Icahn Enterprises Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 28, 2024

Key Takeaways

  • Q4 2023 financial results: Net loss improved to $139 million (up $116 million YoY) with adjusted EBITDA of $9 million, a $84 million increase over Q4 2022.
  • CVI and Automotive performance: CVI benefited from strong crack spreads and declared a $0.50 per share dividend, while the Automotive segment, under new leadership at Pep Boys, saw margin improvement and top-line reinvigoration potential.
  • Investment segment repositioning: The funds posted a –4.1% return driven by broad market shorts, trimmed headline net short exposure to ~36% (6% adjusted for energy hedges) and are focusing on netting and activism strategies going forward.
  • Strong liquidity and balance sheet: Issued $700 million of 9.75% senior notes due 2029 to refinance 2024 maturities, leaving the holding company with $4.8 billion in cash and fund investments and subsidiaries with $1.7 billion of cash and revolver availability.
  • NAV and distribution: Indicative net asset value stood at $4.8 billion at quarter end, and the Board approved a $1.00 quarterly distribution per depository unit, consistent with the prior quarter.
AI Generated. May Contain Errors.
Earnings Conference Call
Icahn Enterprises Q4 2023
00:00 / 00:00

There are 6 speakers on the call.

Operator

Good morning and welcome to the Icahn Enterprises LP 4th Quarter 2023 Earnings Conference Call with Jesse Lynn, General Counsel Andrew Tino, President and Chief Executive Officer Ted Papastolo, Chief Financial Officer and Robert Flint, Chief Accounting Officer. I would now like to hand the conference over to Jesse Lynn, who will read the opening statement.

Speaker 1

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, 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, LP and its subsidiaries. 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. Accordingly, there is no assurance that our expectations will be realized.

Speaker 1

We assume no obligation to update or revise any forward looking statement should circumstances change, except as otherwise required by law. This presentation also includes certain non GAAP financial measures, including adjusted EBITDA. 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. We also present indicative net asset value. Indicative net asset value includes, among other things, changes in the fair value of certain subsidiaries, which are not included in our GAAP earnings.

Speaker 1

All net income and EBITDA amounts we will discuss are attributable to Icahn Enterprises unless otherwise specified. I'll now turn it over to Andrew Tino, our Chief Executive Officer.

Speaker 2

Thank you, Jesse. Let me first say I am honored to take on my new role as CEO. Carl, IEP and our activism strategy have established an important place in Corporate America and I'm excited to get to work. So today I'll provide a brief overview of Q4 results and then we will be available for questions. The 4th quarter net loss was $139,000,000 an improvement of $116,000,000 over Q4 'twenty two.

Speaker 2

4th quarter adjusted EBITDA was $9,000,000 an increase of $84,000,000 compared to Q4 'twenty two. Our controlled operating companies have performed well. CVI has benefited from strong crack spreads, good operating utilization, reduced RIN costs and has authorized a $0.50 dividend per share. Our Automotive segment has posted strong year over year performance. David Wilitz is now leading the day to day operations at Pep Boys and we see the potential for significant long term value creation both through margin improvement and reinvigorating the top line.

Speaker 2

In the Investment segment this quarter, the funds had a negative return of 4.1 percent, primarily driven by broad market shorts. Our headline net short exposure of 36% is approximately 6% when you adjust for the energy hedges. This compares to approximately 34% as of the prior year end excluding the energy hedges. The indicative net asset value ended the quarter at $4,800,000,000 Additionally, the Board approved a $1 quarterly distribution per depository unit, which is consistent with the last quarter. With that, let me turn it over to Ted for a detailed discussion of all of our segments.

Speaker 3

Thank you, Andrew. I will begin by reviewing the performance of our segments and comment on the strength of our balance sheet. Turning to our Investment segment. The funds had a negative return of 4.1% for the quarter. Long and other positions had a positive performance attribution of 2.4%, while short positions had a negative performance attribution of 6.5%.

Speaker 3

During the quarter, the segment made a pro rata distribution of $400,000,000 of which the holding company received its portion of 242,000,000 dollars The holding company's interest in the funds was approximately $3,200,000,000 as of quarterend. Turning to our Energy segment. In Q4 2023, adjusted EBITDA was $120,000,000 as compared to $168,000,000 in Q4 20 22. Q4 2023 refining margin per throughput barrel was $15.01 compared to $17.14 in the prior year quarter. This decrease was driven by weaker crack spreads and unfavorable inventory valuations that were offset in part by favorable derivative and RIN related impacts.

Speaker 3

Q4 2023 average realized gate prices for UAN decreased by 47% to $2.41 per tonne and ammonia decreased by 52 percent to $4.61 per tonne when compared to the prior year quarter. CVI declared a 4th quarter cash dividend of $0.50 per share. And now to our Automotive segment. As we previously discussed, the segment has undergone segment results throughout 2023 are made up primarily of automotive service operations as compared to 2022, which also included the aftermarket parts operations of Auto Plus. Q4 2023 automotive service revenues were down $15,000,000 compared to Q4 2022, driven by store closures and lower car count.

Speaker 3

Adjusted EBITDA was $28,000,000 for the quarter, a $71,000,000 improvement as compared to Q4 2022, mainly due to the exit of the Auto Plus aftermarket parts business. Now turning to our Real Estate segment. Q4 2023 net sales and other revenues increased by $8,000,000 and adjusted EBITDA increased by $3,000,000 compared to the prior year quarter, primarily driven by the sale of single family homes. Now on to our other operating segments. Food Packaging's adjusted EBITDA was flat for Q4 2023 as compared to the prior year quarter.

Speaker 3

The quarter over quarter comparison was positively impacted by pricing initiatives and lower distribution costs, which was offset by lower sales volume. Home Fashion's adjusted EBITDA increased by $6,000,000 as compared to the prior year quarter, primarily due to lower raw material and freight costs. The Pharma segment's adjusted EBITDA for Q4 20 3 improved by $3,000,000 as compared to the prior year quarter, mainly due to increased sales volume along with margin improvement. Now turning to our liquidity. During December, IEP issued $700,000,000 of 9.75 senior unsecured notes due 2029.

Speaker 3

The net proceeds from this issuance together with $376,000,000 of cash on hand was used to satisfy the outstanding notes due 2024. We maintain liquidity at the holding company and at each of our operating subsidiaries to take advantage of attractive opportunities. As of year end, the holding company had cash and investment in the funds of $4,800,000,000 and our subsidiaries had cash and revolver availability of $1,700,000,000 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?

Operator

Thank you. Our first question comes from the line of Dan Fannon with Jefferies. Your line is now open.

Speaker 4

Thanks. Good morning. Andrew, I was hoping to get your thoughts on the auto business. And I know that putting David there was a change. But I guess what as you think about 2024, what are you guys doing differently?

Speaker 4

Or what are you expecting in terms of improvement as you think about that business over the next kind of 12 months?

Speaker 2

We don't really look at it on a 12 month basis. I would just say longer term, if you look at the company, if you look at its margins and you compare it to its peers, we think there's a lot more upset. And so Dave is the person to lead that effort and so that's why he's there. He's excited about it and so we're waiting.

Speaker 4

So I guess just in the context, I mean, is there anything different you guys are doing that you guys did a lot last year proactively to change the business. Now is it more of continuing to let that play out in the economic backdrop improving? Or I guess what else should we think about in terms of driving that improvement, I guess on a multi year basis, not even just next this year?

Speaker 2

So last year you had the deconsolidation that required a lot of effort and this year is about focusing on Pep Boys' business and the years to come.

Speaker 4

Okay. That's not really giving me much there, I guess. I guess then on the fund side, the performance of the fund sounds very similar or has been very similar despite and the positioning similar despite what was characterized as a change in strategy a few quarters ago. So given your closeness to it, I was hoping maybe to get a little bit more color as you think about what really changed in terms of how you are thinking about managing the overall portfolio. And if we should think about, again, prospectively, how if there's anything different and or what you are positioning and or changing within the portfolio to obviously generate different more positive returns?

Speaker 2

Yes. So, if you I think the first thing you said was about the call it, the overall net short exposure. So if you look at year end 2022 and you looked at our exposure, I think the headline net short was 47%. And if you adjusted that for the refining hedges and energy hedges, you'd be down to minus 34%. Now, if you compare that to today, our exposure, call it, is mid single digits negative when you exclude our energy hedges.

Speaker 2

And so we think that the portfolio has changed significantly. And then in terms of what are we going to do going forward, it's we're going to do exactly what Carl said we would do, which is we'll stick to our netting, we'll focus on activism. And I think more recently you've seen us announce our involvement in 2 names, both of which we're very excited about. And we think the portfolio is in very good shape for the future.

Speaker 4

Understood. Could you give the rough comparison? You went to 2022. What was that comparison last quarter net of the energy exposures versus what you did with the low single digits as of the end of the year?

Speaker 2

Yes. So I think it's down a little bit of probably another 5% from what it was in ninethirty.

Speaker 4

Great. Okay. Thanks for taking.

Speaker 2

Maybe another question you asked in there, which is we continue to refine the portfolio. So, we trimmed a few names and we're focusing on the names that we like

Operator

Our next question comes from the line of Bruce Monrath with Northeast Investors Trust. Your line is now open.

Speaker 5

Hi guys. Thanks for hosting the call. A question if I could on Food Packaging. So volumes were down year over year, I guess. Could you add a little more color on that?

Speaker 5

And is Osceola running fine? Are there waste issues? Maybe are there geographic is there geographic dimension to it? And then also is everything flat at the SG and A line or is it possible that SG and A went up because of accruals because you had such a good start to the year? Or anything going on at that line either?

Speaker 5

Two questions. Thanks.

Speaker 3

Hey, Bruce, it's Fed. Thanks for the question. But before I answer other questions, let me just give more context on the quarter and I think it'll help answer a lot of them. So volume softened during the quarter. And when comparing Q4 of 2023 to Q4 of 2022, David actually touched on this in the last call, The new round of Russian sanctions went into effect during 2023, so that affected comparability.

Speaker 3

Not all these sanctions were there in 2022. But the more significant reason was our customers have drawn down on their inventories. And this is to bring them to more historical levels. And you can attribute this to the supply chain correcting or actually improving as compared to recent years. When supply chain issues arise, you can imagine raw material inventory levels tend to creep up just to ensure operations.

Speaker 3

And we knew this correction was coming, but it's very hard to time. And it looks like it happened the majority of it happened in Q4. And although it affected demand in Q4, we don't think that's sustainable. And once the rebalance finishes, the demand will come back. And just the other part of the equation in terms of EBITDA, it was flat as compared to prior year's quarter because of the pricing initiatives management has taken and those have helped along with lower distribution costs.

Speaker 3

So in a nutshell, that's what's occurring in Q4. SG and A levels, imagine, has always continued to do a good job of maintaining. But the story there is the volume softening.

Speaker 5

Okay. And is that continue? I'm sorry, did you say for 1Q? And by the way, this is consistent with what Viscopan would have said in 3 in their 3Q numbers about destocking. Is it pretty much runs course?

Speaker 3

Yes, we think it's going to come back, but we'll talk about Q1 in about 2 months when we release Q1's earnings. But yes, we don't think the demand disruption is sustainable.

Speaker 4

Okay. Thank you. Appreciate it. All right. Thanks, Bruce.

Operator

Thank you. I'm currently showing no further questions at this time. I'd like to hand the conference back over to Mr. Andrew Tino for closing remarks.

Speaker 2

Thanks everyone for joining the call today and we'll speak to you in a few months.

Operator

This concludes today's conference call. Thank you for participation. You may now disconnect. Everyone have a wonderful day.

Powered by Quartr