Q3 2022 Icahn Enterprises LP Earnings Call
Yeah.
Good morning, and welcome to the Icahn Enterprises L. P third quarter 2022 earnings conference call with Rob Flynn Director of accounting, David well, its president and CEO and Ted pop up store Chief Financial Officer.
I'll now like to hand, the conference over to Roslyn, who will read the opening statement.
Thank you operator.
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 maybe identified by words, such as expects anticipates intends plans believes seeks estimates will or words of similar meaning and include but are not limited to statements about the expected future business and financial performance of Icahn Enterprises L P and <unk>.
City areas.
Actual events 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 the severity magnitude and duration of the COVID-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 includes certain non-GAAP financial measures are.
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 David <unk>, our Chief Executive Officer.
Thank you Rob.
Good morning, and welcome to the third quarter 2022, Icahn Enterprises earnings Conference call.
Joining me on today's call as Ted pop a postal Lou <unk>, our Chief Financial Officer.
<unk> will provide an overview of Q2 results and then be available for questions.
Before we get into the results I'd like to reemphasize that we believe activism is the best paradigm for investing we are putting our activist principles into effect in both our majority controlled and our minority positions held in our investment segment.
Additionally, we strongly believe in hedging our positions to mitigate risk, especially in the volatile markets that we're living in today.
For the sake of brevity, all net income and EBITDA amounts will discuss our attributable to icahn enterprises unless otherwise specified.
Now onto the numbers for the nine months ended September 32022, net income was $72 million or <unk> 23 per depository unit at our adjusted EBITDA was $812 million.
For reference last year's first nine months figures were a net loss of $122 million or loss of <unk> 47 per depository unit and adjusted EBITDA of $715 million.
Our third quarter discrete results were a net loss of 123 million with adjusted EBITDA of $70 million.
This represents a quarter over quarter improvement of $25 million of net loss and a decrease of $18 million of adjusted EBITDA.
Our indicative net asset value as of quarter end increased by $1 billion to $6 2 million as compared to December 31 2021.
The change in indicative net asset value includes among other things changes in the fair value of certain subsidiaries, which are not included in our GAAP earnings reported above.
Regarding our segments year to date, our investment funds had a positive return of two 4%, which includes a negative Q3 return of one 9%.
For comparison, the S&P 500 was down approximately 24% for the year and down 5% for the quarter.
CDI ended the quarter with continued strong performance largely due to crack spreads which is facilitating our continued which is facilitating continued dividend distributions.
We're in the process of upgrading select management teams at this case, we have replaced the CEO have invested in a new head of manufacturing and a refocusing the business on margin growth and factory performance.
At Pep boys, we're in the process of replacing the CEO and looking to upgrade other members of the senior management.
The board declared a $2 quarterly distribution payable in cash or additional units.
With that let me turn it over to Ted for a detailed discussion of all of our segments.
Thanks, David I'll begin by reviewing our consolidated results and then highlight the performance of our operating segments and comment on the strength of our balance sheet.
For Q3, 'twenty, two we had net loss of $123 million and adjusted EBITDA of $70 million compared to a net loss of $148 million and adjusted EBITDA of $88 million in the prior year period.
I will now provide more detail regarding the performance of our individual segments.
As David mentioned, the investment funds had a negative return of one 9% for the quarter, which was primarily driven by net losses in long positions in credit default swaps offset in part by net gains and other short positions.
For the quarter long positions had a negative performance attribution of four 9%, while short positions and other had a positive performance attribution of 3%.
The investment funds had a net short notional exposure of 54% at the end of the quarter compared to a net short notional exposure of 28% at the end of Q2.
Our investment in the fund was approximately $4 4 billion as of quarter end.
And now to our energy segment.
In Q3 22, our energy segment reported net sales of $2 7 billion compared to $1 9 billion in the prior year quarter.
Adjusted EBITDA was 124 million for Q3 dollars 22 compared to $143 million in Q3 21.
DVI declared a $1 40 per share cash dividend, which included a special dividend of $1 per share and CVR partners declared a third quarter cash distribution of $1 77 per unit.
Q3, 22 refining margin per throughput barrel was $16 56.
Compared to $15 <unk> in the prior year quarter. This increase was primarily due to widening crack spreads.
The cost of Rins continue to have a negative impact on our refining business with $136 million of related expense for the quarter.
Q3, 22 average realized gate prices for <unk> improved by 42% to $433 per ton and ammonia improved by 65% to $837 per ton when compared to the prior year quarter.
And now turning to our auto segment.
Q3, 22, net sales and service revenues for the automotive segment were $625 million, an increase of $31 million from the prior year quarter.
Q3, 22, adjusted EBITDA was $1 million compared to $14 million in the prior year quarter.
Q3, 22, automotive service revenue increased by $55 million as compared to the prior year period, mainly due to volume and price increases during the quarter that service business was negatively impacted by unfavorable product mix and several nonrecurring SG&A items.
Aftermarket part sales decreased by 34 million, mainly due to store closures as part of the transformation plan.
And to our real estate segment, Q3, 22, net sales and other revenues increased by $3 million compared to the prior year quarter. Adjusted EBITDA was $7 million for Q3 dollars 22 compared to $2 million in Q3 'twenty. One the segment continued its strong performance and the management team is focused on increasing occupancy across the portfolio.
And to our other segments.
Q3 dollars 22, net sales and other revenues from all other operating segments was flat compared to the prior year quarter.
Adjusted EBITDA was 5 million for Q3 dollars 22 compared to $10 million for Q3 dollars 21.
These cases priority throughout the year has been to raise prices to offset historic distribution in raw material cost inflation, which the team has substantially completed the principal impact for the quarter has been an underperforming plant, which has led to higher costs and scrap rates. The manufacturing team is highly focused on turning this plan around and resolving the.
Ts.
Home fashion continues to experience high demand for its hospitality products retailers broadly are reevaluating and reducing their inventories for home fashion goods and have markedly reduced their purchasing this has directly impacted results within this segment.
During the quarter bad debt reserve of $4 million was recorded for two significant retail customers.
The pharma segment continues to experience strong script growth for both of its commercial products.
Now turning to our liquidity.
We maintain liquidity at the holding company in each of our operating subsidiaries to take advantage of attractive opportunities.
We ended the quarter with cash cash equivalents, our investment in the investment funds and revolver availability totaling approximately $7 1 billion our.
Our subsidiaries have approximately $761 million of cash and $291 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 liquidity to enable us to capitalize on opportunities within and outside our existing operating segments.
Thank you operator can you. Please open the call up for questions. Thank you.
As a reminder to ask a question you will need to press star one on your telephone.
One moment, while we compile the Q&A roster.
Our first question comes from the line of Daniel Fannon with Jefferies. Please proceed.
Hi, Thanks. Good morning, just wanted to talk about the auto segment.
Just the outlook as you think about both growth and profitability of the store closures have been planned those are kind of flowing through but just.
Other aspects of the business other kind of cost cutting measures or other things youre doing to kind of think about profitability of the outlook for that business kind of in the intermediate term.
Alright, good morning, Dan.
It's a good question.
Let's let's decompose auto a little bit and I'll talk about the services segment.
Principally in responding so.
I think I think there are three things we should touch on the first is what is the top line looked like and what are the macro has looked like for the business over the next few quarters.
Potentially going into a recessionary environment.
I think the first macro is generally recessions are good for the service business as folks delay capital purchases for cars.
And that means theyre running their existing cars or existing fleets, which have a higher maintenance.
Component to them, so generally heading into a down market and the services business is not necessarily bad that said the second piece is what does that mean with regards to ticket price folks are going to be pretty mindful about only buying what they need to buy and I think when we take a look at this year you've had some pretty substantial revenue growth.
Much of which had been goring through price as we have successfully pass through the cost increases that have come from suppliers and from our Labor Force is allows.
<unk> our services to what we think is a market appropriate return.
That's the area, where I see some potential pressure and to your point. The third bucket is how do we get more efficient.
And when I look at services there are.
Really two components are we as lean as we can be with our SG&A and our back office. The answer is no. We are currently in the process of doing.
Two things one is a.
A re sizing of the overall.
Head count levels as well as cost levels.
Second is work elimination think of this as more continuous improvement, let's eliminate the work, let's streamline things versus just bandaid them. So on the SG&A front that is active in that is going to be pronounced in next year's results and we would expect that to have a pretty substantial discussion point in Q4.
And then continuing throughout next year on the variable costs. There is a lot to be done with our partners from tire manufacturers to parts manufacturers to work through the supply chain to get not just the right price, but the right. The right degree of cash investment that we need to make that as active.
Actively partnering with those vendors.
To really reset the relationships in a positive and constructive way for both companies.
Sales as well as our partners on the operating cost in the stores frankly, I think we've been lagging there.
And we are actively looking at putting in basic what I would consider to be efficiency programs. How do we streamline how long it takes us to do a tier change or an oil change.
When you are looking at upgrading store managers and regional managers.
With the right skill sets so that they can.
Really really service the customers far better and give them.
More value as well as more value for us so.
Our principal approach there is to coach versus replace but obviously there'll be a few folks along the way.
The last thing, which we havent done a good job of candidly because we haven't done much in the way of Greenfields I think there have been you can squint out at a few different ways four to six greenfields over the last few years.
That is totally unacceptable.
We need to target something well north of that to fill in areas and grow with the population growth.
That is something that we're currently sizing we have a number of greenfields that were targeting to open.
Really over the course of this year with an acceleration to next and we're just sizing exactly where it makes sense to go so that maybe more than you wanted Dan, but I think I think the holistic thesis is we have to get better on multiple fronts and accelerate and the CEO replacement and CFO replacement and several other management will help.
Actuate that getting folks that are appropriate for this next stage of the journey and really drive forward with.
Youll speed haste and pragmatism.
Does that help them.
That's helpful I guess.
Obviously, thats a multi step process with lots of initiatives. So as we think about that that is kind of mid next year in terms of implementation and kind of thinking about.
Flowing through in terms of the numeric and the back half of exiting next year is that the right way to think of it or is it something earlier than that do you think is reasonable.
I think that remains to be seen we're still working through the exact timing of the plans. What I'd say is the there are many actions that are going to be executed in Q4.
But but those are not limited to Q4 there'll be ones in Q1 and Q2.
To your point, it's a multifaceted approach when that hits the ledger will be a little different I think we'll have a number of cash items is in cash generative items that can hit relatively quickly I think some of the income items will be a little bit of TBD.
I'd like to think it's earlier than second half of next year, but we don't have the timing fully measured outside hate to commit to something earlier no I desire it.
Understood.
My follow up question is just on the.
The dividends from the various businesses so as energy the only dip.
Dividend IEP received up this quarter.
And I believe you said there was a special in there too I guess, just kind of thinking about the outlook for kind of dividends from the various investments and how we should think about that also on a prospective basis sure I mean, when youre talking about the owned companies.
Yeah, when I think of the owned companies.
<unk> and UAS phenomenal businesses, given the current crack spreads.
We monitor that and Dave lamp and the team does a phenomenal job of squeezing as much as they possibly can out of the refineries.
As well as the fertilizer plants so.
Guardedly optimistic.
Certainly the forecasts suggest that the EBITDA will continue and presumably that will continue with a dividend stream versus a change whether or not there was a special dividend will be monitored on a quarterly by quarterly basis.
When you look at the other companies I mean, the only one of consequence really to talk about at this point would be Pep boys and they are not in a cash generative mode back to us.
Given the Greenfields that.
That is going to be consuming a fair amount of capital, which we need to size. So I wouldn't pencil them in for any particular dividend, but I'm also not particularly worried about that since there is zero external debt on the company.
If we wish to there could always be a dividend recap at some point in the future.
But.
I think that's the short version West point home in this case and the need is there.
All relatively small at this point.
And so even if they did do a dividend it wouldn't be that meaningful.
Understood and then just I guess, one more last one just the investment fund.
Under the short positioning youre getting a little bit, but growing I should say kind of.
Sits today, so broadly speaking I would assume that the more conservative outlook just in terms of the broader markets as you think about the.
Fully invested versus cash just trying to get a sense of where the funds sits today and kind of.
How you're viewing the current environment for new investments in the fund versus kind of still maybe being a bit more cautious and waiting.
That's the debate we have constantly in terms of are we at the maximum degree of uncertainty and at the bottom or is there more uncertainty certainly with the rate hikes with deflation.
You can look at the market in two ways, depending on your perspective, so we're still in the mode of.
Evaluating a number of investments.
We anticipate putting capital to work we have a number of items in the pipeline I think right now the question is really timing.
So.
We're optimistic but the question is the timeframe certainly over 2023, we hope that things are.
Solidly more.
Solidly more positive in terms of making a very concrete series of investments, but we have several that will be announced store.
Have them.
In terms of the overall short position I don't think we've gotten more conservative candidly I think the shorts have just done relatively well.
So that has expanded the relative percentage of short we have in the portfolio and earlier in the year, we harvested some of our longs. So you've seen a little rebalancing, but I wouldnt say thats a shift in strategy its a combination of opportunity and performance.
Is that fair Ted.
That's right yes, okay.
Great. Thanks for answering all my questions Youre welcome.
Thank you and one moment for our next question.
And it comes from the line of Bruce <unk> with northeast investors. Please proceed.
Hi, guys can you hear me okay, yes.
Yes, good morning, Bruce Okay, Okay, great. Good morning, and thanks for hosting the call. So a couple of questions as usual on this case.
Don't break out the numbers, so I, just what im a little confused I see the EBITA, mostly flat there have I got that wrong or.
That seems to have or you could get there with the backend value is that right.
Yes, it's.
Flat to slightly down.
No when you look at the actual Q.
We have summarized his presentation about the <unk> breaks it out so when you look at it youll be able to see the actual specifics for Jessica case, Okay, great and.
So I was sort of I understand we've got FX headwinds. So I'd look for color on that or I was expecting a better quarter frankly and.
And so I guess, it's a question of can you be a little more granular please on whether FX or pricing and.
A leading question.
And by the way I thought that the line went up back up in June So maybe it was comparison with the fourth quarter and our third quarter last year.
But sort of what how you.
Are you looking at that.
Would I be wrong in thinking that <unk> got to be a lay up and a comparison.
So can you go there and I may follow up a little bit if that's okay.
Of course, I think given your investment in this case it we appreciate this dialogue.
I think the context for the year has been we did not do a good job historically by historically Im talking about 2021 in terms of actually getting price.
It's been a primary focus.
And that on a year over year basis has been a real driver to stabilize profitability, where it needs to be.
We have the line problem in <unk>.
It was resolved and then it became unresolved the scrap rates just got too high we had a number of training issues on the line. So that is come unstuck, which is obviously not acceptable and that has hit us both in terms of lost revenue and profit opportunity from the line as well as just.
Cost.
No.
There are no excuses for that the question is what are we doing about it.
And Thats, where the team is working through the basics.
Given the technical training that is required to operate the line, it's a combination of.
Rapid training improve plant management.
Frankly route causing.
Many of the generators of waste on the line realistically, it's going to take another quarter or two to assess all of that out and that timing is not it's not remotely acceptable, but I think that's a realistic timing.
With that said.
Sorry can you just Tony on that again.
I'm sorry, but.
Why.
The problem was a surprise why does it take so long.
Sorry.
Ultimately it gets to two things right scrap rates on the line and two experienced operators on the line right. We don't have enough experienced operators in the plant to run the line fully and at a low scrap rate secondarily, the scrap rates apart from the operators have been high so it didn't make sense economically to run the line.
Right.
You take that and.
That is what we have to fix and that's what the team is focused on fixing we have a new CEO , we have a head of manufacturing that's new as of two months because we didn't have the right focus in the company on addressing that issue.
Okay.
Alright, so and then alright, so <unk>.
<unk> is not a not a not a lay up is what youre, saying.
I think on a comparable basis I think youll be pleased.
Went through the numbers with the management team.
<unk>.
Im pretty optimistic and that is offsetting.
I think I think the results.
I don't have a fully restored line on OCR.
But I think the results will be favorable on a year over year basis, even though that's still a headwind.
Okay.
It just seems if I'm allowed to do.
You go to your customers it seems like if youre incurring costs.
Whether it's acceptable or unacceptable this as a cost.
That your customer should be paying for right.
And I think we've had that dialogue with the customers. This year and if I just I mean, just to use a few numbers if I take a look at the total amount of price that we've got in year over year.
It's substantial.
The bridge by far is the largest number that we have because we hadn't historically done that we haven't had a mature dialogue or relationship with our customers to explain we're adding value, but there is a cost to that value I think the year over year price that we're getting just in third quarter year to date alone is something like $37 million dropping to the bottom line.
Right now the lost profit opportunity on that line has been a headwind in Q3.
And it'll continue to be a drag in Q4, so I would say price has been a major focus and it is actually delivered the results, but we have other operational issues that need to get back and restored there are obviously a number of other price actions that we're taking it's not a one and done.
Particularly in Europe , as we continue to forward price based on the costs, we anticipate versus playing the game of catch up.
Okay, and if im allowed to Cosmically say I know.
It's a small holding for you guys in one sense, but in terms of like percentage if.
If there's if there's anybody that could benefit I mean, EBITDA has been $50 million for forever and if theres any company, it's not my job to but.
With.
This wood.
The attention and focus and this is this is an undervalued opportunity huh.
When I take a look at this company should be doing a lot better.
There's no question about that.
Needs to have five to six.
A minimum percentage points more of EBITDA.
Likely closer to 10.
And we werent going to do it with the old team.
We have a new team that is.
Demonstrating an ability to do this.
Okay and last question I promise.
New team.
The CEO , you're talking about from 12 24 months ago.
Like a week ago or anything like that.
Got it wrong so.
So Tim feast as the new CEO .
Tim and I have worked together for years in the past he.
He has had a number of very successful.
What I would consider to be specialty chemical which ultimately is what this cases.
Leadership roles.
Across multiple industries focused on extrusion technologies customer customer profit consumer product facing goods in the plastics and similar markets.
He has been there what Ted for two months two months, yes.
So he is he is getting his legs under him.
Very very quickly and I would say the board is extremely pleased with what we've seen just in the first 60 days, but realistically.
This is a company that has been asleep for probably 10 years, and it's going to take time, but not much to upgrade.
Upgrade talent and get the right people moving in the right direction with the right metrics.
Well, we look forward I know you put in the $100 million.
265, and Youre carrying it at two Bucks now and we carried at 70.
We look forward to partnering with you when we look forward to seeing those results.
I think you and I and the rest of the investors can have a cocktail when Tim and the team deliver and Thats the goal for next year.
Okay.
Thank you.
Thank you Im showing no further questions. Thank you I will turn the call back to David for final remarks.
Alright.
As always we.
We appreciate our investors in this opportunity to interface with you all and go through the numbers hold us accountable and we will be as transparent as we can.
So with that said, we look forward to talking to everyone. At the end of Q4 and wish everyone. A good afternoon and a good weekend take care.
Thank you and everyone. Thank you for participating in today's conference you May now disconnect at this time good day.
Alright.
The conference will begin shortly.
Raise your hand during Q&A you can dial one one.
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