Icahn Enterprises LP
NASDAQ:IEP
Earnings Call Analysis
Q4-2023 Analysis
Icahn Enterprises LP
The company's controlled operating companies have seen commendable performance, with the CVI benefiting from advantageous crack spreads, effective operational utilization, and reduced costs associated with Renewable Identification Numbers (RINs), leading to a $0.50 dividend per share authorization. Furthermore, consistent returns to investors are highlighted by the board's approval of a stable $1 quarterly distribution per depositary unit.
Year-over-year, the Automotive segment has shown robust performance. Under the new operational leadership of David Willetts at Pep Boys, the segment is poised for significant long-term value creation through strategies aimed at margin enhancement and revenue revitalization. Despite a fund performance setback with a negative return of 4.1% driven by market shorts, the company maintains an adjusted net short exposure of around 6%, reflecting a strategic risk posture. This disciplined approach, coupled with an indicative net asset value of $4.8 billion, showcases a grounded yet opportunistic investment strategy.
The Energy segment faced a reduction in average realized gate prices, with adjusted EBITDA at $120 million, reflecting the impacts of market changes. The Real Estate segment, on the other hand, experienced growth with increases in net sales, revenues, and adjusted EBITDA, driven primarily by single-family home sales. In contrast, automotive service revenues saw a decline, affected by store closures and a decrease in customer count; however, adjusted EBITDA in this segment improved significantly owing to strategic restructuring. Other segments, such as Food Packaging, Home Fashion, and Pharmaceutical, showed mixed results with flat to improved adjusted EBITDA, each impacted by respective market dynamics and cost management strategies.
Financial maneuvers included the issuance of $700 million in senior unsecured notes, with the proceeds applied to previously outstanding notes, maintaining a strong liquidity position. The company's year-end cash and investment reserves amounted to $4.8 billion, with additional cash and revolver availability of $1.7 billion at subsidiary levels. This financial health is part of a broader focus on building asset value and staying liquid to capitalize on potential opportunities both related and tangential to existing business sectors.
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Good morning, and welcome to the Icahn Enterprises L.P. Fourth Quarter 2023 Earnings Conference Call with Jesse Lynn, General Counsel; Andrew Teno, President and Chief Executive Officer; Ted Papapostolou, 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.
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 L.P. 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. 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, 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. 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 Teno, our Chief Executive Officer.
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 fourth quarter net loss was $139 million, an improvement of $116 million over Q4 '22. Fourth quarter adjusted EBITDA was $9 million, an increase of $84 million compared to Q4 '22. 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 Willetts 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. In the Investment segment this quarter, the funds had a negative return of 4.1%, 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 $4.8 billion. Additionally, the Board approved a $1 quarterly distribution per depositary 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.
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%. During the quarter, the segment made a pro rata distribution of $400 million, of which the holding company received its portion of $242 million. The holding company's interest in the funds was approximately $3.2 billion as of quarter end.
Turning to our Energy segment. In Q4 '23, adjusted EBITDA was $120 million as compared to $168 million in Q4 '22. Q4 '23 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. Q4 '23 average realized gate prices for UAN decreased by 47% to $241 per ton and ammonia decreased by 52% to $461 per ton when compared to the prior year quarter. CVI declared a fourth quarter cash dividend of $0.50 per share.
And now to our Automotive segment. As we previously discussed, the segment has undergone significant change due to the deconsolidation of Auto Plus in January of '23. The segment results throughout '23 are made up primarily of automotive service operations as compared to '22, which also included the aftermarket parts operations of Auto Plus. Q4 '23 automotive service revenues were down $15 million compared to Q4 '22, driven by store closures and lower car count. Adjusted EBITDA was $28 million for the quarter, a $71 million improvement as compared to Q4 '22, mainly due to the exit of the Auto Plus aftermarket parts business. Now turning to our Real Estate segment. Q4 '23 net sales and other revenues increased by $8 million and adjusted EBITDA increased by $3 million 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 '23 as compared to the prior year quarter. 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 million as compared to the prior year quarter, primarily due to lower raw material and freight costs. The Pharma segment's adjusted EBITDA for Q4 '23 improved by $3 million 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 million of 9.75% senior unsecured notes due 2029. The net proceeds from this issuance together with $376 million 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 $4.8 billion, and our subsidiaries had cash and revolver availability of $1.7 billion. 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 Instructions] Our first question comes from the line of Dan Fannon with Jefferies.
Andrew, 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? Or what are you expecting in terms of improvement as you think about that business over the next kind of 12 months?
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 upside. 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 wait.
So I guess just in the context, I mean, is there anything different you guys are doing? 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 multiyear basis, not even just next -- this year.
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.
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 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.
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 '22 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. And so we think 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 or involve in 2 names, both of which we're very excited about, and we think the portfolio is in very good shape for the future.
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 -- the low single digits as of the end of the year?
Yes. So I think it's down a little bit of probably another 5% from what it was in [ 9/30. ] Maybe another question you asked on 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 best.
Our next question comes from the line of Bruce Monrad with Northeast Investors Trust.
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? And is Osceola running fine? Or are there waste issues? Are there geographic -- is there a geographic dimension to it. And then also, is everything flat at the SG&A line? Or is it possible that SG&A went up because of accruals because you had such a good start to the year or anything going on at that line either? Two questions.
Bruce, it's Ted. Thanks for the question. But before I answer the question, let me just give more context on the quarter, and I think it will help answer a lot of them. So volumes softened during the quarter. And when comparing Q4 of '23 to Q4 of '22, David actually touched on this in the last call, the new round of Russian sanctions went into effect during '23. So that affected comparability. Not all these sanctions were there in '22. 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, your raw material inventory levels tend to creep up just to ensure operations. 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. So in a nutshell, that's what's occurring in Q4. SG&A levels, management has always continued to do a good job of maintaining that. So but the story there is the volume softening.
Okay. And is that continue -- I'm sorry, did you say for 1Q? And by the way, this is consistent with what [ Viscofan ] would have said in their 3Q numbers, about destocking. Is it pretty much runs course?
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. Yes, we don't think the demand destruction is sustainable.
I'm currently showing no further questions at this time. I'd like to hand the conference back over to Mr. Andrew Teno for closing remarks.
Thanks, everyone, for joining the call today, and we'll speak to you in a few months.
This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a wonderful day.