Morning, and welcome to the Icahn Enterprises LP Second Quarter 2017 Earnings Conference Call with Jesse Lynn, General Counsel Keith Cozza, President and CEO and Sung Hwan Cho, Chief Financial Officer. I would now like to hand the call over to Jesse Lynn, who will now read the opening statement.
Thank you, operator. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward 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 Kozak, Chief Executive Officer.
Thanks, Jesse. Good morning, and welcome to the Q2 2017 Icahn Enterprises earnings conference call. Joining me on today's call is Sung hwan 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 Q2 2017, we had net income attributable to Icahn Enterprises of $1,600,000,000 or $9.51 per LP unit $5.1 per LP unit compared to a net loss of $69,000,000 or $0.50 per LP unit in the prior year period. Adjusted EBITDA attributable to Icahn Enterprises for Q2 20 17 was $506,000,000 compared to $292,000,000 for Q2 of 2016. Our investment funds had a positive return of 4.3 percent in Q2 of 2017 compared to a loss of 6% in Q2 of 20 16. Our Q2 2017 performance was driven by net gains in both our core long and single name short equity positions, offset by losses in various hedge positions.
Net sales for our automotive segment in Q2 2017 were $2,500,000,000 an increase of 2% from the prior year period. The increase was primarily due to higher sales volumes at Federal Mogul. In Icon Automotive Group, we continue to make acquisitions of auto service centers and maintain an active pipeline of additional acquisition opportunities to further expand our national footprint. In our energy segments, our Q2 2017 net sales were $1,400,000,000 and consolidated adjusted EBITDA was $73,000,000 CVR Refining posted a strong operational performance during Q2 with a quarterly record for crude oil throughput at its CVR Partners Coffeeville and East Dubuque facilities also recorded high on stream rates for the fertilizer operations. The East Dubuque facility posted an on stream rate of 100% for its ammonia plant, which was also a quarterly record.
RINs expense for our refining operations remain the single largest headwind for our Energy segment. The volatility and extraordinarily high prices of RINs continue to hamper results in the industry and may cause financial distress and risk of closure for smaller independent merchant refiners. In our railcar segment, we closed the previously announced initial sale of American railcar leasing for a pre tax gain of approximately 1,500,000,000 dollars We have the option to sell additional railcars upon meeting certain conditions for a value of 559,000,000 dollars as of the end of Q2 2017. In our Gaming segment, Tropicana delivered solid results for the quarter with strong performance improvement at its Atlantic City and St. Louis properties.
We closed the quarter with strong liquidity position and are excited about a number of investment opportunities across all of our business segments. With that, let me turn it over to Sun.
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 sheet. Net income attributable to Icahn Enterprises was $1,600,000,000 for Q2 2017 compared to a net loss of $69,000,000 in the prior year period. As you can see on Slide 5, in Q2 twenty 17, IEP had significant income in our railcar segment associated with the $1,500,000,000 pre tax gain recorded for the ARL initial sale closing. We also released approximately $500,000,000 of tax asset valuation allowances in our automotive segment during the quarter.
The performance of our investment funds also improved from the prior year period with the return of positive 4.3% for Q2 2017 compared to negative 6% for Q2 2016. Adjusted EBITDA attributable to Icahn Enterprises for Q2 2017 was $506,000,000 compared to $292,000,000 for Q2 2016. I will now provide more detail regarding
the
seventeen. The investment funds had a return of positive 4.3% in Q2 twenty seventeen compared to a return of negative 6% for Q2 2016. Long positions had a positive performance attribution of 3.8% for the quarter, while short positions and other expenses had a positive performance attribution of 0.5%. Since inception in November 2004 through the end Q2 2017, the investment funds gross return is 119% or approximately 6.4% annualized. The investment funds continue to be significantly hedged.
At the end of Q2 2017, net short exposure was 44% compared to net exposure net short exposure of 128% at the end of 2016. During the quarter, we invested $800,000,000 into the funds from the proceeds of the ARL sale. IEP's investment in the funds was $2,700,000,000 as of June 30, 2017. And now turning to our Energy segment. For Q2 2017, our Energy segment reported revenues of $1,400,000,000 and consolidated adjusted EBITDA of $73,000,000 compared to revenues of $1,300,000,000 and consolidated adjusted EBITDA of $113,000,000 for the prior year period.
Both the refining and fertilizer businesses had solid operational performances in the quarter. The Coffeyville refinery achieved a quarterly crude throughput record and the East Dubuque fertilizer facility posted an on stream rate of 100% for its ammonia plant. CVR Refining reported Q2 2017 adjusted EBITDA of $43,000,000 compared to $85,000,000 in the prior year period. Refining margin adjusted for FIFO impact, a non GAAP financial measure was 7.48 Q2 2017 compared to $9.56 per barrel in the prior year period. The decrease was primarily driven by higher RINs expense, partially offset by the increase in the Group 3 crack spread.
CVR Partners reported Q2 2017 adjusted EBITDA of $32,000,000 compared to $29,000,000 in Q2 2016. Consolidated average realized gate prices for UAN and ammonia were $174 per ton and $3.33 per ton respectively in Q2 2017 compared to $1.99 per ton and $4.17 per ton respectively for the same period in 2016. Now turning to the Automotive segment. Our Automotive segment's Q2 2017 net sales were $2,500,000,000 up 2% from the prior year period. The increase is primarily due to volume increases and to a lesser extent sales volume increases from acquisitions.
These sales volume increases were offset in part by the unfavorable effect of foreign currency exchange. Federal Mogul on a standalone basis reported Q2 net sales of $2,000,000,000 compared to $1,900,000,000 in the comparable prior year period. Higher OE sales and higher aftermarket sales in North America were partially offset by lower export sales and $28,000,000 of negative impact from currency exchange rate fluctuations. Operational EBITDA in Q2 2017 was $191,000,000 down $5,000,000 or 3% compared to Q2 2016. ICON Automotive Group, the parent of IEH Auto and Pep Boys had Q2 2017 operating revenue of approximately $697,000,000 compared to $685,000,000 in Q2 2016.
In 2017, we have added 4 74 locations to our service network. We acquired 134 Just Brakes locations in January of 2017 and added 326 locations with our acquisition of Precision Auto Care in July 2017. Now turning to our
Railcar segment.
We closed the initial sale of American Railcar Leasing in Q2 for a pre tax gain of approximately $1,500,000,000 and we have the ability to sell additional railcars upon meeting certain conditions for a value of $559,000,000 as of June 30, 2017. We ended Q2 2017 with 16,905 railcars in the lease fleet, down from 45,336 railcars at the end of Q2 2016. Our railcar segment had railcar shipments in Q2 2017 of 10 76 railcars, including 5 45 railcars to leasing customers as compared to 10 17 railcars for the prior year period, of which 85 railcars were to leasing customers. As of June 30, 2017, ARI had a backlog of 2,808 railcars, including 715 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 67,000 railcars at the end of Q2 2017.
87% of the current industry backlog is comprised of tank cars and covered hopper railcars, the 2 primary railcar types manufactured and leased by our railcar segment. As a result of the initial sale of ARL cars, the segment's railcar leasing revenue declined in the quarter as compared to the prior year period. Lower weighted average lease rates also contributed to the decline in leasing revenue. Adjusted EBITDA attributable to IEP for the railcar segment was $79,000,000 in Q2 2017 compared to $102,000,000 in the prior year period. Now turning to our gaming segment.
Total Gaming segment operating revenues were $222,000,000 in Q2 2017, which was down $32,000,000 from Q2 2016. The decrease was primarily related to the closing of the Taj Mahal in October of 2016, offset in part by increased gaming revenues at Tropicana Atlantic City and Lumiere. Our gaming segment adjusted EBITDA for Q2 2017 was $43,000,000 compared to $33,000,000 in Q2 2016. Improved operational performance at Trop Atlantic City and Lumiere in Q2 twenty seventeen were coupled with the fact that Q2 2016 included losses from the operations of the Taj Mahal. Now turning to our Food Packaging segment.
Net sales for Q2 2017 increased by $14,000,000 or 16% compared to the prior year period. The increases were primarily due to the inclusion of recent acquisitions. Consolidated adjusted EBITDA of $16,000,000 in Q2 2017, which was $1,000,000 above the prior year period. Gross margin as a percentage of net sales was 26% for both Q2 2017 and Q2 2016. And now to our metals segment.
Net sales for Q2 2017 increased by $26,000,000 or 34% compared to the prior year. The net sales increase was driven by higher selling prices across all product lines as well as higher volumes for non ferrous. Higher pricing reflected higher market prices for Q2 2017 as compared to Q2 2016 as well as speculation that changes in current U. S. Trade policies will favor domestic producers.
Non ferrous shipment volumes increased primarily due to the capital in aluminum processing capabilities at one of our facilities made in late 2016. Adjusted EBITDA was a positive $4,000,000 in Q2 2017 compared to a loss of $1,000,000 in the prior year period. Gross margin has improved due to the continued focus on disciplined buying, higher prices for non ferrous auto revenue, improved market pricing and by continued efforts to bring processing costs in line with volume and market pricing. And now to our Real Estate segment. Real Estate revenues were $25,000,000 in Q2 2017, which was slightly above the prior year period.
The increase was primarily due to higher club revenues. Operating revenues from our Real Estate segment were substantially derived from our club and rental operations for both Q2 2017 2016. Our net lease portfolio continues to drive earnings in this segment with its 15 properties generating strong cash flows. The Real Estate segment generated $10,000,000 of adjusted EBITDA in Q2 2017. And now to our mining segment.
Our mining segment has been concentrating on sales in Brazil. During Q2 2017, international iron ore prices declined with spot prices ending below $60 per ton in June. Prices have since recovered to the mid $70 range driven by Chinese demand. Now turning to our home fashion segment. In Q2 2017, net sales for our home fashion segment were down 15% as compared to Q2 2016 due to lower sales volumes.
Adjusted EBITDA was a loss of $1,000,000 compared to a gain of $1,000,000 in the prior year period. Gross margin as a percentage of net sales was 11% for Q2 2017 compared to 13% in Q2 2016. Now I will discuss our liquidity. We maintain ample liquidity at the holding company and at each of our operating subsidiaries to take advantage of attractive opportunities. We ended Q2 2017 with cash, cash equivalents, our investment in the investment funds and revolver availability totaling approximately $6,200,000,000 Our subsidiaries have approximately $1,700,000,000 of cash $1,000,000,000 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 the call up for questions, please?
Thank you. We'll now take questions as part of our question and answer session. And Our first question will come from the line of Dan Fannon with Jefferies. Your line is now open.
Thanks. Good morning, guys.
Hi, Dan.
I guess just generally first just on the fund, the hedging has changed pretty dramatically year to date. So maybe just give an overall outlook and kind of how you're thinking about investment opportunities there? And then is the $1,000,000,000 that's come into the fund year to date I'm sorry, dollars 800,000,000 dollars that's come into the fund. Is that do you think we're going to see will you see more going into the fund or is that kind of where we should just the right level?
Hey, Dan, it's Keith. I think it just depends on if there are other significant asset monetizations. We have a healthy amount of cash at the HoldCo, around $650,000,000 or so. That's a pretty healthy amount to deploy for investment opportunities for the various business segments. But if we were to monetize certain assets and that would increase the cash level, a lot of that cash would probably go into the fund.
So it's just it really the answer is it depends. But right now, I there's no current intention to put more in because we have a kind of full pipeline of things that we're looking at the various segments, especially in the Icon Automotive Group.
And the overall outlook for just kind of the fund itself just in terms of positive bearish, the hedging kind of obviously went down on the short side, but
Yes. So the answer on the hedging, yes, we reduced some of the macro index hedges. Some of it was to correspond with some long positions that we had sold at decent valuations. The other really related to an outlook we had kind of related to 2nd quarter earnings, particularly in the S and P 500, looking at the year over year growth and basically taking some risk off the table with our negative net exposures that the market would perceive those earnings to be quite well. And so we wanted to reduce some of that potential headwind.
So we took the macro shorts down significantly during the quarter.
Got it. And then just thinking about the Energy segment and the sustainability of the dividend with neither of the subsidiaries declaring a dividend this quarter, up to CVR Energy. So I guess just thinking about the outlook of that $0.50 cash dividend.
Yes. I mean the Board meets every quarter to evaluate that continuing that dividend. So I'm not going to provide forward guidance, but I would point out that CVI, the parent company has over $200,000,000 of excess cash still. So subject to Board deliberation, they could continue it for another 3 or 4 quarters, I would say at least, just based on the shares outstanding. But again, it's a healthy debate each quarter and we're hopeful that crack spreads can stay elevated here to provide for future distributions.
Got it.
Okay. Thank you.
Thanks, Dan.
Thank you. And the next question will come from the line of Avi Shapiro with Shapiro Capital. Your line is now open.
Hi, congratulations on the tendering for the CPC shares at a pretty nice discount. But I noticed that you have indemnified the Board regarding the offer and regarding the price range. So I was wondering if you guys have reserved anything regarding that and if you're concerned about potential litigation?
I'm not sure I even understand the question, but no, we're not concerned about potential litigation.
Got it. And what's the future plan for the holdings of TPCA?
Future plan, I mean, we continue to operate it just like our other 9 segments. We want to provide management with the support and capital to grow the business and improve profitability over time. And we think the Tropicana management team is doing a good job of that.
Yes, they're doing a great job. But do you think you'll eventually IPO it, maybe do an outright sale, institute a dividend?
Yes, there's no current plans for any of those things that you just said.
Got it. And any thoughts on the balance sheet of TPC?
No, there's no thoughts.
Got it. And I guess the confusion, just to clarify your confusion before, I was just referencing the fact that you're tendering for stock at a price that is a 35% to 40% discount to where you're marking it. So I imagine there could be some litigation regarding that and if you had any concerns there?
No.
And I currently have no more questions in queue.
Okay. Thanks everybody. We look forward to talking to you during the after the Q3. Thanks.
Ladies, thank you for participating in today's conference. This does conclude your program. You may all disconnect. Everyone