Feb 27, 2015
Executives
Jesse A. Lynn - Assistant General Counsel Keith Cozza - President and Chief Executive Officer SungHwan Cho - Chief Financial Officer
Analysts
Daniel T. Fannon - Jefferies & Company, Inc.
Andrew Berg - Post Advisory Group LLC
Operator
Good morning, and welcome to the Icahn Enterprises, LP Fourth-Quarter 2014 Earnings Call, with Jesse Lynn, Assistant General Counsel; Keith Cozza, President and CEO; and SungHwan Cho, Chief Financial Officer. I would now like to hand the call over to Jesse Lynn, who will read the opening statements.
Jesse A. Lynn
Thank you. 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.
These forward-looking statements involve risks and uncertainties 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.
I'll now turn it over to Keith Cozza, our Chief Executive Officer.
Keith Cozza
Thanks, Jesse. Good morning, and welcome to the Fourth Quarter 2014 Icahn Enterprises Earnings Conference Call.
Joining me on today's call is SungHwan Cho, our Chief Financial Officer. I would like to begin by providing some brief highlights.
Sung will then provide an in-depth review of our financial results and the performance of our business segments. We will then be available to address your questions.
Adjusted net loss attributable to Icahn Enterprises for 2014, after adding back the loss on extinguishment of debt, was $221 million or $1.82 per LP unit, compared to net income of $1.025 billion or $9.07 per LP unit in 2013. For Q4 of 2014, our net loss attributable to Icahn Enterprises was $478 million as compared to adjusted net income after adding back the loss on extinguishment of debt, of $225 million in the prior year period.
Adjusted EBITDA attributable to Icahn Enterprises for 2014 was $1 billion compared to $1.9 billion in 2013. Our investment funds had a return of negative 7.4% in 2014 with returns being hampered by our short equity exposure as well as our core long positions in the energy sector.
Q$ 2014 sales Federal-Mogul where $1.8 billion, up $100 million or 6% higher than Q4 of 2013. Federal-Mogul's powertrain division maintained strong performance in the quarter, driven by increases in volume in market share gains across all regions.
Federal-Mogul's motorparts division reported sales growth driven by sales related to the Affinia chassis and the Honeywell brake component acquisitions, offset by the exit of certain unprofitable business in North America, softness in sales to Eastern Europe, and timing of customer orders. During 2014, the motorparts division made significant progress in a number of initiatives designed to accelerate growth and provide increased value.
Earlier month, IEP entered into a definitive agreement to acquire substantially all the US auto part-related assets of Uni-Select, Inc., a leading automotive parts distributor for domestic and imported vehicles. This business will be operated independently from Federal-Mogul.
Uni-Select USA has 39 distribution centers and satellite locations 240 corporate-owned jobber stores in the United States, and supports a network of over 2,000 independent wholesalers. In our energy segment, Q4 results were impacted by volatile crude and product markets resulting in lower crack spreads, as well as an unplanned outage at one of our refineries.
Our railcar segment had record railcar shipments in 2014, with manufacturing margins improving to 27%, a 4% increase over the prior year. The segment also continues to build its lease fleet, with nearly 40,000 railcars at year end.
Lease rates remain strong, with the average lease rate improving from 2013 rates. In our food packaging segment, Viskase is enjoying solid earnings, largely from the expected benefits from recent investments in capacity expansion.
Moving on to our gaming segment, Tropicana had a strong operational year across most of its properties, led by its Atlantic City property. Trop AC experienced higher gaming volumes as it benefited from closures of competitors, as well as from the addition of online gaming.
In 2014, we issued $5 billion of new notes which refinanced $3.5 billion of existing senior notes and provided $1.3 billion of additional liquidity to the balance sheet. The lower coupons on our new debt will result in substantial interest savings over the next several years.
In summary, we are excited about how we are currently positioned at each of our segments, and believe we will continue to find compelling investment opportunities to strengthen our companies and create value over the long-term. With that, let me turn it over to Sung.
SungHwan Cho
Thanks, Keith. I will begin by briefly reviewing our consolidated results for the fourth quarter and full year 2014 and then highlight the performance of our operating segments and comment on the strength of our balance sheet.
In Q4 2014, our net loss attributable to Icahn Enterprises was $478 million, compared to adjusted net income of $225 million from the prior year period. In Q4 2014 our investment fronts were negatively impacted by the downward trend in the energy sector and our short equity exposure.
Adjusted EBITDA attributable to Icahn Enterprises for Q4 2014 was a loss of $220 million compared to a positive $289 million in Q4 2013. Full-year adjusted net loss attributable to Icahn Enterprises for 2014, after adding back the loss on extinguishment of debt, was $221 million, or $1.82 per LP unit, compared to net income of $1 billion or $9.07 per LP unit in the prior year.
Adjusted EBITDA attributable to Icahn Enterprises for 2014 was a $1 billion compared to $1.9 billion for 2013. As you can see on Slide 5, the change in our 2014 net loss from the prior year's net income was primarily due to the net losses from investment activities.
I will now provide more detail regarding the performance of the individual segments. Our investment segment had a loss attributable to Icahn Enterprises of $541 million for Q4 2014 and a loss of $305 million for the full-year.
The investment funds had a loss of 11.3% in Q4 2014 compared to 3.5% gain for Q4 2013. Long positions lost 2.8% for the quarter, while short positions and other expenses had a negative performance attribution of 8.5%.
For the full-year 2014, the investment segment lost 7.4% compared to a 30.8% gain in 2013. Long positions had an 11.4% gain for the full-year 2014, while short positions and other expenses had a negative performance attribution of 18.8%.
Since inception in November 2004, through the end of 2014, the investment funds gross return is 231% or 12.5% annualized. The investment funds continue to be significantly hedged.
At the end of 2014, net long exposure was 14% compared to 13% at the end of 2013. IEP's investment in the funds was $4.3 billion as of December 31, 2014.
And now to the energy segment. For Q4 2014, our energy segment reported revenues of $1.9 billion and consolidated adjusted EBITDA of $133 million compared to revenues of $2.3 billion and consolidated adjusted EBITDA of $160 million for the prior year period.
Q4 results were impacted by volatile crude and product markets, as well as an unplanned outage at CVR Refining's Wynnewood refinery. For the full-year 2014, the energy segment reported revenues of $9.3 billion and consolidated adjusted EBITDA of $716 million compared to revenues of $9.1 billion and consolidated adjusted EBITDA of $869 million for 2013.
CVR Refining reported Q4 2014 adjusted EBITDA of $105 million compared $118 million in the prior year. The decline is due to the refinery outage I mentioned earlier, as well as slightly lower refining margins CVR Partners reported Q4 2014 adjusted EBITDA of $34 million compared $37 million for Q4 2013.
The fertilizer plant posted some of its highest production and operating rates for the year during the fourth quarter. For Q4 2014 average realized gate prices for UAN and ammonia were $247 per ton and $547 per ton respectively compared to $253 per ton and $478 per ton respectively for the same period in 2013.
Now turning to automotive segment. Federal-Mogul's Q4 2014 sales were $1.8 billion up 6% from the prior year.
Net sales for the full-year 2014 were $7.3 billion or 8% above 2013 results. On a regional basis, for the full year 2014, total sales in North America increased 7%, while sales in Europe increased 9%, and the rest of world sales were 13% higher on a constant dollar basis.
Operational EBITDA was $120 million in Q4 2014. Full-year 20214 operational EBITDA was $624 million up $33 million from the prior year.
Federal-Mogul's powertrain division maintained strong performance in the quarter, with revenue of over $1 billion, up 6% on a constant dollar basis from Q4 2013. The increase in powertrains revenue is driven by increases in volume and market share gains across all regions.
In both North America and EMEA, sales increased by 4%, while revenue in rest-of-world increased by 8%, driven by strong growth in China and India. On February 6, 2015, Federal-Mogul’s powertrain division closed on material portions of previously announced acquisition of TRW's engine valve business.
The acquisition adds a new product line to the portfolio while strengthening the division's product offerings. Federal-Mogul's motorparts division reported revenue of $822 million in Q4 2014 compared to $727 million in Q4 2013 an increase of 17% on a constant dollar basis.
The increase is driven by sales related to the Affinia chassis and Honeywell brake component acquisitions, offset by the exit of certain unprofitable business in North America as well as timing of customer orders at the end of the year. The motorparts division has made significant progress in a number of initiatives designed to accelerate growth and provide increased value.
Now turning to railcar. Our railcar segment had record railcar shipments in 2014, of approximately 8,000 railcars, including 5,200 railcars to leasing customers as compared to 6,900 railcars for the prior year, of which 3,960 railcars were to leasing customers.
As of December 31, 2014 ARI had a backlog of 11,730 railcars, including 4,910 railcars for lease customers. This is ARI's highest backlog since December 2007.
According to the Railway Supply Institute, the railcar manufacturing backlog increased to a record level of nearly 143,000 railcars at the end of 2014 compared to 73,000 a year ago. 82% of the backlog is comprised of tank and hopper cars, the two primary railcar types manufactured and leased by our railcar segment.
Total manufacturing revenues for 2014 increased to over $1 billion before elimination of railcar sales to our railcar segment's leasing operations. The increase was primarily due to Increased hopper railcar shipments and strong market conditions for tank cars.
Gross margin from manufacturing operations, before intercompany eliminations for 2014, was $271 million compared to $197 million for the comparable prior year. Gross margin from manufacturing operations as a percentage of revenue increased to 27% for 2014 from 23% in 2013.
The increase in gross margin percentage was primarily due to improving operating efficiencies. The leasing businesses within the railcar segment continued to perform well.
In 2014, we grew the combined leased car portfolios from roughly to roughly 39,700 from approximately 34,700 at the end of 2013. Lease rates remain strong, with the average rate improving from the prior year.
Adjusted EBITDA attributable to IEP grew to $269 million in 2014 compared to $111 million in the prior year. Q4 adjusted EBITDA attributable to IEP grew 37% to $81 million.
The increase was primarily driven by increased earnings from operations, as well as the acquisition of our 75% ownership interest in ARL in Q4 2013. Our railcar segment's liquidity position is strong, with $412 million of cash at the end of 2014.
Subsequent to year-end, we were able to complete a $626 million secured financing at a wholly owned subsidiary of ARI, which added approximately $220 million of cash to their balance sheet. Now turning to our gaming segment.
Total gaming segment operating revenues were $759 million in 2014 compared to $575 million in 2013, primarily due to the Lumiere acquisition in 2014, coupled with the higher gaming volumes at Tropicana Atlantic City. Trop AC casino revenues have benefited from the closure of competitors, as well as the addition of online gaming, which commenced in November of 2013.
Tropicana's slot hold percentage was 9.5% for 2014 compared to 9.4% in 2013. Tropicana's table game hold percentage was 17.6% for 2014 compared to 14.2% in 2013.
Tropicana's consolidated adjusted EBITDA for 2014 was $99 million compared to $66 million in the prior year. The increase in EBITDA was primarily due to the higher revenues in Atlantic City, and the Lumiere acquisition.
In Q4 2014, Tropicana's net income benefited from non-recurring items, including the release of the valuation allowance related to deferred tax assets, and the settlement of certain predecessor claims. Tropicana has a solid balance sheet, with $196 million of cash and cash equivalents at the end of the year.
Now turning to Food Packaging segment. Net sales for 2014 decreased by $6 million or 2% compared to the prior year.
The decrease was primarily due to lower volume and unfavorable foreign currency translation. In particular, sales in Eastern Europe were impacted by political turmoil in the region.
Consolidated adjusted EBITDA of $66 million in 2014 was slightly down from the prior-year period. Gross margin as a percentage of net sales were 25% in 2014 compared to 23% in 2013.
The improvement in gross margin as a percentage of net sales was due to improved plant performance. Viskase's cash balance at the end of the year was $39 million.
Now to metals segment. Net sales for the year ended December 31, 2014 decreased by $218 million or 23% compared to the prior year.
The decrease was primarily driven by lower ferrous and nonferrous shipment volumes and selling prices. Shipment volumes were lower in 2014 than in 2013 for all product lines except secondary plate, and the average prices were lower for all product lines except for overage.
Adjusted EBITDA improved to a loss of $15 million in 2014 from a loss of $18 million in 2013. Gross margin as a percentage of net sales was a loss of 2% for both 2014 and 2013.
The market environment remains challenging as the strong U.S. dollar, weak export markets, declining iron ore prices, steel imports, and competition for shredder feedstock impact the operating results of PSC.
The Company continues to invest in its operations, with a focus on strengthening our competitive position within our existing markets. And now to real estate.
In 2014, real estate revenues were $101 million which was $16 million above the comparable prior year. Most of this increase was due to residential unit sales in our Cape Cod development operations, and the gain recorded from the sale of a net lease property.
Revenues from our real estate operations for both period were substantially derived from our rental and resort operations. Our net lease portfolio continues to drive earnings in this segment, with its 29 properties generating strong cash flows.
The real estate segment $46 million of adjusted EBITDA in 2014. Now turning to home fashion.
2014 net sales decreased by $8 million compared to the prior year. The decline in sales reflects the reduction in sales volume and certain low margin programs.
Looking forward, we are concentrating on higher-margin lines and believe we have solid placements for 2015. Despite the sales decrease, adjusted EBITDA was $5 million in 2014 compared to $1 million in the prior year.
Gross margin as a percentage of net sales was 14% in 2014 compared to 12% in 2013. The improvement was primarily due to the effects of exiting certain unprofitable programs and customers.
As of December 31, 2014, Westpoint had $11 million of unrestricted cash. Now I will discuss our liquidity position.
We maintain ample liquidity at the holding company and at each of our operating subsidiaries to take advantage of attractive opportunities. We ended 2014 with cash, cash equivalents, liquid assets, and our investment in the hedge, in the investment funds totaling approximately $7.2 billion.
Our subsidiaries have approximately $1.8 billion of cash and $1.2 billion 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 our existing operating segments.
Thank you very much. Operator, can you please open it up for questions.
Operator
Certainly. [Operator Instructions] Our first question comes from the line of Daniel Fannon from Jefferies.
Daniel T. Fannon
Good morning, guys.
Keith Cozza
Hi, Dan.
Daniel T. Fannon
So I'd just like to start with the big picture. In the past, we've always talked about there's always opportunity out there.
But with the continued run in the markets, is it getting harder and harder to find some good value out there? And are you guys perhaps getting more and more cautious on your guys' outlook?
Keith Cozza
Yes, Hi, Dan. It's Keith.
Yes, I would say just obviously we find better opportunities when the market is lower. Things are pricey; it's hard to find good value, you know Carl has always stated, we are fundamentally value investors.
And so, yes, I would say, as far as at the investment segment level, we're pretty excited about our existing portfolio and we've been pretty vocal about certain aspects of it. But as far as new incremental ideas, we're pretty cautious.
We have a lot of hedges on markets trading 17, 18 times earnings. So you have to be careful.
Daniel T. Fannon
Fair enough. And so I guess if I was to go back over the last year and a half, it seems like the net long position of the hedge fund has been coming down.
I think last quarter, it was relatively flat. And I think this quarter, you guys mentioned it was in the low double digits; 14%, I think.
Is that where I think, given the current environment, that's probably a reasonable place where you guys are comfortable at, at this point, going forward?
Keith Cozza
Yes, I think it reflects, frankly, it's an easy answer. I mean that decrease to net long exposure was a result of increase in general market hedges, as well as the increase in - meaning the value going up and also us putting on incremental hedges as we became more cautious as valuations went up.
So I think it's always subject to change. But again, at these levels I think it's a safe assumption that we're going to maintain a little bit lower equity exposures.
Daniel T. Fannon
Fair enough. And then can you maybe provide a little bit more color on you guys' outlook for energy and maybe technology?
I think in the press release, Carl commented a little bit about being perhaps a little bit more cautious, or a little bit more negative short-term, but definitely positive longer-term on energy. And it seemed like he was still quite positive on technology at this point.
Keith Cozza
Yes. So two things to tie into what Carl was saying in our press release.
As far as energy, over the long-term we're not - we have significant core energy positions in our investment segment. They are all well known; the Chesapeakes of the world, the Transoceans of the world.
And long-term, we're very optimistic on the supply/demand dynamics coming back into balance, and oil prices to go higher over the long-term. In the short-term, though and I believe he did comment on this.
We do feel that over the next 3 to 6 months, prices have a great chance to go lower, just based on the supply builds here in the U.S. We're going to be almost - we have a chance to be at full capacity on the supply side, meaning on the storage side, I'm sorry.
I meant storage. But on the storage side, as that builds, and that could put a lot of downward pressure on short-term energy prices over the next 3 to 6 months.
On the technology side, I mean that's a direct - we've been very vocal, and I'd encourage, I'm not going to repeat everything we have to say. We published some research on Apple, and I believe you can get that on shareholderssquaretable.com.
But it's the biggest position in our portfolio. And we recently published some research, and we think there's a tremendous amount of upside there as the market generally misunderstands the valuation and business of Apple.
So that's…
Daniel T. Fannon
That's helpful. And then one or two more quick items here.
I guess with valuations being a little bit more stretched here in the U.S., is there the potential to look outside the U.S. at this point?
Or how do you guys think about that dynamic, or is it…
Keith Cozza
Yes, I'll answer it in two ways. At the investment fund level, I can count on one hand over the last 10 years the amount of time we've gone outside the U.S.
We periodically do. We have one position that is, I believe, publicly known.
So it's a couple percent exposure to our fund that's European European-denominated, but outside of that it's not a - we generally tend to hunt closer to home. We did something in Korea, six, seven years ago, and we've done some minor stuff in Europe.
So big-picture in the investment segment, I don't anticipate it to be material going forward, as far as outside the U.S. but at the operating company level at the operating segments, I think we have purchased a number of companies that have non-U.S.
exposure, and we're continuing to look at fold-in acquisitions at a number of our businesses that are located outside the U.S.
Daniel T. Fannon
Fair enough. And one other quick related question.
Would the investment segment be willing to go net short, or has it ever gone net short?
Keith Cozza
It has. It would just be market conditions and our view on it; but it has historically at some point been net short, sure.
Daniel T. Fannon
Okay, fair enough. And then one final just really quick question for Sung.
Just your total share count, LP plus your GP shares at this point?
Keith Cozza
It’s 126 million.
SungHwan Cho
Its 126 approximately.
Daniel T. Fannon
Okay, perfect. That's it for me, guys.
Thanks a lot.
Keith Cozza
Thanks Dan.
Operator
Thank you and our next question comes from the line of Andrew Berg from the Post Advisory Group.
Andrew Berg
Hey guys, a couple questions. A little bit of a nit on real estate, but just want to understand with revenues being up a little bit, but EBITDA being down, was there something one-time in there that we should be looking at?
Your adjusted EBITDA go from 13 to 10 on a $4 million increase in revenues.
SungHwan Cho
I don't think there's anything really particular to point out. I mean we've been selling some properties in Cape Cod in our New Seabury development, and that’s really going to explain the increase in the revenues.
Keith Cozza
The other one-time item was we sold one of our properties in our triple-net lease portfolio that would have represent the increase in revenue. We'll have to come back to you, Andrew, off-line on the decrease.
It's not popping to the top of our head.
Andrew Berg
Yes, not a big deal, just curious. And then as you think about Tropicana, and more broadly, gaming, you still hold the investment in Fontainebleau.
You've seen the CVA look to buy the - or excuse me, the LVCC purchase Riviera. SLS has opened up on the north end of the Strip.
MGM is doing a project for their Rock in Rio, and the music entertainment venue on the north end of the Strip. Does that change anything?
Or how should we think about Fontainebleau at this point? Is it still just something we're going to land bank and hold?
Or perhaps could we see something happen with that asset this year?
Keith Cozza
Andrew, we never say never. It is something that we periodically review, frankly, quarterly, as far as running the economics to build it out, sell it, et cetera.
So there's no immediate plans. But on the activity going on around it, obviously in our view is only incrementally positive to the value, especially the recent Las Vegas Convention Center buying the Riviera.
It's incrementally positive. As they build up the north end of the Strip there, we theoretically have a prime piece of property that the return profile may make more and more sense as that further develops out.
So, there's no plans right now, but we continue to monitor the situation. We think we got a great bargain.
The carry on it is relatively modest. And so we're holding it and maintaining it in its condition to preserve value.
And if the situation makes sense, we'll do something.
Andrew Berg
And as you look at Trop, we've seen regional gaming numbers stronger over the last month or so. Obviously last winter was pretty weak, but fuel prices are lower.
Are you hearing things from your customers yet that they're just feeling better? Or do you think the improvements we're seeing are mainly just easy comps versus last year?
Keith Cozza
Well, I think if we are comparing 2014 over 2013, I agree that the comps - I don't know if you want to call it - nothing felt easy about Atlantic City in 2013.
Andrew Berg
I'm sorry. I was referring to outside of Atlantic City.
Keith Cozza
I don't think they were easy. I think we're seeing some uptick.
Look, lower gas prices by definition, ultimately feed through, especially to some of our core customers at some of the regional properties. So we have a pretty positive outlook for 2015 going forward.
And in comparing 2014 to 2013, again it was - they had a pretty good year. Trop had a very strong operational year.
Most markets were down a couple of - either flat to down a couple of points across the market. And the Trop gained market share, and was up - flat to up a couple of points, so they're performing very well.
Andrew Berg
Okay. And lastly with respect to the investment portfolio, obviously Q4 was challenged.
We knew that. As we look at some of the holdings in which you guys disclose publicly, clearly Apple has been a big winner this quarter, but it seems like there's been a number of other winners in the portfolio eBay, Netflix, Hologic.
You can run down a bunch of other names, as well. Do you guys want to make any comments about how you're feeling currently in 1Q?
Keith Cozza
I'm not going to give forward guidance. You know how the lawyers get with that.
But there's a lot of public names that you just named, and it sounds like you're pretty on top of the publicly disclosed portfolio. And based on those positions, obviously we're very excited.
Andrew Berg
Okay, great. I appreciate it.
Thanks, guys. End of Q&A
Operator
Thank you. And I show no further questions in the queue at this time.
Keith Cozza
Okay. Thanks, everybody.
We'll talk soon in the first quarter.
Operator
Thank you. Ladies and gentlemen, thank you for your participation in today's conference.
This does conclude the program and you may now disconnect. Everyone have a good day.