partners reported Q1, 2020, EBITDA of $11 million compared to $26 million for Q1 2019.

CVR partners experienced 10 days of unplanned downtime.

The Q1 decline in EBITDA was primarily due to lower price for ammonia and UAN.

Near term outlook is positive with a strong start to the spring planting seeds.

CVR energy successfully raised $1 billion of new debt in January and he is $500 million or the proceeds to retain existing debt.

Cash at the end of Q1 stood at $805 million.

In light of the volatility and uncertainty is facing the U.S. refining industry CVR has taken several actions.

It is running its refineries at minimum rates and we'll adjust production up and down depending on the environment.

CVR is targeting $50 million of expense reductions for the year.

CVR has canceled or deferred capital expenditures and as reevaluating its investments in light of the current environment.

CVR energy also reduces the dividend to 40 cents per unit.

Liquidity remains very strong and CVR as board will continue to evaluate the appropriate level of dividends going forward.

Now turning to our automotive segment.

Q1, 2020, net sales and service revenues for icon automotive group were $635 million down $58 million from the prior year period with $14 million of the decline related to store closures.

And the remainder related to sales slowdown in March due to cope with 19.

Q1, 2020, adjusted EBITDA was a loss of $42 million compared to a loss of $23 million in the prior year.

I can automotive group continues to push forward with a multiyear transformational plan to restructure the operations and improve profitability.

The company has been closing parks stores in select markets in Fourq 2019, those making progress on the separation of the two businesses.

Due to the co could 19 pandemic icon auto has accelerated closures of parts stores that were scheduled for later in the year.

In addition, the company has adjusted store hours and staffing to match reduced demand implemented significant cost savings measures at corporate functions and reduced capital spending to minimum levels.

Now turning to our food packaging segment.

Q1, 2020, net sales increased by $3 million or 3% and consolidated adjusted EBITDA increased by $3 million compared to the prior year period.

Net sales increased due to volume increases offset in part by unfavorable effects of foreign exchange and price and product mix.

Demand for this case casing products remains strong and are seeing increased global demand related to the covert 19 pandemic.

And now to our metal segment.

Q1, 2020, net sales decreased by $7 million and adjusted EBITDA was flat at $2 million compared to the prior period.

Net sales were impacted by lower market selling prices promotes grades of metals due to unfavorable market conditions that offset an increase in shipping volumes.

And now to our real estate segment.

Q1, 2020, net operating revenues increased $5 million or 5% compared to the prior year.

Adjusted EBITDA for the quarter decreased by $1 million compared to the prior year period.

Revenue from our real estate operations for both Q1 2020 in Q1 2019 were substantially derive from income from carbon rental operations.

The real estate segment generated $5 million of adjusted EBITDA compared to $6 million in the prior year period.

Now turning to home fashion.

Q1, 2020, net sales were up 28% compared to the prior year period.

West 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 was points focus in the institutional and hospitality business and extended the addressable market to international markets outside of the U.S.

Westpoint achieved breakeven EBITDA in Q1 compared to losing $2 million in the prior year.

Early in the covert 19 crisis.

West point started producing and donated nonmedical face master frontline personnel and continues to see strong demand for this new product line.

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.

We ended Q1 2020 cash cash equivalents.

Our investment in the investment funds and revolver availability totaling approximately $7.3 billion.

Our subsidiaries have approximately $941 million of cash and $583 million, an 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.

Hi, There reminder, tap the question you want me to press Star one on your telephone.

Your question, perhaps the bountiful please stand by what we can call the culinary roster.

Our first question comes from the line Nathaniel August Jermaine Brown. Your line is now.

Hi, Thank you for taking my questions today I had a couple.

The first is.

If you could please comment on investment fund performance in April because.

You see the markets bounce back, but it does seem like you're running net short and so it's hard for me to.

Get up and beat on how April might have gone for you.

And then the second question why is that I saw that holding company cash relative to the prior period.

Declined by about.

$1.5 billion and it looks like.

About a third of that decline was attributable to a reduction in debt, but I was hoping you could expand on where the the remainder of that decline was whether you were supporting portfolio companies or adding to the investment portfolio or sort of where that where we can account for that thank you.

Yeah sure Hey, it's Keith Thanks for the questions.

Yes, so I don't want to get into the exact specific number but I'll just say that you know April bid.

Did receive a significant bounce back.

You know and I think the way you can think about April. Despite the fact that we are not sure. It is.

If you look at our 13 AF and you look at our Investor presentation, you can see what our top five long positions are.

And and so and so in the month of April some of them bounced back you know anywhere from.

50 to over 100% when you look at names like Caesars and names like Occidental petroleum itself. So it so April performance was.

Quite strong.

But it but again a you know it's a very volatile market.

So we'll we'll we'll look forward to updating everybody with with final Q2 performance at the end of the quarter, but I would just given the commentary that April.

A significant bounce back.

Some did you want to take the second yes.

And on the cash.

Generally two things going on one is we previously disclosed that at the beginning of the quarter.

Invested $1 billion.

The cash into the investments segment, and so billion dollars of cash went into the investments segment.

And then to the other major thing impacting the cash is the net impact of the debt refinancings and so we raised an additional $1.35 billion a debt.

And then paid off $1.85 billion that that certain that reduction of around.

500 million.

That's really helpful. Thank you very much.

Thank you. Our next question comes from the line I Lloyd Emery from yellow strain, whether Thats Dunn. Your line is now open.

Good morning.

With the advent.

I've electric vehicles coming up coming soon.

What are your thoughts regarding the cost of petroleum.

Going down.

My second question is you pay very high dividend.

Where does the money come from.

It's 16%.

Thank you.

Sure. So I think gun on the first question.

You know, it's all it all depends on your view of how quickly electric vehicles.

Are going to gain mass penetration I think generally are from does not believe that that it's going to.

That's going to take a very long time, probably longer than most forecasts.

Are currently showing.

But I I would never be foolish enough to try to predict where the price of oil is going I mean, you can you see a lot of production is being shut in.

And that should help.

Balance things out from supply and demand.

But but we'll have to see the where not overly concerned about electric vehicle penetration in the short term here.

As far as a our dividend.

Again, we we elect the.

We <unk> the the money obviously comes from the company, but and an out of our ultimate net asset value, but we give shareholders the right to take.

Cash or stock.

And so you know our our largest 10 our largest the.

Shareholder over the years has taken stock, which has made the cash portion of the dividend.

Oh relatively low in prior years, so it's fairly manageable. So I think to answer your question is a it comes out of our.

Our cash balance which is significant.

Thank you.

Thank you.

Huh.

Thank you as a reminder to ask a question you wanted to press star one on your telephone to withdraw your question Brett Bountiful.

Our next question comes on the line of Dan Fannon from Jefferies. Your line is now from.

Hey, guys good morning.

So did wanted to follow up a bit on the last question just with regards to that the capital coming up from the you're you're seeing portfolio companies and I think you mentioned the cutting the dividend it TV.

CVR <unk> I think 40 cents, but just curious across the various segments.

It is paying up to IP from him from his stated dividend outside of obviously I know you you have access to all the some of its fungible, but just from a payout ratio what today is coming up from.

Many of the existing.

Subsidiary.

Yeah, I think I think just based on today. It's it's the CVI would you flat you know CVR energy would you flagged.

Which is a you know currently at Dollarssixty a year.

And you know our real estate portfolio tends to cake kick off a significant amount of cash flow I don't I don't know if we have an estimate on that but it's really going to be the real estate segment.

And CVR currently.

Okay.

And from a liquidity perspective, some of the stats you guys gave just in terms of what you have access to and where are you said is obviously quite quite larger are healthy and so.

Yes, I know, you're not going to tell us what you're going to you guys getting but I guess, how aggressive are you thinking about deploying capital in this type of market given even though weve snapped back there are certainly stores some dislocations in the marketing opportunities. So just curious about your guys investment outlook in terms of what you.

How excited you are about this environment, we are over how cautious you may be obviously you know your your shorten the find them you have a hedge but yeah. There are obviously a lot of other sectors in the private side in other areas or you could be investing.

Yeah. So I think Dan we're looking at where we see I'd say, we're sort of always cautious right and obviously the AG. Obviously it is it the economic outlook is a lot learnt a lot worse than we last spoke.

But I think we're still finding.

Finding pockets of areas to to invest and were really optimistic on on some of our existing positions, but as you saw on in Q1. Yeah. This is out there in public obviously, but when the when the.

<unk>, Russia, Saudi price war broke out on oil.

Yeah, we free if we we took it took advantage of some just look at what we view as dislocation and ramped up our position in Occidental and then ultimately.

Worked out to you know worked out a deal and got some board seats and yes. So were picking spot you know we're certainly.

You know picking picking our spots so to speak in finding areas that we think you're going to really you know real provide really robust long term returns.

But yeah, you got to be careful we're still not short.

At the end of the quarter and currently and.

You know where Ah you always interested in protecting our capital while pushing forward with you know some of the core names that we think we can.

Can be the catalyst unlock some value. So short answer is we're finding finding some pockets here and there.

Understood and just on that net short position has anything changed with regards to you're getting more specific on.

She is either industries are stocks or is it still more kind of macro market futures and options that you are using I'm not sure.

It's it's it's primarily it's primarily a <unk>. The way you described I'd say more broad based index hedges, but <unk>, primarily I should say where.

We have been shifting portions of it I wouldn't call it overly material maybe.

10% to 15%, we've been shifting more towards sorta high beta high multiple single names stocks that we have directional view on.

Yeah, We just think maybe valuation has gotten way ahead of itself.

So are starting to find a little bit more than usual as I think about over the last few years, you know and pivoting a little bit more from index broad based the single names, but it's still you know majority of it it's still majority index based trying to hedge out the macro.

Got it and then.

Just one more I really just kind of a random question, but.

Yeah.

Carl has been on TV in some places talking about overtime, the ETF market in fixed income and some of their concerns I guess any updates just given what we've gone through it in terms of.

The fixed income market in some of the high yield or any of the asset classes and how they performed during this last maybe kind of 70 weeks.

Yeah, you know look I mean I.

Carl done a really good job of of outlining a in several different interviews one of the one of the better opportunities he viewed.

In the marketplace that that has been a trade that.

He we formed as a from a thesis on nights I'd say.

About two years ago.

On some other commercial real estate and particularly malls.

Being a tremendously overvalued and the securities being dramatically Mispriced then.

Obviously that thesis is playing out.

But what sort of interesting and why the trade is sort of accelerated.

Is that besides the malls, which obviously have a lot of problems. A you know these indexes that he has been referencing.

Or have a lot of other have a lot of other loans in it unrelated to malls that have now.

Yes that have now have a tremendous amount of risk of loss that were never even on the radar of anybody.

Of potentially having.

Suffering losses in these in these commercial mortgage backed securities you know like office buildings like hotels and.

So a lot of those are in play now to N. Gamble losses are going to be significant. So yeah. That's been one of the better trades. It's it's helped contribute to performance and.

We think it as a way to go.

Great appreciate all the answers thank you.

Thanks.

Thank you know our next question comes on the line of Robert Sullivan from mid Ocean. Your line is now open.

Uh huh.

Just generally give an update on the automotive group I'm just in terms of store closures you know in terms of.

What what level of activity that you've seen just with the bride.

Broad business slowed down and and I was wondering just generally where you think we are in terms of kind of getting it back to positive EBITDA.

Yeah.

So in terms of the closures so just.

To remind you.

Many of our stores have both parts and service within the same building.

And you know the you know what we're doing right now as we're closing just the parts side of that business and the service side of that.

Building remains open.

So.

You know I'd say, we've closed around.

Within the Pep boys chain around.

Roughly 200 ish.

The parts stores.

And now the service does the service side remains open and we've been bringing a lot of that inventory back into the Dcs and re circulating it throughout the remaining stores that we do keep in the core and denser markets that we have.

In terms of overall kind of.

Market dynamics I'd say, you know were in line with.

Other players in the automotive.

Aftermarket industry.

In most jurisdictions.

The auto or the parts distribution and service or consider the social services. So many of our stores did not most of our stores did not close.

But demand was down significantly and towards the end of March.

Demand was down.

Roughly 40 percentage year over year.

So thats why it was important to.

You know adjust staffing it adjusts store hours to match that reduced demand.

I'd say since then.

Demand a significantly recover.

You know as.

Different geographies around the country.

Lift the stay at home orders, but it's still down from last year.

Okay, and what what's just to get your broader outlook in terms of how long it's going to key.

Get that segment.

Understand.

Looking at significant.

In terms of just brought her revitalization segment.

Sure.

Well I think the service side is actually doing was doing really well before the whole crisis. It.

And.

No there I think we're going to see actually maybe some pent up demand.

Throughout the rest of the year, so we're pretty optimistic on the service side.

And.

The ability to recover there and then show some growth.

When we get out of the pandemic crisis.

And on the part side, you know were so with our new footprint, we've got to optimize.

The the supply chain and optimize the back office in order to.

We've right sized for.

The new footprint of the stores that we have and so that's going to be through probably early next year in order to get that Doug.

Okay. Thank you very much.

Thank you I currently have no more questions. Thank you.

Okay. Thanks, everybody for joining us we appreciate your interest in Icahn enterprises, and we'll look forward to a talking to you about Q2 results in the summer.

Good day.

Ladies and gentlemen, this concludes today's conference call. Thanks for participating you may now disconnect [noise].

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