Q2 2020 Icahn Enterprises LP Earnings Call

Thank you for standing by welcome to the Icahn Enterprises second quarter 2020 earnings webcast.

This time all participants.

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Pretty speakers presentation, there will be a question answer session to ask a question during the session you need to press Star then one on your telephone keypad.

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I'd like to turn the conference over to Mr. Jesse Lynn.

Speaking.

Thank you operator.

The private Securities Litigation Reform Act 1995 provides a safe harbor for forward looking statements. We make in this presentation, including statements regarding our future performance and plans for businesses and potential acquisitions forward looking statements may be identified by words, such as expects anticipates intend.

His plans believes seeks estimates will or words of similar meeting and include but are not limited to statements about the expected future business and financial performance of Icahn Enterprises LP units 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 securities and Exchange Commission, including economic competitive legal and other factors, including related to the severity magnitude and duration of the cold.

19 endemic.

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 also includes certain non-GAAP financial measures.

A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the back of this presentation.

I'll now turn it over to Keith Cozza, our Chief Executive Officer.

Thanks Jesse.

Good morning, and welcome to the second quarter 2020, Icahn Enterprises earnings Conference call.

Joining me on today's call someone Cho, our chief Financial Officer.

I will begin by providing some brief highlights.

I will then provide an in depth review of our financial results and the performance of our business.

We will then be available to address your question.

For Q2, 2020, we had net income attributable to Icahn enterprises, 299 million or Dollarsthirty six Braille P units compared to a net loss of 498 million or $2.49 per LP unit in the prior year period.

Quarterly income was primarily driven by investment gains at both the investment in holding company segment.

Adjusted EBITDA attributable to Icahn enterprises for Q2, 2020, 695 million compared to a loss of 257 million Q2 2019.

Our investment funds earned a positive return of 11.7% in Q2 2020 compared to a negative return of 3.1% for Q2 2019.

The positive performance was primarily driven by certain large long equity position and a significant short credit position, partially offset by negative performance from our short index market hedges.

Net sales for our energy segment decreased by 1 billion for Q2 2020 compared to the prior year period.

Our petroleum segment within CVR energy was negatively impacted by narrow crack spreads tighter crude differentials that resulted from the cobot 19 demand destruction and global crude oil price wars.

Our fertilizer segment had strong utilization rates at both facilities offset by weaker price environment agriculture markets continue to be hamper.

Net sales and service revenues for our automotive segment were 587 million for Q2 2020.

The cobot 19 pandemic and the impact would be actions taken by governments and others have significantly contributed to the decline in revenues in particularly the automotive services revenue and commercial sales revenue, which until recently were experienced growth on organic basis.

I can't automotive group continues to push for with a multiyear transformational plan to restructure the operations and improve profitability.

We have made significant progress separating our automotive service business from our aftermarket parts business and are on track to substantially complete the separation by the end of this year.

We closed the quarter with holding company cash and investments in the funds of over 5.7 billion continue to look for investment opportunities that align with our activists philosophy.

With that let me turn it over to some.

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 Q2, 2020 net income attributable to Icahn enterprises was $299 million, that's compared to a net loss of $498 million in the prior year period.

As you can see on slide five in Q2 2020, the performance of our investment funds was a significant driver of our net income for the quarter.

Adjusted EBITDA attributable to Icahn enterprises for Q2, 2020 was $695 million compared to a loss of $257 million in the prior year period.

I'll now provide more detail regarding the performance of our individual segments.

Our investment segment had income attributable to Icahn enterprises, a $479 million for Q2 2020.

The investment funds had a positive return of 11.7% in Q2 2020 compared to a negative return of 3.1% for Q2 2019.

Long positions had a positive performance attribution of 22.7 per cent for the current quarter, while short positions had a negative performance attribution up 11%.

Since inception in November 2004 through the end of Q2 2020, the investment funds gross return is 86% or 4% annually.

The investment funds continue to be hedged at the end of Q2 2020, the funds, where net short 48% compared to net short 73% at the end of Q1 2020.

Our investment in the funds was $4.6 billion as of June Thirtyth 2020.

And now to our energy segment.

For Q2 2020, our energy segment reported net sales of $675 million and consolidated adjusted EBITDA of $109 million compared to net sales of $1.7 billion and consolidated adjusted EBITDA of 273 million for the prior period.

Refinery volumes were lower in Q2 running an average of 156000 barrels per day compared to 216000 barrels per day in the prior year period.

This was due to the turnaround at Coffeyville, which was completed in April as well as operating at reduced rates until mid June due to the weak environment.

CVR management indicated volumes in the range of 190 to 210000 barrels per day in Q3.

Refining margin per throughput barrel was $10.43 in the second quarter of 2020 compared to $15.66. During the same period in 2019.

The refining margin was significantly impacted by narrow crack spreads and tight crude differentials as demand for gasoline and diesel reduced due to covert shutdowns.

CVR partners reported Q2 to 2020 EBITDA of negative $2 million, which included a non cash goodwill impairment of $41 million.

Adjusting for this impairment adjusted EBITDA was $39 million positive compared to 60 million dollar positive in Q2 2019.

The Q2 decline in EBITDA was primarily due to lower priced ammonia and UAN, which are weak due to strong supply and low natural gas prices.

CVR energy did not declare a dividend this quarter as that evaluates various high return investment opportunities, including renewable diesel.

Now turning to our automotive segment.

Q2, 2020, net sales and service revenue for icon and icon automotive group.

Was $587 million down 157 million from the prior year period was $43 million of the decline related to store closures and the remainder primarily related to the sales slowdown due to covert thing team.

Q2, 2020, adjusted EBITDA, which excludes the losses associated with close stores was a loss of $7 million compared to a loss of $3 million in the prior year period.

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

I kinda auto accelerated closures of certain parts stores adjusted store hours and staffing to match reduced demand implemented significant cost savings measures and reduced capital spending to minimum levels.

All these initiatives helped icon auto offset the impact of significant sales decline.

And position the company for profitability as sales return.

Now turning to our food packaging segment.

Q2, 2020, net sales increased by $6 million or 6% and consolidated adjusted EBITDA was flat at $16 million compared to the prior year period.

Net sales increased dude.

An increase in volumes and an increase due to price and product mix.

Offset in part by unfavorable effects of foreign exchange.

Demand for Viskase casing products remains strong with increased global volume.

Related to the cope with 19 pandemic.

And now to our metal segment.

Q2, 2020, net sales decreased by $61 million and adjusted EBITDA decreased by $4 million compared to the prior year.

Net sales were impacted by lower shipping volumes and market selling prices for most grades of metal due to unfavorable market conditions.

And now to our real estate segment.

Q2, 2020, net operating revenues decreased by $2 million compared to the prior year.

Adjusted EBITDA for the quarter increased by $5 million compared to the prior year period.

Revenue from our real estate operations for both Q2 2020 in Q2 2019 for substantially derived from income from the sale of residential units and club in rental operations.

The real estate segment generated $10 million of adjusted EBITDA.

Compared to $5 million in the prior year period.

Now turning to our home fashion segment.

Q2, 2020, net sales decreased by $7 million compared to the prior year period, primarily due to decrease in existing west point home sales offset in part by increase is attributable to face mask sales and the V. S. S acquisition.

As previously disclosed the VSS acquisition strengthens was points focus in the institutional and hospitality businesses and extends its addressable market to international markets outside the U.S.

West point achieved adjusted EBITDA of $1 million in Q2, compared to losing $1 million in the prior year period.

Early in the covert 19 crisis West point started producing and donated non medical face masks to frontline personnel and continues to see strong medical a 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 Q2 2020 cash cash equivalents, our investment in the investment funds and revolver availability totaling approximately $7 billion.

Our subsidiaries have approximately $727 million of cash.

And $582 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.

Ladies and gentlemen, if you have a question or comment at this time. Please press Star then one on your telephone keypad.

If your question has been asked what are you wish to remove yourself from MCU simply press the pound cake.

Again, if you ever question or comment at this time. Please press Star then one on your telephone keypad.

Our first question or comment comes from a line of Dan Fannon from Jefferies. Your line is open.

Hi, This is actually James steel filling in for Dan Thanks for taking your questions.

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Your first I just wanted to sort of started off high level and just talking about how you're seeing the.

The landscape and that's more opportunities and M&A, obviously things are different from the plans that you had when you started the year. So I just want to Dan.

She how you're assessing the landscape and which of your segments might be more opportunistic for M&A.

Sure sure. Thanks. This is this is Keith.

Yeah, So I think a well I'll start and in our investment segment I think we're a you know we have Oh, we have.

Really large cash balance down at our investment segment <unk>. So as a result of some recently closed M&A transactions that.

Have a saw have us on the look out for a potential new activist investments and we're also finding some stuff at the investment segment level in the distressed credits credit space. That's a that's interesting and you know prior to that you know at the prior to the pandemic [noise].

I'd say that we weren't seeing very many interesting opportunities in the credit space. So so that's something that's changed that'd be investment segment level.

As far as far as our other segments, a you know I think each.

I mean, we sort of laid them out on the call I think we're seeing.

You know, particularly in energy with CVR energy.

And they and they hold their earnings call yesterday, so they've been pretty pretty vocal about this but we're seeing a couple a number of potential high.

High return projects.

Whether it'd be an acquisition of another refinery and a in another pad that had to diversify our regional exposure or even we're exploring some renewable renewable diesel plant conversion projects that again or pay pay extraordinarily high return.

Yes.

With quick paybacks, So I'd say those are really the two areas where.

Where ah we're seeing the most opportunities.

Okay. Thanks, and then on the automotive segment, obviously, you have been pretty quickly and are able to cut costs that I'm. Just curious when environment improves on you know will there be any one time costs or just kind of any ramifications for and you've done in the past couple of months to let me.

Paul just curious on how quickly you can ramp back up there and.

Yes, sure I I think a I don't anticipate any material onetime costs in ramping back up I think frankly.

You know the unfortunate pandemic, because that's really has really forced companies to operate on a more lean basis and increased productivity.

And our our management team at icon automotive group.

On both sides of the business, but particularly the surface side of the business.

You know really a really.

Made some drastic moves.

To preserve the value of the business and I think they're seeing as business volumes improve.

The cost structure doesn't need to nearly improve at the same.

At the same percentage as it as it once was so I actually not only do why not see sort of onetime charges I sort of see better operating leverage going forward.

Okay. Thanks, and then lastly from me on the real estate segment. I think this is an area where like people think there could be some more permanent evolutions, resulting from and getting so I'm just curious on what your thoughts are there and how you view you know your capacity in your commercial.

Real estate yeah.

Yeah, So I mean, our our commercial real estate portfolio. At this point is it's pretty small basically we have the most material asset. We have is a EUR 30 story building in Atlanta.

Oh God that is the tenant the tenant who has left but their leases continues to pay until a 2021.

We are currently you know restrict <unk> redesigning that bill that was a single tenant building and so were redesigning and re purposing it for multi tenant thing.

And are making pretty good progress with a number of potential lessees.

And to fill the building up for with longer term leases.

But yeah look no doubt that the pandemic has has certainly put.

Well certainly at least has people corporations thinking about their real estate footprint and and do they need all their employees and offices and you know that puts pressure on it.

But I think we still feel feel okay about this particular building and the demographics in downtown Atlanta and being able to.

Ultimately lease it up.

That's really the most material core that's the only corporate.

Exposure in our triple net lease portfolio.

Got it thanks Keith.

Yeah. Thanks for the question.

Thank you again, ladies and gentlemen, if you have a question or comment at this time. Please press Star then one or your telephone keypad.

I'm showing no additional questions in the queue at this time I'd like to turn the conference back over to management for any closing remarks.

Okay. Thank you operator, and thank you everybody for your interest in IP, we look forward to discussing third quarter results with you in a later this year have a good day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.

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