May 12, 2015
Executives
Jesse Lynn - General Counsel Keith Cozza - President and CEO SungHwan Cho - CFO
Analysts
Brent Thill - UBS Mark Heiman - Saguaro Capital
Operator
Good morning, and welcome to the Icahn Enterprises, LP First Quarter 2015 Earnings Call, with Jesse Lynn, General Counsel; Keith Cozza, President and CEO; and SungHwan Cho, Chief Financial Officer. I'll now turn the call over to Jesse Lynn, who will read the opening statements.
Jesse Lynn
Thank you. Good morning.
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 First Quarter 2015 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 income attributable to Icahn Enterprises for Q1 of 2015, after adding back the loss on extinguishment of debt, with $162 million or $1.28 per LP unit, compared to an adjusted net income after adding back the loss on extinguishment of debt of 92 million or $0.77 per LP unit in the prior year period. Adjusted EBITDA attributable to Icahn Enterprises for Q1 2015, was 575 million compared to 359 million in Q1 of 2014.
Our investment funds had a return of 4.3% in Q1 of 2015 compared to a return on negative 0.4% in the prior year period. Q1 perform, it was driven by gains from a number of core loan equity position, we continue to take cautious view with respect to the global economy, which is reflected in the positioning of our investment portfolio.
We ended the quarter with a net long exposure of just 4%. Q1 2015 sales for Federal-Mogul were 1.8 billion and increase of 13% in constant dollars from Q1 of 2014.
Federal-Mogul's powertrain division maintained strong performance in the quarter, with revenue up 12% on a constant dollar basis from Q1 of 2014. Powertrain's revenue reflects the inclusion of TRW's engine valve business, which was purchased in February of 2015 as well as increases in volume and market share gains in the quarter.
Federal-Mogul's motorparts division reported sales growth driven by sales related Affinia chassis and Honeywell brake component acquisitions, offset by the loss of sales from their required divestiture of two facilities in the quarter. The motorparts division continues to make progress in a number of key initiative designs to accelerate growth and reduce costs.
During the quarter, Federal-Mogul successfully completed to shareholder common stock rights offering of $250 million of which IEP invested approximately 230 million. In our energy segment, CVR Refining posted solid result, operationally and financially for Q1 of 2015.
Refining margins which were low at the beginning of the year, gradually improved and continued to be favorable. Additionally, the first fertilizer business is seemed strong customer demand for UAN product in 2015.
Our railcar segment had record quarterly railcar shipment in Q1 of 2015 and continues to build its lease fleet, with approximately 42,000 railcars at the end of the quarter. In our gaming segment Tropicana had a strong operational quarter, especially at the Atlantic City property.
Trop AC experienced higher gaming volumes as it benefited from closures of competitors, as well as from growth of its online gaming. With that, let me turn it over to Sung.
SungHwan Cho
Thanks, Keith. I will begin by briefly reviewing our consolidated results for the first quarter of 2015 and then highlight the performance of our operating segments and comment on the strength of our balance sheet.
In Q1 2015, our adjusted net income attributable to Icahn Enterprises, after adding back the loss on extinguishment of debt was $162 million or $1.28 per LP unit, compared to adjusted net income after adding back the loss on extinguishment of debt $92 million or $0.70 per unit in the prior year period. Adjusted EBITDA attributable to Icahn Enterprises for Q1 2015, was $575 million, compared to 359 million in Q1 2014.
As you can see on Slide 5, the improvement from the prior year was primarily driven by the performance of the investment funds. I will now provide more detail regarding the performance of our individual segments.
Our investment segment had a gain attributable to Icahn Enterprises of $184 million for Q1 2015. The investment funds had a return of 4.3% in Q1 2015 compared to a negative return of 0.4% for Q1 2014.
Long positions had a positive 6% return for the current quarter while the short positions and other expenses had a negative performance attribution of 1.7%. Since the inception in November 2004 through the end of Q1 2015 the investment funds gross return is 245% or 13% annualized.
The investment funds continue to be significantly hedged. As Keith mentioned at the end of Q1 2015, net line exposure was 4% compared to 14% at the end of 2014.
IEP’s investment in the funds was $4.5 billion as of March 31, 2015. And now to our energy segment.
For Q1 2015, our energy segment reported revenues of $1.4 billion and consolidated adjusted EBITDA of $236 million compared to revenues of $2.4 billion and consolidated adjusted EBITDA of $224 million for the prior year period. Q1 results reflect the solid financial and operational performance of our fertilizer and petroleum subsidiaries.
CVR refining reported Q1 2015 adjusted EBITDA of $162 million compared to $194 million in the prior year period. CVR Refining closed its solid results operationally and financially for Q1 2015.
Group refining margins which were extremely core at the beginning of the year gradually improved in peak at the end of February. Margins leveled off by the end of March but continue to be favorable.
CVR Partners reported Q1 2015 adjusted EBITDA of $38 million compared to $30 million for Q1 2014. The fertilizer facility performed well in the quarter with on stream rates of 99% for the gasifier and nearly 98% for the UAN plant.
We also benefited from continued strong customer demand for UAN and favorable pricing during the quarter. For Q1 2015 average realized gate prices for UAN and ammonia were $263 per ton and $553 per ton respectively compared to $253 a ton and $479 a ton respectively for the same period in 2014.
Now turning to automotive. Federal-Mogul's Q1 2015 sales were $1.8 billion up 13% in constant dollars in Q1 2014.
Operational EBITDA was $140 million in Q1 2015 compared to $169 in Q1 2014. Q1 2015 operational EBITDA was negatively impacted by $23 million due to changes in foreign exchange rates and by $27 million of costs related to strategic initiatives and integration of recent acquisitions in the motorparts segment.
Federal-Mogul's powertrain division maintained strong performance in the quarter with revenue of over $1.1 billion up 12% on a constant dollar basis from Q1 2014. The increase in powertrain’s revenue reflects the inclusion of TRW’s engine valve business which closed in February 2015 as well as organic growth tied to the increase in volume and market share gains in the quarter.
Operational EBITDA was $110 million or 9.7% of revenue compared to $117 million or 10.3% of revenue in Q1 2014. Operational EBITDA was impacted unfavorably by $15 million of negative foreign currency movements during the quarter.
Federal-Mogul's Motorparts division reported revenue of $773 million in Q1 2015 compared to $720 million in Q1 2014, an increase of 7% or 15% on a constant dollar basis. The increase was driven by sales from the Affinia chassis and Honeywell brake component acquisitions, net of the loss of sales from required divestitures of two facilities in the quarter.
Motorparts recorded operational EBITDA of $30 million in Q1 2015 compared to $52 million in Q1 2014. The results for the quarter reflect the ongoing investment in the business including $27 million of incremental cost associated with strategic initiatives and the integration of Affinia and Honeywell acquisitions.
Additionally, operational EBITDA was further impacted negatively by $8 million related to foreign currency movements. During the quarter Federal-Mogul successfully completed a shareholder common stock rights offering of $250 million of which IEP invested approximately $230 million.
Now turning to railcar. Our railcar segment had record quarterly shipments in Q1 2015 of approximately 2,670 railcars including approximately 1,780 railcars to leasing customers as compared to 1,610 railcars for the prior year period of which approximately 700 railcars were to leasing customers.
As of March 31, 2015 ARI had a backlog of approximately 10,470 railcars, including 3,590 railcars for lease customers. According to the Railway Supply Institute, the railcar manufacturing backlog dropped from a record level of nearly 143,000 railcars at the end of 2014 down approximately 139,000 railcars at the end of Q1 2015.
tankers are now only 38% of the industry backlog down from the peak of 85% in Q1 2013. Recently announced tanker regulations however may spur additional orders, we are investing in capital and have plans to further expand our manufacturing facilities and repair capacity to address the anticipated needs of the industry from the new tanker regulations.
Total manufacturing revenues for Q1 2015 increased by over 40% from the prior year period before elimination of railcar sales to our railcar segment's leasing operations. The increase was driven by strong levels of hopper and tank railcar shipments.
Gross margin from manufacturing operations were before intercompany eliminations for Q1 2015, were $73 million compared to $56 million for the prior year period. Gross margin from manufacturing operations as a percentage of manufacturing revenues decreased to 24% in Q1 2015 as compared to 26% in the prior year.
The decrease in gross margin percentage was primarily due to a shift in the sales mix to s higher mix of hopper cars that generally sell at lower prices and lower margins than tank railcars. The leasing businesses within the railcar segment continued to perform well.
In Q1, we grew the combined leased car portfolios to roughly 41,600 from approximately 39,700 railcars at the end of 2014. Lease rates continue remain strong.
Consolidated adjusted EBITDA attributable to IEP grew to $110 million in Q1 2015 from $93 million in the prior year. The increase was primarily driven by strong railcar shipments and higher leasing revenues.
Our railcar segment's liquidity position is strong with $581 million of cash at the end of Q1 2015. During Q1, we were able to complete a $626 million secured financing at a wholly owned subsidiary of ARI, which added approximately $210 million of cash to their balance sheet.
Now turning to our gaming segment, gaming operating revenues improved from the prior year period due to an increase and consolidated gaming volumes. Increased volumes were due to the inclusion of the Lumiere acquisition in April 2014, coupled with the higher gaming volumes at Trop AC.
Based on market data The Atlantic City market experienced year-over-year declines in casino win of 9.3% for Q1 2015. Tropican Atlantic City however, experienced higher volumes as it benefited from closures of competitors.
Internet gaming revenues also increased during Q1 2015 as compared to the prior year period. Tropicana consolidated game whole percentage was 70.5% in Q1 2015, compared to 17.2% in Q1 2014.
Tropicana's consolidated flat whole percentage was 9.4% in Q1 2015, compared to 9.6% in the prior year. Tropicana's consolidated adjusted EBITDA for Q1 2015 was $30 million compared to $18 million in the prior year.
The increase in EBITDA was primarily due to the higher revenues in Atlantic City, and the Lumiere acquisition. Tropicana had a solid balance sheet of $186 million in cash and cash equivalents as of March 31, 2015.
Now turning to our Food Packaging segment. Net sales for Q1 '15 decreased by $3 million or 3% compared to the prior year.
The decrease was primarily due to unfavorable foreign currency translation and unfavorable pricing product mix offset impart by higher sales volume. Consolidated adjusted EBITDA was $13 million in Q1 2015, which was a $3 million decreasing from the prior-year period.
Gross margin as a percentage of sales was 22% in Q1 2015 compared to 25% in the prior year. The decline in the gross margin as a percentage of sales was due to pension expense and the change in foreign currency exchange rates.
Viskase's cash balance at the end of Q1 '15 was $39 million. And now to our metals segment.
Net sales for Q1 '15 decreased by $83 million or 44% compared to the prior year. The decrease was primarily due to lower shipment volumes and lower prices of ferrous.
Adjusted EBITDA was a loss of $9 million in Q1 '15 compared to a loss of $3 million in the prior year. Gross margin as a percentage of net sales was a loss of 9% in Q1 '15 compared to a loss of 2% in Q1 '14.
The market environment remains challenging with reduced demand from domestic steel mills, a weak export market for scrap, declining iron ore prices and competition for shredder feedstock. The company continues to invest in its operations with a focused on strengthening our competitive position within our existing markets.
And now to our real estate segment, Q1 real estate revenues were $38 million compared to $24 million in the prior year period. Revenues were higher primarily from a $19 gain recorded from the sale of a net lease property in Q1 2015.
Revenues from our rental and resort operations were consistent with the prior year period, our net lease portfolio continues to drive our earnings in the segment with its 28 properties generating strong cash flows. The real estate segment generated $10 million of adjusted EBITDA in Q1 2015.
Now turning to home fashion. Q1 2015 net sales increased by $5 million compared to the prior year due to higher sales volumes.
We're continuing to concentrate on higher margin line and believe we all have solid placements for the remainder of 2015. Adjusted EBITDA was $2 million in Q1 2015 compared to $1 million in the prior year period.
Gross margin as a percentage of sales was 15% for Q1 '15 compared to 12% in the prior year. The increase was primarily due to higher margins on more profitable programs and customers.
As of March 31, 2015, Westpoint had $6 million of unrestricted cash. Now I'll discuss our liquidity position.
We maintain ample liquidity at the holding company and each of our operating subsidiaries to take advantage of attractive opportunities. We ended Q1 with cash, cash equivalents, liquid assets, and our investment in the investment funds totaling approximately $7.3 billion.
Our subsidiaries have approximately $2 billion of cash and $0.8 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 of our existing operating segments.
Thank you. Operator, can you please open it up for questions.
Operator
[Operator Instructions] Our first question comes from the line of [indiscernible] from UBS. Your question please.
Brent Thill
This is Brent Thill. I'll keep it pretty brief here, just a couple of questions on investment opportunities.
First, just with energy prices still lower, what are you guys thinking in terms of investment opportunities in this space, either stand-alone opportunities or maybe something CVR?
Keith Cozza
So, I would -- the first crack at it, I'd say within our investment segment, as you know we have a pretty significant long equity book with their names that were in and so we continue to focus on goals, we're confidently on the lookout but from our prospective, historically we like to buy things cheap, and despite the volatility in oil prices although we're always looking, we haven't found the grand bargain, so to speak, that we tend to look for prices of the underlying company is haven't really fallen as much as, we would like but we're continuing to look. As far as CVR, we're always looking at potential assets that either come along the market or where there is potential combination to do something there where if we think we can operate the refinery better or drop it into our MLP structure to create value.
And so I'd say we're on the lookout but nothing as materialize yet.
Brent Thill
Okay. And just my last question here will be, just on Europe, anything in that market?
Are you guys don't seem to do as much in Europe, but I didn't know just with [QE] going on there and concerns about the U.S. economy and a rising rate environment and everything here, just if you are looking more at Europe or what you are seeing out there?
Keith Cozza
Well I mean there is two answers at the investment segment, in the investment fund, we are pretty U.S. centric.
So, we'll look everywhere but we believe our core confidence is here in the U.S. but the second part of the answer would be with respect to our portfolio companies a number of them had significant operations and exposures to Europe and so from that perspective obviously we're doing a lot of business in Europe and constantly looking for potential tuck-in acquisitions, so to speak that could we have Federal-Mogul, we have Viskase, they have significant revenue streams from Europe and so, they're continuing to -- they have a big focus there.
But at the investment segment level not at much.
Operator
Thank you. [Operator Instructions].
Our next question comes from the line of Mark Heiman from Saguaro Capital. Your question please.
Mark Heiman
Just two quick questions, the first on the investment segment -- just given that the comments on the general market are conservative or perhaps bearish, could you comment on just where the net exposures are and perhaps maybe even if they are negative, if they are that bearish? And then my second question is just on the gaming segment, Tropicana in particular.
You guys have done and the management there has done [indiscernible] a great job with it, obviously, with Tropicana AC and with the Lumiere deal. But one disconnect that there is that, as you have it valued on your sheets now it's close to 2X the market value.
I realize it's not incredibly liquid. Do you have any thoughts for getting that value up or do you just consider it a private equity investment?
Thanks.
Keith Cozza
Sure, thanks. So, with respect to the exposures that the investment funds.
We ended the quarter of net long 4%, that's effectively flat in our mind, I'm doing it off memory, but we were probably at generally 20% to 30% in prior quarters. So, this is all disclosed in the 10-Q also by the way under the liquidity and capital resource section, gives you our long exposures and short exposures but I think generally speaking our long equity positions are publicly known positions that have been discussed at length such as Apple and the eBay's of the world and things like that and the short position against it, we tried to hedge out a lot of the macro risks, so there is a number of macro hedges, specifically being short the S&P 500 and certain single names stocks to try to hedge out, just general economic risk but all the longs and the shorts with respect to credit and equity and everything is disclosed in the Q.
So I refer it you that. As far as Tropicana, I mean, Tropicana we're really just focused on -- we're majority on there, we won 68% of there, we're focused on the performance of the underlying company and improving our market share in various markets that are generally flat year-over-year and operating the company as the best that we can as far as the stock price in the liquidity, there is no immediate plans to address that.
Operator
Thank you. There are no further questions in the queue at this time.
I'd like to hand the program back to management
Keith Cozza
Okay. Thank you very much everybody for joining the call.
We'll talk to you after the second quarter.
Operator
Thank you. Ladies and gentlemen, thank you for your participation in today's conference.
This does conclude the program. You may now disconnect.
Good day.