Q4 2023 Icahn Enterprises LP Earnings Call

Participants

Jesse Lynn; General Counsel; Icahn Enterprises LP

Andrew Teno; President & CEO; Icahn Enterprises LP

Ted Papapostolou; Chief Accounting Officer; Icahn Enterprises LP

Dan Fannon; Analyst; Jefferies & Company Inc.

Bruce Monrad; Analyst; Northeast Investors Trust

Presentation

Operator

Good morning, and welcome to the Icahn Enterprises LP fourth-quarter 2023 earnings conference call with Jesse Lynn, General Counsel; Andrew Teno, President and Chief Executive Officer; Ted Papapostolou, Chief Financial Officer; and Robert Flint, Chief Accounting Officer.
I would now like to hand the conference over to Jesse Lynn, who will read the opening statement.

Jesse Lynn

Thank you, operator.
The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for forward-looking statements. We make of 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 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. 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 kept as otherwise required by law.
This presentation also includes certain non-GAAP financial measures, including adjusted EBITDA, a reconciliation of such non-GAAP financial measures can be found in event's presentation. We also present indicative net asset value. Indicative net asset value includes among other things, changes in the fair value of certain subsidiaries, which are not included our GAAP earnings. All net income and EBITDA amounts, we will discuss our attributable to Icahn Enterprises unless otherwise specified.
I'll now turn it over to Andrew Teno, our Chief Executive Officer.

Andrew Teno

Thank you, Jesse. Let me first say, I am honored to take on my new role as CEO. Karl, IEP, and our activism strategy have established an important place in corporate America, and I'm excited to get to work. So today, I'll provide a brief overview of Q4 results and then we will be available for questions.
The fourth-quarter net loss was $139 million, an improvement of $116 million over Q4 '22. Fourth quarter adjusted EBITDA was $9 million, an increase of $84 million compared to Q4 '22 . Our controlled operating companies have performed well. CBI has benefited from strong crack spreads, good operating utilization, reduced rent costs, and it has authorized a $0.50 dividend per share.
Our automotive segment has posted strong year-over-year performance. David Willis is now leading the day-to-day operations at Pep Boys, and we see the potential for significant long-term value creation, both through margin improvement and reinvigorating the top line.
In the investment segment this quarter, the funds had a negative return of 4.1%, primarily driven by broad market shorts. Our headline net short exposure of 36% is approximately 6% we adjust for the energy hedge s. This compares to approximately 34% as of the prior year end excluding the energy hedges. The indicative net asset value ended the quarter at $4.8 billion.
Additionally, the Board approved a $1 quarterly distribution per depository unit, which is consistent with the last quarter.
With that, let me turn it over to Ted for a detailed discussion of all of our segments.

Ted Papapostolou

Thank you, Andrew. I'll begin by reviewing the performance of our segments and comment on the strength of our balance sheet.
Turning to our investment segment, the funds had a negative return of 4.1% for the quarter. Long and other positions had a positive performance attribution of 2.4%, while short positions had a negative performance attribution of 6.5%. During the quarter, the segment made a pro rata distribution of $400 million, of which the holding company received its portion of $242 million.
The holindg company's interest in the funds was approximately $3.2 billion as of quarter end.
Turning to our energy segment. In Q4 '23, adjusted EBITDA was $120 million as compared to $168 million in Q4 '22. Q4 '23 refining margin per throughput barrel was $15.1 compared to $17.14 in the prior year quarter. This decrease was driven by weaker crack spreads and unfavorable inventory valuations that were offset in part by favorable derivative and related impacts.
Q4 '23 average realized gate prices for UAN decreased by 47% to $241 per ton, and ammonia decreased by 52% to $461 per ton when compared to the prior year quarter. CVI declared a fourth quarter cash dividend of $0.50 per share.
Now to our automotive segment. As we previously discussed, the segment has undergone significant change due to the deconsolidation of Auto Plus in January of '23. The segment results throughout '23 are made up primarily of automotive service operations as compared to '22, which also included the aftermarket piece parts operations of Auto Plus.
Q4 '23, automotive service revenues were down $15 million compared to Q4 '22, driven by store closures and lower car count. Adjusted EBITDA was $28 million for the quarter, a $71 million improvement as compared to Q4 '22, mainly due to the exit of the Auto Plus aftermarket parts business.
Now turning to our real estate segment. Q4 '23 net sales and other revenues increased by $8 million and adjusted EBITDA increased by $3 million compared to the prior year quarter, primarily driven by the sale of single-family homes.
Now onto our other operating segments. Food packaging's adjusted EBITDA was flat for Q4 '23 as compared to the prior year. Quarter-over-quarter comparison was positively impacted by pricing initiatives and lower distribution costs, which was offset by lower sales volume.
Home fashion's adjusted EBITDA increased by $6 million as compared to the prior year quarter, primarily due to lower raw material and freight costs. The pharma segment's adjusted EBITDA for Q4 '23 improved by $3 million as compared to the prior year quarter, mainly due to increased sales volume along with margin improvement.
Now turning to our liquidity. During December, IEP issued $700 million of [9.25%] senior unsecured notes due 2029. The net proceeds from this issuance, together with $376 million of cash on hand was used to say (technical difficulty)
We maintain liquidity at the holding company and at each of our operating subsidiaries to take advantage of attractive opportunities. As of year end, the holding company had cash and investment in the funds of $4.8 billion, and our subsidiaries had cash and revolver availability of $1.7 billion.
In summary, we continue to focus on building asset value and maintaining liquidity to enable us to capitalize on our opportunities within and outside our existing operating segments.
Thank you. Operator, can you please open the call up for questions?

Question and Answer Session

Operator

Thank you. (Operator Instructions) Dan Fannon, Jefferies.

Dan Fannon

Thanks. Good morning. Andrew, I was hoping to get your thoughts on the auto business. And I know that putting David there was a change. But I guess what -- as you think about 2024, what are you guys doing differently or what are you expecting in terms of improvement as you think about that business?
Over the next kind of 12 months?

Andrew Teno

We don't really look at it on a 12-month basis. I would just say longer term, if you look at the company, if you look at its margins, and you compare it to its peers, we think there's a lot more upside. So Dave, as the person to lead that effort. And so that's why [Terry] is excited about it. And so are we.

Dan Fannon

So I guess just in the context, I mean, is there anything different you guys are doing that you guys did a lot last year proactively to change the business now? Is it more of continuing to let that play out in the [Beacon Alec] backdrop improving? Or I guess what else should we think about it in terms of driving that improvement, I guess on a multiyear basis, not even just next-- or this year?

Andrew Teno

So last year, you had the deconsolidation that required a lot of effort. And this year is about focusing on Pep Boy's business and the years to come.

Dan Fannon

Okay. That's not really giving me. BuI guess then on the fund guide, the performance of the funds sounds very similar or has been very similar despite -- positioning similar despite what was characterized as a change in strategy a few quarters ago. So given your closeness to it, I was hoping maybe to get a little bit more color as you think about what really changed in terms of how you're thinking about managing the overall portfolio? And if we should think about, again, prospectively, how if there's anything different to and or what you are positioning and or changing within the portfolio to obviously generate in a different more positive returns?

Andrew Teno

Yes. I think the first thing you said it was about the call at the overall net short exposure. So if you look at year end '22 and you looked at our exposure, I think the headline net short was 47%. And if you adjusted that further refining hedges and energy hedges, you'd be done to minus 34%.
Now if you compare that to today, our exposure call it is mid-single digits negative when you exclude our energy hedges. And so we think the the portfolio has changed significantly. And then in terms of what are we going to do going forward, we're going to do exactly what Karl said we would do, which is we'll stick to our netting, we'll focus on activism. And I think more recently, you've seen us announce our involvement in two names, both of which were very excited about. And we think the portfolios in very good shape for the future value.

Dan Fannon

Understood. It. Could you give a rough comparison you went into 2022? What was that comparison from last quarter? Net of the energy exposures versus what you did with the low single digits today and a lot of the end of the year?

Andrew Teno

Yes. So it's down a little bit of probably another 5% up from what it was at [930]. Another question you asked on their employers. We're focusing on the names that we like best.

Dan Fannon

Understood. Thanks for taking my questions. Thank you.

Operator

Bruce Monrad, Northeast Investors Trust.

Bruce Monrad

Hi, guys. Thanks for hosting the call. A question, if I could, on food packaging. So volumes were down year over year, I guess could you add a little more color on that? And that was our sales are running fine or their waste issues on the other geographic guys or geographic dimension to it. And then also what is everything from flat at the SG&A line? Or because it's possible that SG&A went up because of accruals because you had such a good start to the year? Anything going on at that line either. Two questions. Thanks.

Ted Papapostolou

Hey, Bruce. It's Ted. Thanks for the question of the book before answering your question. Let me just give more context on the quarter, and I think it will help answer a lot of them.
So volume softened during the quarter and when comparing Q4 '23 to Q4 '22, David actually touched on this in the last call. The new round of Russian saying actions went into effect during '23. So that affected comparability are not all these sanctions were there in '22.
But the more significant reason was our customers have drawn down on their inventories. And this is to bring on to more historical levels and you think can be attributed to the supply chain correcting are actually improving as compared to recent years when supply chain issues arise, you can imagine your raw material inventory levels tend to creep up just to ensure operations.
And we knew this correction was coming, but it's very hard to time, and it looks like it happened. The majority of that happened in Q4. And although it affected demand in Q4, we don't think that's sustainable. And once the rebalance finishes, the demand will come back.
And just the other part of the equation in terms of EBITDA, it was flat as compared to prior year's quarter because of the pricing initiatives management has taken. And those hotels along with lower distribution costs.
So in a nutshell, that's what's occurring in Q4. SG&A levels as you did the job of maintaining out. But the story there is the volume softening.

Bruce Monrad

Okay. I mean, has that continued uncertainty to say for 1Q? And by the way, this is consistent with what the scope and would have said in your 3Q numbers about destocking. Is it pretty much run its course?

Ted Papapostolou

Yeah. We think it's going to come back, but we'll talk about Q1 in about two months only when we release Q1's earnings. But yeah, we don't think the demand destruction is sustainable.

Bruce Monrad

Okay. Thank you. Appreciate it.

Operator

Thank you. I'm currently showing no further questions at this time. I'd like to hand the conference back over to Mr. Andrew Teno for closing remarks.

Andrew Teno

Thanks, everyone, for joining the call today, and we'll speak to in a few months.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.