Good morning, and welcome to the Icahn Enterprises Third Quarter 2016 Earnings Conference Call with Louis Pasteur, Deputy General Counsel Keith Khosa, President and CEO and Sungwon Cho, Chief Financial Officer. I would now like to hand the call over to Louis Pasteur, who will read the opening statement.
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, and a reconciliation of such numbers to the GAAP comparable numbers can be found in the back of the investor presentation. And now I'll turn it over to Keith Cozza, the CEO of Icahn Enterprises.
Good morning, and welcome to the Q3 2016 Icahn Enterprises earnings conference call. Joining me on today's call is Sungwon 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, 2016, we had a net loss attributable to Icahn Enterprises of $16,000,000 or $0.12 per LP unit compared to a net loss of $440,000,000 or $3.40 per LP unit in the prior year period. Adjusted EBITDA attributable to Icahn Enterprises for Q3 2016 was $458,000,000 compared to a loss of $31,000,000 in Q3 of 2015. Our investment funds had a return of 6.5% in Q3 of 2016 with the positive performance being driven by gains in our core long equity positions, offset partially by our short equity and credit exposures. Q3 2016 net sales for our automotive segment were 2,300,000,000 dollars an increase of 18% over Q3 of 2015. Higher revenues were primarily due to the Q1, 2016 acquisition of Pep Boys.
Federal Mogul had an 11% increase in operational EBITDA from the prior year period due to improved margins in both the powertrain and motor parts division. In our energy segment, our Q3, twenty sixteen revenues were 1,200,000,000 dollars and consolidated adjusted EBITDA was $96,000,000 CVR Refining posted solid operational performance during the quarter with combined crude throughput of 198,000 barrels per day. However, its results continue to be hampered by the increasing cost of RINs, which are needed to comply with the Renewable Fuel Standard program. We along with others in the industry continue to push the EPA to address this broken program by changing the point of obligation to the party that can control the blending of renewable fuels. In our railcar segment, investments in our railcar services and railcar leasing businesses continue to complement our manufacturing operation.
The segment's lease fleet was over 45,000 railcars at the end of Q3 2016 and continued to be a source of significant cash flow. In our gaming segment, Tropicana delivered a strong performance for the quarter, particularly at its Trop Atlantic City and Evansville properties. Our gaming segment's consolidated adjusted EBITDA for Q3 2016 was $42,000,000 We closed the quarter with our balance sheet remaining strong and are optimistic we have our portfolio of investments positioned for positive returns going forward. 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 sheet. In Q3, 2016, the net loss attributable to Icahn Enterprises was $16,000,000 compared to a net loss of $440,000,000 in the prior year period. As you can see on Slide 5, in Q3 2016, our net loss was primarily driven by HoldCo debt service costs and impairments recorded in our gaming segment, offset in part by the positive return in our investment segment. I will now provide more detail regarding the performance of the individual segments.
Our investment segment had a gain attributable to Icahn Enterprises of $111,000,000 for Q3 2016. The investment funds had a return of positive 6.5 percent in Q3 of 2016 compared to a return of negative 10.3% in Q3 2015. Long positions had a positive performance attribution of 15.9% for the current quarter. While short positions and other expenses had a negative performance attribution of 9.4%. Since inception in November 2004 through the end of Q3 2016, the investment fund's gross return is 137% or approximately 7.5 percent annualized.
The investment funds continue to be significantly hedged. At the end of Q3 2016, net short exposure of 25% at the end of 2015. IEP's investment in the funds was $1,800,000,000 as of September 30, 2016. Now to our Energy segment. For Q3 2016, our Energy segment reported revenues of $1,200,000,000 and consolidated adjusted EBITDA of $96,000,000 compared to revenues of $1,400,000,000 and consolidated adjusted EBITDA of $236,000,000 for the prior year.
Operating results for Q3 2016 include the April 2016 acquisition of the East Dubuque fertilizer facility. CVR Refining reported Q3 2016 adjusted EBITDA of $75,000,000 compared to $230,000,000 in the prior year period. The low regional crack spreads and increasing cost of RINs continues to negatively impact the refining operations overall financial results. While refining margins improved slightly quarter over quarter sequentially, product realizations are still hampered by the large overhang of product inventories in the U. S.
Refining margin adjusted for FIFO impact on crude oil per throughput barrel, a non GAAP financial measure, was $10.09 in Q3 2016 compared to $18.65 the prior year period. CVR Partners reported Q3 2016 adjusted EBITDA of $17,000,000 compared to $4,000,000 in Q3 2015. Although the nitrogen fertilizer pricing environment remains challenging, we were pleased to record another period of high on stream rates at both plants. For Q3 2016, consolidated average realized gate prices for UAN and ammonia were $154 per ton $3.45 per ton, respectively, compared to $2.27 per ton and $4.78 per ton respectively for the same period in 2015 for the Coffeyville facility. Now turning to our Automotive segment.
Our Automotive segment's Q3 20 16 net sales were $2,300,000,000 up 18% from the prior year period, primarily due to the Q1 2016 acquisition of Pep Boys. Consolidated adjusted EBITDA for our Automotive segment was $205,000,000 in Q3 2016 compared to $155,000,000 in Q3 2015. Federal Mogul on a standalone basis recorded Q3 net sales of $1,800,000,000 which was consistent with the comparable prior year period. Higher OE sales were offset by lower aftermarket sales and $13,000,000 of negative impact from currency exchange rate fluctuations. Operational EBITDA in Q3 2016 was $173,000,000 up $17,000,000 or 11% compared to Q3 2015.
The increase was due to improved gross profit margins driven primarily by operational improvements in both divisions. IEH Auto and Pep Boys together had Q3 2016 revenue of approximately $675,000,000 and adjusted EBITDA of $34,000,000 During the quarter, IEP Auto Holdings replaced the existing credit facilities at Pep Boys and IEH Auto with a new $675,000,000 asset backed facility. We distributed $75,000,000 back to Icahn Enterprises during the quarter and at the end of September, there was $129,000,000 of availability remaining under the new facility. Now turning to our railcar segment. Our Railcar segment had railcar shipments in Q3 2016 of 11 77 railcars, including 322 railcars to leasing customers as compared to 1908 railcars for the prior year period, of which 1163 railcars were to leasing customers.
As of September 30, 2016, ARI had a backlog of 5,083 railcars, including 1902 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 78,000 railcars at the end of Q3 2016. 79% 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. The leasing businesses within the railcar segment continue to perform well. In Q3 2016, we grew the combined leased car portfolios to roughly 45,500 railcars from approximately 44,600 railcars at the end of Q3 2015.
Average lease rates in Q3 2016 improved slightly from the prior year period. In September, the Federal Railroad Administration or FRA issued a directive that requires inspection and repairs on certain tank cars manufactured by ARI. Our railcar segment is in discussions with the FRA regarding implementation of this directive and we have recorded a loss contingency of $32,000,000 to cover the costs associated with the directive. Adjusted EBITDA attributable to IEP for the railcar segment was $73,000,000 in Q3 2016 compared to $78,000,000 in the prior year period. Now turning to our Gaming segment.
Total Gaming segment operating revenues were $268,000,000 in Q3 2016 compared to $219,000,000 in Q3 2015. The increase was primarily due to an increase in consolidated gaming volumes of 22%, primarily due to the inclusion of the results from Trump Entertainment Resorts upon its emergence from bankruptcy at the end of February 2016, coupled with higher gaming volumes and table hold percentage at Tropicana Atlantic City. Our gaming segment slot hold percentage was 9.6% for Q3 2016 compared to 9.7% for Q3 2015. The Gaming segment's table game hold percentage was 18.8% for Q3 2016 compared to 15.6% for Q3 2015. Subsequent to quarter end, Trump Taj Mahal closed.
We recorded impairments to the property and associated intangibles approximately $92,000,000 Our gaming segment's consolidated adjusted EBITDA for Q3 2016 was $42,000,000 While EBITDA increased by 12.5% at Tropicana, overall EBITDA for this segment was lower by $6,000,000 from the prior year due to losses at Trump Entertainment. Now turning to our Food Packaging segment. Net sales for Q3 by $5,000,000 or 6% compared to the prior year. This decrease was primarily due to lower sales volumes and competitive pricing dynamics in the core products. Consolidated adjusted EBITDA was $14,000,000 in Q3 2016, which was consistent with the prior year period.
Gross margin as a percentage of net sales was 25% in Q3 2016 compared to 21% in the prior year. And now to our Metals segment. Net sales for Q3 2016 decreased by $20,000,000 or 22% compared to the prior year. The net sales decrease was driven by lower selling prices and lower shipping volumes across most product lines. Adjusted EBITDA was a loss of $4,000,000 in Q3 2016 compared to a loss of $6,000,000 in the prior year period.
Scrap prices are still at low levels and volumes continue to be challenging in this market environment. And now to our Real Estate segment. Real Estate revenues were $25,000,000 in Q3 2016, which was approximately $17,000,000 below the comparable prior year period. Revenues were higher in Q3 2015, primarily due to the $18,000,000 of gains recorded on the sale of 12 triple net leased properties. Operating revenues from our Real Estate segment were substantially derived from our resort and rental operations for both Q3 2016 and Q3 2015.
Our net lease portfolio continues to drive earnings in this segment with its 15 properties generating strong cash flows. The Real Estate segment generated $9,000,000 of adjusted EBITDA Q3 2016. Now to our Mining segment. Our Mining segment has been concentrating on sales in Brazil. Although international iron ore prices have improved since year end to an average of $59 per metric ton during Q3 2016, our mining segment expects the remainder of q3 2016 net sales for our Home Fashion segment were flat with the prior year period.
Adjusted EBITDA was a loss of $3,000,000 in Q3 twenty sixteen compared to a gain of $1,000,000 in the prior year period. Gross margin as a percentage of net sales was 13% for Q3 2016 as compared to 15% for Q3 2015. Profitability in the quarter was impacted by higher costs and inefficiencies in our supply chain. 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 Q3 2016 with cash, cash equivalents, liquid assets, our investment in the investment funds and revolver availability totaling approximately $4,800,000,000 Our subsidiaries have approximately $1,800,000,000 of cash and $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 help us capitalize on opportunities within and outside our existing operating segments. Thank you. Operator, can you please open the call to questions?
We have a question from the line of Dan Fannon from Jefferies. Your line is open.
Thanks. Good morning, guys.
Good morning, Dan.
I guess the first question is just on the dividends and kind of how you guys are thinking about the holding companies and the dividends coming up. Obviously, the energy segment you're paying out of the HoldCo, but the subsidiaries there didn't pay a dividend this quarter. So I want to get your outlook just on just the cash flows coming up to IEP and then sustainability of the dividend. And then just with that, I think historically we've thought of the dividend as kind of covering the cost of the HoldCo, both from a debt financing and kind of corporate costs. And can you kind of think of let us know how that's how you guys are still thinking about that or what those, I don't know, comparisons are at this point?
Sure. Hey, Dan, it's Keith. So starting with CVI, CVI, the holdco continues to have significant excess cash. So they could the Board evaluate the CBI Board evaluates it every quarter, but they can continue to pay their normal dividend with excess cash for a few more quarters. At the CVR level, the refining level, Again, it really ties back to this, the RINs problem that we've referenced.
They've disclosed that the cost of RINs this year is going to be somewhere between $210,000,000 $250,000,000 at the refining company level. That's versus a historical level of like $30,000,000 call it. So we continue to press and we believe sooner or later they will fix this program. It's illogical the way it's structured right now. And if you just do some simple math, there is a lot of future distributable cash flow at CVR Refining if it weren't for this RINs problem, even in a low margin environment, which we're kind of in right now.
So long term, we're optimistic that that's going to get corrected and CVRR will continue we'll be able to resume distributing cash flow, which will ultimately rebuild the coffer at CVI and we're hopeful that CVI will continue to be able to be a significant source of cash flow up to IEP. As far as the remaining of the other entities that ARL continues to American Railcar Leasing continues to have robust cash flow that continues to distribute approximately $100,000,000 a year, up to IEP. ARI's dividend, we believe, is sustainable given the excess cash they have on their balance sheet. So although there may be some small shortfalls versus historically being able to cover the full kind of carrying cost at Holdco, including the debt expense. We think there's ample liquidity to ultimately your question, I assume, is to maintain the IEP dividend, which Carl has continued to take his share of that dividend in additional units for the most part.
So it's a relatively small cash outflow on an annualized basis. So again, our goal is to over time improve performance and grow that dividend, but at a minimum to sustain it.
Okay, that's helpful. And I guess just one more on the fund and the positioning. I guess the net short, the 138%, I think you said as of the end of the quarter. I guess, is there still a bearish component around high yield in other segments? Or is that predominantly just across equities?
No, I would say that, we still maintain a significant net short exposure to high yield credit. Our views haven't changed on that, although we are opportunistic as far as when spreads blow out occasionally, we'll take some profits off the table. But shorting high yield credit is still a component of our short exposure, but the largest and majority of it is through short
Thanks.
Thank you.
Thanks.
Thank you. Our next question comes from the line of Andrew Burke from Post Advisory Group. Your line is open.
Hey, guys. Couple of questions at the various segment levels. With respect to ARII, and I guess it's ARL as well. The issue with FRA, the directive and the $32,000,000 loss, that was a non cash charge, right?
Yes. Yes, that's they're accruing depending on which entity ARI had increased some warranty reserves and ARL had increased some reserves related to as owner of the cars, they may be responsible for certain costs associated with the directive on behalf of lessees. So all non cash at this point.
And over what timeframe would you expect those to start paying out cash?
I don't think we're in a position to answer that right now because we are in we've made several we've provided several data sets to the FRA to articulate our issues with the directive as written and the challenges of complying with that directive given certain standards that they've embedded in it. And depending on how they how that dialogue goes and how that how they review that data will depend on the ultimate cost set. There's a number of different scenarios that can remove bring the cost down to a very minimal level or could be higher. Right now at the quarter end is our best estimate based on the information we have on hand. So we won't we'll have hopefully we'll have more data within the quarter.
Okay. With respect to food packaging, can you give us any sense what you're seeing on a price versus volume?
Yes, lower prices. There's too much supply in the industry plus we have FX headwinds where competitors have pricing advantage. FX works 2 different ways, obviously. 1, obviously, it flows through that we're a U. S.
Reporting entity, but it also affects pricing, where we're at a price disadvantage in a number of countries that have local producers. So, volumes are down and price is down. There's a lot of supply in the marketplace.
And given the top line, probably in low mid single digits for each in terms of price and volume, way to think about it?
Yes, that's right. Yes.
With respect to gaming, can you comment at all at this point on plans for Taj? And can you comment on what carrying costs are for that now that it's shut down?
We have no plans right now. Obviously, we shut it down October 10. So it's 3 weeks ago. We're continuing to evaluate the situation and determine effectively what to do with the asset. And we're still in the process of calculating carrying costs.
Obviously, we're going to reduce them to as low as possible while still preserving the asset.
Is there any reason to think that the carrying cost for this would be grossly dissimilar from the carrying cost for FELTABLUE? Or that's not a bad way to think about it or too early to tell?
It's probably too early to tell, but I would just tell you that that's not a good way to think about it because property tax situation alone is significantly different in Nevada versus New Jersey. So it's too early to tell, but I don't think that's a fair comparison.
Okay, fair enough. And then, Song, did you say that there was a charge in the quarter, at Tropicana for the $96,000,000 No, not at
the we impaired the assets of Taj Mahal. So that's a charge at the gaming segment level, not at Tropicana level.
Okay, got it. That's where the 92 was. And then can you give any update on Fontable at this point? Is that still being marketed?
Yes, I guess as a technical matter, it's still being marketed. We've had a lot of interest. I would say we've had challenges in structuring a deal that would make sense from our point of view. So, it's still being marketed. Obviously, it's still being maintained.
It's carried on our books at a very low valuation. We think there's a lot of value there. It's just a matter of time, but it's technically still being marketed.
Okay, great. Thank you.
Thank We have a question from the line of Josh Lipshan from Eaton Vance. Your line is open.
Hi, thanks. Just curious about the holdco debt. I know you have a maturity in the Q1. Is it thought to keep around the same level of debt at the HoldCo or what are you expecting?
Yes, I think right now, we're going to evaluate the market dynamics as we get a little bit closer here to the maturity. And I think everything is always price dependent, but we would look to refinance that in rolling. So keeping the same level of debt effectively.
Okay, great. Thank you.
Thank you. Our next question comes from the line of Cindy Boyle from Wells Fargo. Your line is open.
Yes. Can you comment on
the role of Brett Icahn and his partner in the management of the Icahn Funds?
Sure, sure. So as we announced, I believe we announced back in early August, Brett Icahn and David Schechter continue to be their agreements expired at the end of July. They continue to be consulting on our investment portfolio for Icahn Enterprises, while they negotiate with Carl and effectively the Board on a new longer term deal. So negotiations are ongoing. And I think Carl and Brett and Dave have all kind of said publicly that they're in no particular rush given market valuations and our particular outlook on the overall market.
So they continue to negotiate, but it's a slow process.
Thank you.
Ladies and gentlemen, one more call for questions. I'm seeing no other questioners in the queue at this time. So I'd like to turn the call back over to management for closing remarks.
Okay. Thanks everybody. We appreciate your interest in IEP and we'll talk to you in the Q1.
Ladies and gentlemen, thank you again for your participation in today's conference. This concludes the program and you may all disconnect at this time. Everyone