Good morning, welcome to the Icahn Enterprises LP Q3 2017 earnings call with Jesse Lynn, General Counsel, Keith Cozza, President and CEO, and SungHwan Cho, Chief Financial Officer. I would now like to hand the call to Jesse Lynn, who will read the opening statement.
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. 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. Now I'll turn it over to Keith Cozza, our Chief Executive Officer.
Thanks, Jesse. Good morning, welcome to the third quarter 2017 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. For Q3 2017, we had net income attributable to Icahn Enterprises of $597 million, or $3.53 per LP unit, compared to a net loss of $16 million, or $0.12 per LP unit in the prior year period. Adjusted EBITDA attributable to Icahn Enterprises for Q3 2017 was $567 million, compared to $467 million for Q3 of 2016. Our investment funds earned a return of 5.1% in Q3 2017, compared to 6.5% in Q3 of 2016.
Our Q3 2017 performance was driven by net gains in certain long equity positions and a single name short position, offset in part by net losses from our equity index positions. Net sales for our Automotive segment in Q3 2017 were $2.5 billion, an increase of 6% versus the prior year period. The increase was primarily due to higher sales volumes at Federal-Mogul, acquisitions, and favorable foreign exchange rates. In Icahn Automotive Group, we continue to make acquisitions of auto service centers and maintain an active pipeline of additional acquisition opportunities. On October 2nd, we announced the acquisition of American Driveline Systems. ADS is the franchisor of AAMCO and Cottman Transmission Total Auto Care service centers with approximately 680 locations. With the addition of ADS, Icahn Automotive Group operates approximately 1,900 owned and franchised locations.
We will continue to pursue an aggressive growth strategy to expand our auto service center footprint. In our Energy Segment, Q3 2017 net sales were $1.5 billion, and consolidated adjusted EBITDA was $142 million. CVR Refining had a solid third quarter led by strong crack spreads and improved market conditions. While CVR Partners results were hampered by continued low U.S. nitrogen fertilizer pricing and unplanned downtime at both facilities related to maintenance issues. In our Real Estate Segment, we recorded a $456 million gain in the quarter related to the completion of the sale of the former Fontainebleau Las Vegas property for $600 million. As a reminder, IEP originally acquired the Fontainebleau for a price of $148 million in February of 2010. In our Gaming Segment, Tropicana delivered solid results for the quarter, with strong performance improvements at its Atlantic City property and St. Louis Lumière property.
During the quarter, we completed our previously announced tender offer, which increased IEP's ownership in Tropicana to approximately 84%. As you can see, we closed a very busy quarter with a strong balance sheet and good momentum, and are very optimistic that the year-to-date successes will continue into the fourth quarter. With that, let me turn it over to Sung.
Thanks, Keith. I will begin by briefly reviewing our consolidated results and then highlight the performance of our Operating Segments and comment on the strength of our balance sheets. Net income attributable to Icahn Enterprises was $597 million for Q3 2017, compared to a net loss of $16 million in the prior year period. As you can see on slide five, in Q3 2017, IEP had significant income in our Real Estate Segment associated with the $456 million gain recorded for the sale of the former Fontainebleau Las Vegas property. We also had a solid performance in our investment funds with a return of positive 5.1% for Q3 2017. Adjusted EBITDA attributable to Icahn Enterprises for Q3 2017 was $567 million, compared to $467 million for Q3 2016. Adjusted EBITDA does not include the gain from the sale of the former Fontainebleau in Vegas.
I will now provide more detail regarding the performance of our individual segments. Our Investment Segment had a gain attributable to Icahn Enterprises of $138 million for Q3 2017. The investment funds had a return of positive 5.1% in Q3 2017, compared to a return of positive 6.5% for Q3 2016. Long positions had a positive performance attribution of 10.7% for the current quarter, while short positions and other expenses had a negative performance attribution of 5.6%. Since inception in November 2004 through the end of Q3 2017, the investment fund's gross return is 130%, or approximately 6.7% annualized. The investment funds continue to be significantly hedged. At the end of Q3 2017, net short exposure was 77%, compared to a net short exposure of 128% at the end of 2016. IEP's investment in the funds was $2.9 billion as of September 30, 2017. Now to our Energy Segment.
For Q3 2017, our energy segment reported revenues of $1.4 billion in consolidated adjusted EBITDA of $142 million, compared to revenues of $1.2 billion and consolidated adjusted EBITDA of $96 million for the prior year period. CVR Refining had a solid third quarter led by strong crack spreads and improved market conditions, while CVR Partners results were hampered by continued low U.S. nitrogen fertilizer pricing and unplanned downtime at both the East Dubuque and Coffeyville fertilizer facilities related to maintenance issues. CVR Refining reported Q3 2017 adjusted EBITDA of $139 million compared to $75 million in the prior year period. Refining margin adjusted for FIFO impact, a non-GAAP financial measure, was $13.72 per barrel in Q3 2017 compared to $10.09 per barrel in the prior year period. CVR declared a distribution of $0.94 per unit for the quarter.
CVR Partners reported Q3 2017 adjusted EBITDA of $5 million compared to $17 million for Q3 2016. Q3 results were impacted by a scheduled turnaround at East Dubuque facility and unplanned downtime that combined impacted the EBITDA by approximately $7 million. Average prices for UAN and ammonia were $138 per ton and $214 per ton respectively in Q3 2017, compared to $154 per ton and $345 per ton respectively for the same period in 2016. Management believes that nitrogen prices have bottomed and have already seen indications of higher prices into Q4. Now turning to our automotive segment. Our automotive segment Q3 2017 net sales were $2.5 billion, up 6% from the prior year period. The increase is primarily due to organic sales volume increases, sales volume increases from acquisitions, as well as favorable effect of foreign currency exchange.
Federal-Mogul, on a standalone basis, reported Q3 net sales of $1.9 billion compared to $1.8 billion in the comparable prior year period. Higher OE sales, higher aftermarket sales in EMEA and Asia Pacific, and favorable foreign currency exchange were partially offset by lower export sales. Operational EBITDA in Q3 2017 was $173 million, which was flat with the prior year period. At Icahn Automotive Group, the parent of Pep Boys and Auto Plus, Q3 2017 operating revenues were approximately $701 million, compared to $675 million in Q3 2016. As Keith mentioned, in October, we acquired American Driveline Systems, the franchisor of the AAMCO and Cottman brands, which are the number 1 and number 2 transmission repair brands in North America.
This transaction builds on our acquisitions of Just Brakes in January and Precision Auto Care in July and continues our path to becoming one of the largest auto service networks in the U.S. Now turning to railcar. Our railcar segment had railcar shipments in Q3 2017 of 893 railcars, including 275 railcars to leasing customers, as compared to 1,064 railcars for the prior year period, of which 209 railcars were to leasing customers. As of September 30, 2017, ARI had a backlog of 2,676 railcars, including 657 railcars for lease customers. According to the Railway Supply Institute, the railcar manufacturing backlog has decreased from a record level of nearly 143,000 railcars at the end of 2014, down to approximately 64,000 railcars at the end of Q3 2017.
84% of the current industry backlog is comprised of tank cars and covered hopper railcars, the two primary railcar types manufactured and leased by our railcar segment. The segment's railcar leasing revenue declined in the quarter as compared to the prior year due to the initial sale of ARL that closed in Q2 of this year. Lower weighted average lease rates also contributed to the decline in leasing revenue. We ended Q3 2017 with 17,122 railcars in the lease fleet, down from 45,481 railcars at the end of Q3 2016. Subsequent to quarter end, we sold over 4,000 railcars from the former ARL lease fleet for $522 million, generating a book gain of approximately $154 million. Adjusted EBITDA attributable to IEP for the railcar segment was $38 million in Q3 2017, compared to $73 million in the prior year period. Now turning to our gaming segment.
Our gaming segment continues to perform with significant gains at core properties within Tropicana Entertainment. We continue to reinvest in our properties and recently opened Indiana's first land-based casino at our Evansville property. For Q3 2017, Tropicana revenue increased by 6.3% from prior year, and adjusted EBITDA increased 42% to $71 million. These gains were driven by the performance in Atlantic City and St. Louis. Tropicana maintains a strong balance sheet, having repaid $125 million of debt and repurchased $36 million of stock in Q3. Even after these transactions, the company still maintained ample liquidity with $123 million of cash on the balance sheet. Within Trump Entertainment, losses have been reduced due to the sale of Trump Taj Mahal in March of this year. We still hold the idle Trump Plaza location and continue to evaluate our options.
Across both companies, we also recorded $60 million of other income in the quarter related to real estate tax settlements for both Tropicana and our former Trump properties. Now turning to our food packaging segment. Net sales for Q3 2017 increased by $18 million or 22% compared to the prior year period. The increase was primarily due to the inclusion of recent acquisitions. Consolidated adjusted EBITDA was $17 million in Q3 2017, which was $3 million above the prior year period. Gross margin as a percentage of net sales was 24% for Q3 2017, compared to 25% for the prior year period. Now to our metal segment. Net sales for Q3 2017 increased by $38 million or 53% compared to the prior year period. The net sales increase was driven by higher selling prices and higher volumes for most product lines.
Higher pricing reflected higher market prices in Q3 2017 as opposed to Q3 2016. Non-ferrous shipment volumes increased primarily due to the investment in aluminum processing capabilities at one of our facilities made in late 2016. Adjusted EBITDA was a positive $5 million in Q3 2017, compared to a loss of $4 million in the prior year period. Gross margin has improved due to a continued focus on disciplined buying, higher prices for non-ferrous auto residue, improved market pricing, and by continued efforts to bring processing costs in line with the volume and market pricing. Now to our real estate segment. Real estate operating revenues were $21 million in Q3 2017, which was slightly below the prior year period. The decrease was primarily due to lower development sales.
The segment recorded a $456 million gain in the quarter related to the completion of the sale of the former Fontainebleau Las Vegas property for $600 million. The real estate segment generated $9 million of adjusted EBITDA in Q3 2017. To our mining segment. Our mining segment has been concentrating on sales in Brazil. During Q3 2017, international iron ore prices increased, with spot prices rising above $70 per ton mid-quarter and coming back down to around $60 by quarter end. The segment year to date has consolidated adjusted EBITDA of approximately $22 million. Turning to our home fashion segment. Q3 2017 net sales for our home fashion segment were down 4% as compared to Q3 2016 due to lower sales volumes. Adjusted EBITDA was a loss of $2 million compared to a loss of $3 million in the prior year period.
Gross margin as a percentage of net sales was 15% for Q3 2017 as compared to 13% in Q3 2016. 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 Q3 2017 with cash equivalents, our investment in the funds, and revolver availability totaling approximately $6 billion. Our subsidiaries have approximately $1.6 billion of cash and $1.1 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. Operator, can you please open the call for questions, please?
Ladies and gentlemen, if you'd like to ask a question, please press star then one. If your question has been answered and you'd like to remove yourself from the queue, you may press the pound key. Once again, to ask a question, please press star then one. Our first question comes from Michael Bohm of Sona. Your line is open.
Hi. Thank you for the commentary. I would like to ask a couple of questions around the automotive division. It's been rumored that you are potentially looking to sell the Fel-Pro business. Can you comment on that particular rumor, and where that transaction stands? Secondly, it's been talked about an IPO for Icahn Automotive. Would that IPO include Federal-Mogul, or just be the automotive business again, if it were to happen? Thank you.
Thanks, Michael. We're not going to be in a position to comment on either of those questions. We'll report something if there's ever something to report.
Thank you.
Once again, if you'd like to ask a question, please press star then one. Our next question comes from Daniel Fannon of Jefferies. Your line is open.
Good morning, guys.
Hey, Dan.
I guess another question just on the automotive sector, just in terms of strategy. Can you talk about what you guys have been doing with regards to M&A on Icahn Automotive, and how does that correlate with just the Federal-Mogul business in terms of is there some overlap there, or how we should think about the longer-term strategy for the segment?
Sure. From Icahn Automotive Group M&A strategy, it's been fairly obvious, right? Two years ago, we had zero repair shops, and now we have 1,900 between owned and franchise. It's a very fragmented industry. It's probably 92% fragmented. The biggest chains in the country are 2,000 or 3,000 shops. We're trying to roll them up and get further density in our footprint and create a real large national presence on the repair side. That strategy is we bought Just Brakes, we bought Pep Boys obviously to start off, we bought Just Brakes. We have a team that kind of rolls in ones and twos, small business shops or whatever, and then we just purchased the AAMCO and Cottman business. From that front, we really want to grow the repair side of the business.
Sure. As far as overlap with Federal-Mogul, obviously Federal-Mogul sells products at the end users, people getting their cars repaired. They are maintained as separate capital structures and frankly, separate management teams and all that stuff because Federal-Mogul has lots of customers. We're trying to be a very large customer. We're getting bigger by the day.
Got it. That's helpful. I guess just the fund you gave us the kind of net short position. Can you talk just about kind of the broader concerns that you have if that's changed at all? I know valuation has been obviously out there, but I guess anything more macro or thematic that you guys are thinking about around that positioning?
Yeah. I'd say during the quarter and even frankly subsequent to the quarter, we've been kind of adjusting hedges a little bit more frequently than we have historically based on some medium-term views around tax reform and the ability to get something done there and what will most likely be a boost to the market in the short to medium term. We have been adjusting the hedges around some of these macro events. As far as on the single name side, we've said this a lot, it's hard to get real excited and for us, we run a relatively concentrated strategy. It's hard to get too excited about single names with multiples where they're at. That being said, we're finding pockets of opportunities. We have one new name we're working on, and that's been building and we'll see what happens.
We're value investors, and this is obviously not a friendly market to value investors.
Understood. I guess just on the kind of preliminary tax stuff that did come out, I guess, as you think about IEP and its structure and kind of how you guys do your holdco investments and everything, I guess just is there any kind of implications that we should be thinking about for your business?
Well, we have a number of C corps. Certain businesses are run through C corps, and some of those do have tax liabilities. Obviously if the corporate tax rate were lowered, that'd be a net positive, and everybody knows that the preliminary proposal is to take it down to 20%. I think that's an incremental positive.
Right. I guess just the IEP structure where you are obviously limiting your tax expense at the holdco. I get the C corp stuff, I guess just I was thinking more at the IEP level.
Yeah. At the IEP for the flow-through entity, remember, the C corps are obviously natural blockers, so that doesn't flow through to the IEP holder. What does flow through, it's all a derivative of what they do to personal rates. They are lowering the rates for certain brackets. I suppose theoretically the pass-through will be any income pass-through will be at lower tax rate for the individual if they get that through.
Okay. All right. Thanks, guys.
I currently have no more questions in queue.
Okay. Thank you very much, everybody. We'll look forward to talking to you in the new year.