Good morning, and welcome to the Icahn Enterprises LP Q3 2015 Earnings Call with Jesse Lin, General Counsel Keith Cozza, President and CEO and Seung Hwan Cho, Chief Financial Officer. I would now like to hand over the call to Jesse Lin, 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.
I will now turn the call over to Keith Cozza, our Chief Executive Officer.
Thanks, Jesse. Good morning and welcome to the Q3 2015 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. Net loss attributable to Icahn Enterprises for Q3, 2015 was $440,000,000 or $3.40 per LP unit, compared to a net loss of $355,000,000 or $2.90 per LP unit in the prior year period. Adjusted EBITDA attributable to Icahn Enterprises for Q3 2015 was a loss of $32,000,000 compared to a loss of $2,000,000 in Q3 of 2014. Our investment funds had a negative return of 10.3% in the Q3 of 2015 compared to negative 5.3 percent in the prior year period. Q3 performance was negatively impacted by losses from some of our long equity positions with significant exposure to the commodity sector.
Year to date through September 30, 2015, the funds had a negative return of 2.8%. In our Energy segment, CVR's petroleum subsidiary had another solid quarter. The petroleum business benefited from favorable product margins and had combined refinery crude throughput of over 200,000 barrels per day. The fertilizer business The fertilizer business results were affected by lost production associated with the scheduled plant turnaround, as well as downtime due to several outages caused by 3rd party equipment failures. In Q3, the fertilizer business announced an agreement to acquire The acquisition will create an expanded MLP with a leading position in the U.
S. Nitrogen fertilizer industry, a more diverse production base, enhanced margins through cost savings of the combined entities and is expected to be accretive to distributable cash flow per share. In our Automotive segment, Federal Mogul reported sales of $1,800,000,000 an increase of 7% in constant dollar terms. This increase was due to sales generated by the engine valve business acquired from TRW earlier this year. Federal Mogul continues to make progress integrating the significant acquisitions made over the last couple of years consisting of TRW's engine valve, Honeywell's brake and affineas chassis businesses.
This was the 1st full quarter of sales from IEH Auto, which was acquired by IEP in the Q2 of this year. 3rd quarter net sales were approximately $189,000,000 Our Railcar segment had strong margins for railcar manufacturing and railcar service operations in Q3 and we continued to build our lease fleet with over 44,000 railcars at quarter end. In our gaming segment, Tropicana had another solid quarter with improved operational performance at a majority of the properties. Tropicana Atlantic City experienced higher gaming volumes as it has benefited from significant capital investments made at the property in addition to the closure of certain competitors. With that, let me turn it over to Son.
Thanks, Keith. I will begin by briefly reviewing our consolidated results for Q3 2015 and then highlight the performance of our operating segments and comment on the strength of our balance sheet. Net loss attributable to Icahn Enterprises for Q3 2015 was $440,000,000 or $3.48 per LP unit compared to a net loss of $355,000,000 or $2.90 per LP unit in the prior year period. Adjusted EBITDA attributable to Icahn Enterprises for Q3 2015 was a loss of $32,000,000 compared to a loss of $2,000,000 in Q3 2014. As you can see on Slide 5, most of the decrease in EBITDA net income from the prior year is tied to the performance of the Investment segment.
I will now provide more detail regarding the performance of the individual segments. Our investment segment had a loss attributable to Icahn Enterprises of $479,000,000 in Q3 2015. The investment funds had a return of negative 10.3% in Q3 2015 compared to a return of negative 5.3 percent for Q3 2014. Long positions had a negative 24.5% return for the current quarter, while short positions and other expenses had a positive performance attribution of 14.2%. Since inception in November 2004 through the end of Q3 2015, the investment funds gross return is 2 21% or 11% annualized.
The investment funds continue to be significantly hedged. At the end of Q3 2015, net short exposure was 26% compared to a net long exposure of 14% at the end of 'fourteen. IEP's investment in the funds was $4,200,000,000 as of September 30, 2015. Now to the Energy segment. For Q3 2015, our Energy segment reported net sales of $1,400,000,000 and consolidated adjusted EBITDA of 236 $1,000,000 compared to net sales of $2,300,000,000 and consolidated adjusted EBITDA of $144,000,000 for the prior year period.
CVR Refining reported Q3 2015 adjusted EBITDA of $230,000,000 compared to $130,000,000 in the prior year. CVR Refining reported a solid quarter driven by high throughputs and favorable product margins. The Coffeyville and Wynnewood refineries posted a combined crude throughput of over 200,000 barrels per day. CVR Partners reported Q3 2015 adjusted EBITDA of $4,000,000 compared to $21,000,000 in Q3 2014. Impacting the 3rd quarter results were expenses and loss production related to a scheduled major plant turnaround.
3rd quarter results were also impacted by more than 2 weeks of additional plant downtime following the outage of 3rd party suppliers. Results for the quarter also add back transaction related expenses associated with the partnership's announced agreement to acquire Renntech Nitrogen Partners. And now turning to our Automotive segment. In Q3 2015, net sales for our consolidated automotive segment, which includes both Federal Mogul and IEH Auto increased by $109,000,000 from the prior year period and consolidated adjusted EBITDA was $153,000,000 in Q3 2015 compared to $152,000,000 in Q3 2014. Federal Mogul on a standalone basis reported sales of $1,800,000,000 down 3% from the prior year, but up 7% in constant Federal Mogul operational EBITDA was $153,000,000 which was up slightly from the prior year despite $28,000,000 of negative EBITDA impact due to foreign exchange rates.
During the Q3, Federal Mobile Powertrain division completed its 2nd phase of the acquisition of TRW's engine valve business with the purchase of 2 plants located in the U. S. And in Thailand. With this phase of the acquisitions integration complete, the division's global valvetrain footprint now includes 13 manufacturing sites ideally located to support its growing and diverse customer base. IEH Auto on a standalone basis had Q3 2015 net sales of approximately $189,000,000 and approximately $6,000,000 of adjusted EBITDA.
Now turning to our Railcar segment. Our Railcar segment's consolidated adjusted EBITDA attributable to IEP grew to $121,000,000 in Q3 2015 from $98,000,000 in the prior year period. The increase was primarily driven by higher leasing revenues and a higher mix of sales to third party customers. Railcar shipments in Q3 2015 were approximately 1900 railcars, including approximately 1160 railcars to leasing cars to leasing customers as compared to 2,150 railcars for the prior year period, of which approximately 19 20 railcars were to leasing customers. As of September 30, 2015, ARI had a backlog of approximately 7,900 railcars, including 1180 railcars for lease customers.
According to the Railway Supply Institute, the railcar manufacturing backlog has dropped from a record level of nearly 143,000 railcars at the end of 2014 down to approximately 123 railcars at the end of Q3 2015. Tank cars are now only 31% of the industry backlog, down from a peak of 85% in Q1 roughly 44,600 railcars from approximately 39,700 railcars at the end of 2014. Our railcar segment's liquidity position is strong with $271,000,000 of cash at the end of the quarter. Now turning to gaming. Our gaming segment posted solid Q3 2015 results with consolidated adjusted EBITDA of $50,000,000 compared to $37,000,000 in the prior year.
The majority of the properties experienced year over year improvement in operating performance. Tropicana Atlantic City's gross casino win increased 4% in Q3 2015 as compared to prior year period as a result of increased customer volumes. In addition, promotional gaming credits redeemed at Tropicana Atlantic City were reduced by 3% during this time period. Internet gaming revenues also increased during Q3 2015. Based on market data, the Atlantic City market experienced year over year declines in gross casino win of 5.4 percent for Q3 2015.
This was due primarily to the closure of 4 casino properties. Tropicana has a solid balance sheet with $223,000,000 of cash and cash equivalents at the end of the quarter. Now turning to food packaging. Net sales for Q3 2015 decreased by $9,000,000 or 9% compared to the prior year. The decrease was primarily due to unfavorable foreign currency translation and unfavorable price and product mix offset in part by higher sales volumes.
Consolidated adjusted EBITDA was $14,000,000 in Q3 2015, which was a $2,000,000 decrease from the prior year. Gross margin as a percent of net sales was 22% in Q3 2015 compared to 24% in the prior year period. This case's cash balance at the end of Q3 'fifteen was $43,000,000 And now to metals. Net sales for Q3 2015 decreased by $94,000,000 or 51% compared to the prior year period. The decrease was primarily due to lower shipment volumes and lower prices of ferrous and non ferrous scrap.
Ferrous shipments decreased approximately 27% and the average ferrous selling price per ton decreased approximately 37% from $3.66 to $2.30 Adjusted EBITDA was a loss of $6,000,000 in Q3 2015 compared to 15 compared to breakeven in the prior year. Gross margin as a percentage of net sales was a loss of 11% in Q3 twenty 2015 compared to a loss of 1% in Q3 2014. The market environment remains challenging with reduced demand from domestic steel mills, a weak export market, declining iron ore prices and competition for shredder feedstock. The company continues to invest in its operations with a focus on strengthening our competitive position within our existing markets. And now to real estate.
Q3 real estate revenues were $42,000,000 compared to $27,000,000 in the prior year period. Revenues were higher primarily due to the $18,000,000 gain recorded on the sale of 12 triple net leased properties, partially offset by lower development sales and club revenues. Revenues from our club operations were down from the prior year period due to the sale of the Oak Harbor operations in Q2 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 $10,000,000 of adjusted EBITDA in Q3 2015.
Year to date, we have sold 14 net leased properties in the Oak Harbor operations for net proceeds of $65,000,000 compared to a book value of $26,000,000 Now turning to our mining segment. As we discussed in the prior quarter's call, IEP obtained control of Ferris Resources Limited during the Q2 of 2015 through a tender offer for our outstanding shares. Ferrous Resources owns rights to certain iron ore mineral resources in Brazil and develops mining operations to produce and sell iron ore products to the global steel industry. Our mining segment has been concentrating its sales in Brazil where the best margins are being captured. During Q3, both domestic and global steel industries continued to show weakness as steel mills utilization rates have not recovered and seaborne iron ore prices are still under $60 per metric ton.
Our mining segment expects the remainder of 2015 and the foreseeable future to be challenging for the steel industry as it as it contends with slowing growth overcapacity and increased competition. Now turning to our home fashion segment. Q3 20 q32015 net sales increased by $2,000,000 compared to the prior year period due to higher sales volumes. We are continuing to concentrate on higher margin lines and believe we will have solid placements for the remainder of 2015. Adjusted EBITDA was $1,000,000 for Q3 2015, which was in line with the prior year period.
Gross margin as a percentage of net sales was 15% for both Q3 2015 and Q3 2014. As of September 30, 2015, West Point had $14,000,000 of unrestricted cash. Now 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 with cash, cash equivalents, liquid assets and our investment in the investment funds totaling approximately $6,200,000,000 Our subsidiaries have approximately $1,900,000,000 of cash and $700,000,000 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 turn the call over to questions, please?
Our first question is from Daniel Fannon of Jefferies. Your question please.
I'd like to start with a question around the Investment segment. I understand the positioning of the portfolio is net short at this point. Can you talk about previous periods where you've gone net short and the length of time that you've generally stayed there? Or any other color around that as well, please?
Sure. Hi,
Dan. I would say at net negative 26%, this is on the shorter side, but it reflects the bear I would say our views on the macro environment in general on a number of different fronts from high yield debt and credit, kind of that we're in a credit bubble, potential impact of interest rate rises, and the fact that we just don't really see a tremendous amount of growth in earnings. We see a lot of kind of manufactured earnings in some of the more popular or broader S and P 500. And so the portfolio is positioned to take advantage of, I think trade with the market trading down. Compared to historically, this is a little bit more short than we probably have been, but there have been some periods, whether it be intra quarter or at quarter end, where we have been net short.
And I think we adjust we tend to adjust based on the facts and circumstances and changes in our outlook on the macro environment.
That's helpful. And then related to that, are you able to provide any color on given that the markets have rebounded very strongly here in 4Q, where the portfolio stands or any update there in terms of performance?
Yes. We're not going to do intra quarter updates on performance. You know how that goes with the lawyers. Yes. No.
Fair enough. Just checking given the sharp reversal in sentiment between 3Q and 4Q. I guess my next question is just kind of around the larger portfolio in general. So the non market valued companies, ones where you basically hold 100% of the stake, that portfolio continues to grow. How should we think about that longer term?
I mean, is it in terms of the exit strategies there, is there potentially a better use of the capital where maybe some of the stories there are longer term in terms of the turnaround, so it's better to like get rid of them now and allocate that capital elsewhere? Or how should we be thinking about that?
That? I think the right way to I would refer to historically the way we think about it and I think we've said this, we've been pretty consistent about this is we're potentially buyers and or sellers in any particular one of our segments, right? The way we manage the business we manage the businesses on an ongoing basis with the assumption that we could potentially own it forever and we want to increase value, right? So we take actions and hold management accountable for increasing value of our portfolio companies over the long term. But at some point, markets get hot, multiples get high and you can look over the last 10 or 15 years, we've sold casinos at large profits.
We've sold oil and gas properties at large profits over the years. And when things get cheap, we tend to be buyers. So you saw some things that we obviously think are cheap and you saw some new tuck in acquisitions in mining and our purchase of IEH Auto earlier in the year that we think are on the cheaper side and we're going to work to grow and create value there. But it really just depends. What we're focused on though in the short term is making each portfolio company, making the appropriate investments and it could be acquisitions as well to ultimately increase the long term value.
But it wouldn't surprise me if you looked at it 5 years from now, you'd see a bunch of few of these segments may not be there and you'd probably see a few new segments.
Thank you. And that's helpful. And then maybe one other question. You guys continue to maintain a healthy dividend yield. How should we be thinking about that, maybe a little bit longer term in terms of is it primarily driven by kind of what's going on in your high cash flow businesses, meaning like the energy business and stuff?
Because the $1.50 per quarter, while it provides a fantastic yield, it's been stable now for almost 2 years now.
Yes. I think the way we so I'd say 2 things. We listen to our investors and they've made it crystal clear that dividend is important to them. And we've made a concerted effort over the past. I think we originally really started increasing the dividend about 3 years ago to maintain that dividend and grow it over time.
However, in this market environment, so we've certainly maintained that dividend as far as and our hope is to grow it over time. So but that's going to be a correlation of performance on the underlying businesses and particularly the investment segment, which is going to drive a lot of the liquidity in the overall portfolio. But as far as sustainability, we think it's very sustainable. We have significant cash outflows from a number of portfolio companies such as CVR Energy, ARI and our real estate segment. And so the dividend is important and we hope to grow it, which will be performance based.
Thank you. That's it for me. Okay. Thanks,
Our next question is from John Preitler of RH Capital. Your question please.
I just wanted to understand where you're going to commit. What platforms do you think will attract the most capital for you guys? I know you've been putting money in automotive and energy. Are those 2 most likely candidates in the future? Or is there another existing segment where you could see that expanding materially?
I would well, I would say that the first comment I would make is that we do endeavor to maintain each operating portfolio with its own standalone capital structure. And whether it be access to the capital markets through debt, bond, bank offerings, that type of stuff. So each company we do endeavor to have their own capital structure. But as far as we obviously have a lot of capital at the parent level. And if for some reason they needed more capital for the right opportunity, I think we'd be willing to commit it.
I would tell you that we honestly are looking at I mean, we're looking at potential acquisitions in 4 or 5 different segments because we think they can create value in long term. And so I don't think right now we're in a position where I suppose it's an embarrassment of riches in the sense that we don't we have enough capital to support all the segments and we haven't been pushed to make the decision of this opportunity or that opportunity. If they're both very compelling high double digit return profiles, we've been lucky enough to be able to do both. So, I think all we're very active in a number of the segments. So I don't think it's hard for me to say which one will ultimately lead to the most capital allocated to it.
Are those acquisitions that you're looking at, would those be more bolt on or materially
large?
I mean it's a little bit of a hybrid. The acquisitions we're looking at are all bolt on into bolt on with respect to various segments that we're already in, but some of them could be material bolt ons, if that makes sense.
Sure. Also did you at quarter over quarter Q3 versus Q2, did you guys increase the short exposure in the I think you have the notional or you have the S and P and the credit default swaps?
Yes. We increased our net short position quarter over
quarter. That's all I have. Thank you. Okay. Thanks.
I currently have no more questions in queue.
Okay. Thanks everybody. We'll be talking to you early next year for the full year results.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Good day.