Icahn Enterprises (IEP) Q2 2021 Earnings Call Transcript

Icahn Enterprises (IEP 1.98%)
Q2 2021 Earnings Call
Aug 06, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Icahn Enterprises, L.P., Q2, 2021 earnings call with Jesse Lynn, general counsel; Aris Kekedjian, president and CEO; and David Willetts, chief financial officer. I would now like to hand the call over to Jesse Lynn, who will read the opening statement.

Jesse Lynn -- General Counsel

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, including the severity, magnitude, and duration of the COVID-19 pandemic. 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.

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. I'll now turn it over to Aris Kekedjian, our chief executive officer.

Aris Kekedjian -- President and Chief Executive Officer

Thanks, Jesse. Good morning, and welcome to the second-quarter 2021 Icahn Enterprises' earnings conference Call. Joining me on today's call is David Willetts, our chief financial officer. I will begin by providing some brief highlights.

David 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. For Q2, 2021, we had net loss attributable to Icahn Enterprises of $136 million or $0.53 per LP unit compared to net income of $299 million or $1.36 per LP unit in the prior-year period. The quarterly net loss was primarily driven by interest expense on our senior unsecured notes and income taxes offset in part by gains in our investment segment.

Adjusted EBITDA attributable to Icahn Enterprises for Q2, 2021, was $192 million, compared to $696 million for Q2 of 2020. Our investment funds had a positive return of 1.4% for Q2 of 2021, compared to 11.7% for Q2 of 2020. The positive performance was driven by net gains in certain long equity positions, primarily in the energy industry, offset in part by net losses in our short index and short single name equity positions. Adjusted EBITDA attributable to Icahn Enterprises at our energy segment decreased by $10 million to $49 million for Q2 of 2021, compared to $59 million in the prior-year period.

Our petroleum business was positively impacted by higher throughput volumes and increased product cracks, offset by exorbitant RINs pricing. Our fertilizer business continues to benefit from strong pricing for both ammonia and UAN. Net sales and service revenues for our automotive segment was $637 million for Q2 of 2021. We continue to see our automotive service business revenues return to pre-pandemic levels.

As a reminder, Icahn Automotive Group continues to push forward with a multi-year transformational plan to restructure operations and improve profitability, which is illustrated by the reduction in losses in Q2 versus the prior-year quarter. We have substantially completed the legal separation of our automotive service business from our aftermarket parts business, which will position the service business for new growth and value-enhancing opportunities. In April of 2021, Icahn Enterprises issued $455 million of 5.25% senior unsecured notes due in 2027. The proceeds were used to repay the remaining $455 million principal amount of 6.25% senior unsecured notes due in 2022.

For the 6 months ended June 30, 2021, indicative net asset value increased by $956 million to $4.5 billion, compared to $3.55 billion as of December 31, 2020. We closed the quarter with cash and investments in the funds of over $6.9 billion. Finally, the Board declared a $2 quarterly distribution payable in either cash or additional units. With that, let me turn it over to David.

David Willetts -- Chief Financial Officer

Thank you, Aris. I'll begin by briefly reviewing our consolidated results and then highlight the performance of our operating segments and comment on the strength of our balance sheet. For Q2 '21, for the three months ended June 30, we had a net loss attributable to Icahn Enterprises of $136 million, compared to net income of $299 million in the comparable prior-year period. For Q2 '21, adjusted EBITDA attributable to Icahn Enterprises was $192 million, compared to $696 million in the prior-year period.

I'll now provide more detail regarding the performance of our individual segments on the next pages. In our investment segment, we had net income attributable to Icahn Enterprises of $68 million for Q2 '21. The investment funds had a positive return of 1.4% for Q2 '21, compared to a positive return of 11.7% in the comparable prior-year period. Long positions had a positive performance attribution of 6.6% in Q2 '21, while short positions and other had a negative performance attribution of 5.2%.

Since inception in November 2004 through the end of Q2 '21, the investment funds gross return is approximately 91.3% or 3.9% annualized. The Investment Funds had a net long notional exposure of 5% at the end of Q2 '21, compared to a net short exposure of 19% at the end of Q1 '21. Our investment in the funds was approximately $4.7 billion as of June 30, '21. And now on to our energy segment.

In Q2 '21, our energy segment reported net sales of $1.8 billion, compared to $675 million in the prior-year period. Consolidated adjusted EBITDA was $102 million for Q2 '21, compared to $109 million in Q2 '20. The total throughput was approximately 217,000 barrels in Q2 '21, compared to 156,000 barrels in Q2 '20. The Q2 '21 refining margin per throughput barrel was $6.72, compared to $10.43 in the prior year.

While increased crack spreads and volumes contributed to the improvement in refining margins, higher RINs expenses offset much of the benefit. CVR's previously announced renewable diesel project is under review pending improved feedstock market pricing, while process design engineering for a pretreatment unit continues. CVR Partners reported Q2 '21 adjusted EBITDA of $51 million, compared to $39 million for Q2 '20. Corn planting and prices are attractive and are driving increases in fertilizer prices and demand.

Now turning to our automotive segment. Q2, '21 net sales and service revenues for Icahn Automotive Group were $637 million, an increase of $50 million from the prior-year period. Q2, '21 adjusted EBITDA, which excludes the losses associated with closed and closing parts stores, was $25 million, compared to a loss of $6 million in the prior-year period. Icahn Automotive continues to push forward with a multi-year transformational plan to restructure the operations and improve profitability.

Service revenues increased due to the reduced impact of COVID-19 pandemic and this was offset in part by store closures related to the transformation plan, which declined for Q2 '21 when compared to the prior-year period. Now turning to our food packaging segment. Q2, '21 net sales increased by $2 million or 2%, and adjusted EBITDA attributable to Icahn Enterprises was $14 million for Q2 '21, compared to $13 million for Q2 '20. Net sales increased due to price and product mix and the favorable effects of foreign exchange.

And now on to our metals segment. Q2, '21 net sales increased by $119 million, and adjusted EBITDA increased by $15 million, compared to the prior-year period. Volumes and prices continue to be strong, driven by high demand from steel mills. And now on to our Real estate segment.

Q2, '21 net operating revenues increased by $2 million compared to prior year. Adjusted EBITDA for the quarter was a loss of $2 million, compared to earnings of $10 million in the prior-year period. Revenue from our Real Estate operations for both Q2, 2021 and Q2, 2020 were substantially derived from sales of residential units and rental operations. Now turning to our home fashion segment.

Q2, '21 net sales increased by $14 million, compared to the comparable prior-year period. Sales to hospitality customers recovered due to the reduced impact of COVID-19 pandemic. WestPoint's adjusted EBITDA was $1 million for both Q2 '21 and Q2 '20. Now turning to our pharma segment.

We started to consolidate the results of Vivus beginning December 2020 within our new Pharma segment. Q2, '21 net operating revenues were $19 million, and adjusted EBITDA was $5 million. Now I'll 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 Q2, '21 cash, cash equivalents, our investment in the Investment Funds, and revolver availability, totaling approximately $7.5 billion. Our subsidiaries have approximately $645 million of cash and $579 million 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.

Operator, can you please open up the call for any questions?

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from the line of Dan Fannon with Jefferies. Your line is open.

Dan Fannon -- Jefferies -- Analyst

Thank you. Good morning. My first question is just on the fund and the positioning and how you guys are thinking about the current investment backdrop. I believe your investment in the fund is $4.7 billion, as you stated.

But I think if I heard correctly, $6.9 billion is the total in terms of available or cash. I just want to make sure the liquidity or kind of how the -- it seems like there's more -- I guess, less investments in the fund, more conservatism based on, I think, some of the numbers I heard.

Aris Kekedjian -- President and Chief Executive Officer

Thanks for the question, Dan. The actual $6.9 billion number includes cash at the holding company level. So the amount of investment in the funds has not changed. It's at $4.7 million as you highlighted.

Yes. About positioning of the fund, in this current backdrop, we obviously are taking a look at the kind of valuations that we're parsing through. Clearly, we are trying to pick our spots. The fund is positioned at a net short -- sorry, net long of 5%.

That's consisting of 24% net long in the equity book and about an 18% net short in the credit book. Hopefully, that answers your question.

Dan Fannon -- Jefferies -- Analyst

Yes. That is helpful. And on just the returns for the second quarter, the short position is driving the, I think, 5.2% of the traction in performance. But you also mentioned other.

I guess as we think about just the positioning, is there illiquid or other things that -- outside of just normal securities? Because I don't think I recall you using the term other outside of just the short positioning. If there is something else that we should think about that you guys are doing in the portfolio?

Aris Kekedjian -- President and Chief Executive Officer

The other is actually quite de minimis. It's just expenses. I don't think I wouldn't add much attribution to that.

Dan Fannon -- Jefferies -- Analyst

Got it. Got it. OK. And then just lastly, as you think across your businesses and the environment where you highlighted certain like the Auto where you're seeing things improve.

Is there portions of your business or as you look across that are still lagging pre-pandemic that you are still waiting for kind of the -- a more return to normalcy or are taking longer than others? If you could just kind of dissect a bit the various segments that are maybe kind of returning faster versus others that might still be lagging behind?

Aris Kekedjian -- President and Chief Executive Officer

Yes. Well, look, I think for the most part, we're seeing pretty good rebound in our portfolio companies in terms of pre-pandemic level performance. In fact, in the auto services business, we're seeing the business perform at a pre-pandemic level. But one of the things we do see across the portfolio still is supply chain lags.

Either -- that, combined with some degree of inflation pressure that we see across the portfolio. I think those are all pandemic -- still pandemic related. In fact, in some of our more international-related businesses, we're seeing some issues around shipping and containers, getting access to them, and things like that. So the supply chain is still clogged up quite a bit.

And that's a common theme that we're seeing. So hopefully, when that clears up, we'll see even better performance. But for the most part, I think what we're seeing in our portfolio is a pretty good rebound to pre-pandemic levels.

Dan Fannon -- Jefferies -- Analyst

Great. Thanks for answering my questions.

Operator

Thank you. Our next question comes from the line of Bruce Monrad with Northeast Investors. Your line is open.

Bruce Monrad -- Northeast Advisors -- Analyst

Hi, and thanks for hosting the call. I wanted to pick up on that actually with regard -- on the cost question with regard to this case. And you mentioned price/mix, FX all favorable, and that's great. So there must have been a cost issue because the overall 100% EBITDA was a little bit lower.

So it seems like it's a little bit of a rerun of 2018, and I guess my question is on pricing. Are your customers benefiting from price protection? Or what's the outlook for catching up on the cost side, if I'm diagnosing it right, please?

Aris Kekedjian -- President and Chief Executive Officer

Well, I think you have two things going on in this case. One is this case actually performed even better during the pandemic for whatever reason. The shutdown in place environment created significantly better demand. So performance last year was quite good compared to most of the portfolio.

But the other thing that you're seeing in this case is definitely some price pressure in terms of raw material costs and supply chain costs. The business is in the process of applying price increases and surcharges to offset that. Those are all in place and underway as we speak.

Bruce Monrad -- Northeast Advisors -- Analyst

It just sometimes -- I think in the past, it's been an annual issue with customers. Are you saying please that -- is that current? Is that -- say, in place is that for now in 3Q, 4Q type things? Or is it wait until the new year?

David Willetts -- Chief Financial Officer

This is David. I think the short version is we're just seeing a typical lag between supplier price increases and our ability to share those price increases with our customers. Customers have generally been pretty open and aware that there are significant price increases out there in the market. So we are taking a look on a quarter-by-quarter basis at raising prices where it makes sense, respecting our customers.

But there will be a time lag as our prices catch up to what the market inflation has been on our cost base.

Bruce Monrad -- Northeast Advisors -- Analyst

OK. Thank you. Thank you.You're welcome.

Operator

Thank you. Our next question comes from the line of Chris Morell with Retail Investor. Your line is open.

Unknown speaker

Yes. Hi. Thanks. Good morning, and thanks for the call, guys.

So really two questions in and around the dividend. So can you just tell us how the dividend is funded through time? And then how do you want us to think about dividend sustainability? Are there economic -- is it economic sensitivities? Is it investment return sensitivities? Just give us a sense of kind of how you want us to think about that.

David Willetts -- Chief Financial Officer

Well, we've got plenty of cash on the books, as you can imagine. So we're funding -- funding the dividend is not necessarily an issue for us whatsoever. We do like our current capital allocation policy. As you know, we just approved a $2 dividend for the quarter, which has been consistent with relatively past practices.

And I think we intend on continuing that, at least at this point in time unless things change.

Unknown speaker

OK. Thank you.

Operator

Thank you. Our next question comes from the line of Robert [Inaudible] with [Inaudible] Investments. Your line is open.

Unknown speaker

Yes. Concerning that dividend. Carl Icahn owns most of the stock of the company, and you've given the option of taking stock instead of cash. So I don't think you would be paying out as much as $2 of every share that you have out.

Is Carl Icahn in the past and as far as you know, taking stock instead of cash on the dividend?

David Willetts -- Chief Financial Officer

Well, Carl Icahn has been consistently taking stock in lieu of cash with the exception of a particular quarter last year. So we, at this point in time, and as I indicated, to date, that's been his practice. And we intend to believe that, that will be the practice going forward unless things change.

Unknown speaker

So his ownership of the company is being increased greatly. Every time there's one of these dividends paid out, the company is not paying out this tremendous dividend in cash. Is that a fair statement?

David Willetts -- Chief Financial Officer

I think your statement -- your question is whether or not his taking dividends, increases his ownership in the company. I think that's an accurate statement.

Unknown speaker

All right. And further, he made a statement on May 27. He's been pretty bearish on the dollar. And he made a statement about cryptocurrency.

And I was taken aback by that because at that time, the cryptocurrency was about $53,000 for the Bitcoin. And he said some bare things about the American dollar. And I hope you didn't buy any of it. He said he's going to put about $1 billion.

Do you have any information about whether he's invested in these cryptocurrencies since May 27 or before that?

David Willetts -- Chief Financial Officer

I think what Carl indicated on that call was that he is -- much like we look at all kinds of different investment opportunities. Cryptocurrency is a topical subject and one that we're evaluating, among others. At this point in time, I don't have any other comments other than that. We don't actually comment on any particular investment thesis.

Unknown speaker

He's been pretty negative on the market last year and beginning of this year, and he's got a lot of good investments that he does buying companies. Is he still basically -- is the -- he basically runs the company anyway. Is he still basically negative? What percentage are you guys short in the market?

David Willetts -- Chief Financial Officer

I think what we indicated is we're net long 5%, which is consistent of a 24% net long position in our equities and an 18% net short position in our credit book. So I think you could maybe overall call our position relatively neutral at this point in time.

Unknown speaker

OK. I mean, the market is running tremendously in a bull market, and he's always been a great investor, and he's always found great investments, but he's moved further, and it's a big turnover in the company. Now you have new people running the company, and some people are starting to say that Carl Icahn is getting on and look at that dividend. I mean what do you have to say about that dividend when the stock is trading at $58 and paying an $8 dividend? There aren't too many companies doing something like that.

David Willetts -- Chief Financial Officer

Well, we definitely have a high dividend yield and that's one of the factors that makes the stock attractive. So I think you're highlighting that fact.

Unknown speaker

OK. What is that book value right now? And that's the last question I'll ask. Thank you for taking my questions. I appreciate it.

But what is the book value of our company now? It's so hard to figure out. I mean carl Icahn is a fighter for stockholders, and we have stock in several hundred companies, and we have a lot of trouble trying to figure out what's going on in this company. So what is the book value of the company?

David Willetts -- Chief Financial Officer

The book value, and you'll see this today in the 10-Q is $3.7 billion.

Unknown speaker

Divided by the shares, how much is that coming at $2 per share?

David Willetts -- Chief Financial Officer

Yes. I think you can do the math.

Unknown speaker

OK. All right. I appreciate it. Thank you very much.

Operator

Thank you. [Operator instructions] Our next question comes from the line of Andrew Berg with Post Advisory Group. Your line is open.

Andrew Berg -- Post Advisory Group -- Analyst

Thank you. Hey, guys. Just a couple of housekeeping questions. With respect to automotive, the EBITDA that you guys report, nice increase from a $6 million loss to a $25 million gain.

But I think you said that excluded closed store loss. Can you quantify what the closed store loss was? And was that all a non-cash loss? Or was any of that cash to closing?

David Willetts -- Chief Financial Officer

So in terms of two questions. One is, what do we think the actual loss for the closed store is? And then how much of that was cash? I think when you take a look at our adjustments, this is a heavy transformation program. But effectively, the total cost to close the stores, pay the severance and continue the transformation is approximately $67 million this year. We view those as one-time costs that obviously don't repeat once we finish the transformation.

In terms of the cash, the cash is a little misleading, simply because you have to record the expenses well in advance when you actually pay the cash down and write inventory down. So we'd expect the cash to continue over the course of the next two to three quarters, but to approximate the $67 million as we wrap things up. Does that help?

Andrew Berg -- Post Advisory Group -- Analyst

Yes. The $67 million was year to date. Do you happen to have the comparable numbers, 2Q, '21 versus 2Q, '20? I believe you said that the amounts are coming down.

David Willetts -- Chief Financial Officer

Yes. So the comparable numbers for 2020 were approximately $44 million.

Andrew Berg -- Post Advisory Group -- Analyst

That's year to date or quarter?

David Willetts -- Chief Financial Officer

It would be six months ended 2020.

Andrew Berg -- Post Advisory Group -- Analyst

Do you happen to have the 2Q numbers? Or we'll follow up on that offline?

David Willetts -- Chief Financial Officer

One second. 2020 2Q was $24 million.

Andrew Berg -- Post Advisory Group -- Analyst

And the same figure for this year 2Q?

David Willetts -- Chief Financial Officer

It would be $43 million.

Andrew Berg -- Post Advisory Group -- Analyst

OK.

Aris Kekedjian -- President and Chief Executive Officer

These figures are in the adjusted EBITDA. They're in the adjusted EBITDA reconciliation in our package, if you need any more report.

Andrew Berg -- Post Advisory Group -- Analyst

I'll go back and look at it. I didn't realize it is in this. So I apologize on that. And then the loss in real estate for EBITDA given the relatively flat revenue numbers.

What's driving that?

Aris Kekedjian -- President and Chief Executive Officer

I think what you have in the Real Estate portfolio, in particular, is we have a triple net lease property in Atlanta. That was a single-tenant lease, fully leased up until last year. We're in the process of turning that into a multi-tenant property this year. There were some delays as a result of COVID, but we're back on track in terms of getting core tenants in place.

So there's some timing lag associated with that process, but we're in the process of repositioning that portfolio building.

Andrew Berg -- Post Advisory Group -- Analyst

OK. Great. And then lastly, with respect to investments. There's a question earlier on crypto.

To the extent Carl does start getting involved in it one way or the other, when you guys report, will that end up being factored into the net equity or the net credit portion of how you're going to be reporting things, if you were to be -- start getting along that? Or would it end up being a separate line altogether?

Aris Kekedjian -- President and Chief Executive Officer

I think if we actually get into crypto, to your point and have it in as a significant investment, we'll actually consider identifying that as other, I imagine, at this point in time.

Andrew Berg -- Post Advisory Group -- Analyst

OK. Fantastic. Thank you, guys.

Operator

Thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to management for closing remarks.

Aris Kekedjian -- President and Chief Executive Officer

Thank you, operator, and thanks, everyone, for your questions. We are looking forward to following up with you in our third-quarter update coming up. Up until that time, we wish you have a happy morning and a good rest of the day. Thanks a lot.

Operator

[Operator signoff]

Duration: 36 minutes

Call participants:

Jesse Lynn -- General Counsel

Aris Kekedjian -- President and Chief Executive Officer

David Willetts -- Chief Financial Officer

Dan Fannon -- Jefferies -- Analyst

Bruce Monrad -- Northeast Advisors -- Analyst

Unknown speaker

Andrew Berg -- Post Advisory Group -- Analyst

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