Q3 2024 Icahn Enterprises LP Earnings Call

In This Article:

Participants

Robert Flint; Chief Accounting Officer; Icahn Enterprises LP

Andrew Teno; President, Chief Executive Officer, Director; Icahn Enterprises LP

Ted Papapostolou; Chief Financial Officer, Company Secretary, Director; Icahn Enterprises LP

Dan Fannon; Analyst; Jefferies

Andrew Berg; Analyst; Post Advisory Group

Bruce Monrad; Analyst; Northeast Investors Trust

Presentation

Operator

Good morning, and welcome to Icahn Enterprise LP Third Quarter 2024 Earnings Call with Andrew Tino, President and CEO and Ted Papapostolou, Chief Financial Officer; and Robert Flint, Chief Accounting Officer. I would now like to hand the call over to Robert Flint, who will read the opening statement.

Robert Flint

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. 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 Tino, our Chief Executive Officer.

Andrew Teno

Thank you, Rob, and good morning, everyone. NAV decreased $423 million from the second quarter of 2024. The -- Positive returns in the investment fund were more than offset by declines in CVR Energy, disappointing performance from auto service and the impact of the quarter's distribution to unitholders. So first, the good news.
The investment funds were up approximately 8% for the quarter. We generated positive returns from our single name lungs, led by our health care investments and our refining hedges and generated significant interest income. Our losses were predominantly caused by our broad market hedges, and we avoided any big single name losses.
Moving on to the not so good. Our CVR investment was down during the quarter as cracks returned to levels that are either mid-cycle to below mid-cycle levels, further compounded by uncontrollable external power outages. In regards to our Automotive Services division, it has unfortunately continued to struggle. The quarter suffered from lower-than-expected revenue driven by staffing and inventory management decisions. We have already replaced several top members of management at Pep Boys and can already see a return to better performance.
Though we see green shoots, it will be a while until our Auto Service division will hit its potential. I continue to believe that over a multiyear time period, there is no reason that EBITDA margins shouldn't be in the high single digits, if not double digits versus the low single digits today.
We ended the quarter with $1.6 billion of cash and cash equivalents at the holding company and an additional $800 million of cash at the funds. So as Carl likes to say, we have a significant war chest to take advantage of opportunities as they arise.
As many people on this call likely know, subsequent to the quarter end, the refining market continued to soften, which led CVR deposits dividend. Since the inception of our CVR investment in 2012 and -- IEP has received dividends totaling over $3 billion.
We believe that sooner or later, and unfortunately, we don't know when, the cycle will swing again and CVR will return to generating significant cash flow. It is this belief that has led us to announce the proposed tender offer to buy additional CVR shares.
Given the recently launched tender for CVR, additional investment opportunities both in our portfolio and in the market and a desire to maintain our cash war chest, the Board has reduced the quarterly distribution from $1 per depositary unit to $0.50. We know that some unitholders may be disappointed by the decision, but as Carl mentioned in our press release, we hope and believe that the actions we take today and in the near term will lead to increased capital returns to our unitholders in the future.
Now turning to our Investment segment. In terms of our top five disclosed names, we see considerable value creation potential. At [SWX], we see a gas utility that is closing its ROE gap to peers and separating the utility services business with significant growth opportunity. We see upside in both the gas utility and the service business. At AEP, we see new management closing its ROE gap, improving regulatory outcomes and benefiting from tremendous growth in electricity -- electricity demand due to AI-driven data center demand.
IFF is a high-quality ingredients company that should see improving organic revenue growth and increasing margins from new management. IFF trades at a significant discount to its peers on EBITDA. At Caesars, Carl has significant respect for Tom Reeg and what he has accomplished so far at Caesars. We believe we are buying a great business with tremendous asset value and a great management team that is actively buying back shares and with a growing digital business at a free cash flow yield greater than 15%.
I -- at Bausch, we see considerable value both at BHC and BLCO. The fund ended the quarter approximately 2% net short. Adjusting for our refining hedges, the fund was 24% net long. And now I will pass it on to Ted to cover our controlled businesses.

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