ICAHN ENTERPRISES L.P. quarterly report, Q3 FY2023

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Icahn Enterprises L.P. — Q3 2023 Form 10-Q

Reporting period: Three and nine months ended September 30, 2023. Icahn Enterprises is a diversified holding company with Investment, Energy, Automotive, Food Packaging, Real Estate, Home Fashion and Pharma businesses. Carl Icahn and affiliates held approximately 85% of outstanding units at quarter-end.

Financial performance and condition

  • Q3 revenue: $2.989 billion, down from $3.404 billion. Net sales were $2.991 billion, versus $3.334 billion. The statement’s total revenue also reflects investment losses.
  • Q3 earnings: Consolidated net loss was $30 million, compared with a $215 million loss a year earlier. Loss attributable to Icahn Enterprises was $6 million, or $0.01 per unit, versus a $123 million loss, or $0.37 per unit.
  • Nine-month results: Total revenue was $8.170 billion, versus $11.000 billion. Consolidated net loss was $807 million, compared with net income of $383 million; loss attributable to Icahn Enterprises was $545 million, versus income of $72 million. Loss per unit was $1.47, versus income per unit of $0.23.
  • Investment performance: Investment Funds returned negative 4.4% in Q3 and negative 13.3% for the first nine months, compared with negative 1.9% and positive 2.4%, respectively, in 2022. Nine-month investment activity recorded a $1.275 billion loss, versus a $310 million gain.
  • Operating margins: Energy gross margin was 19% in Q3, up from 5%, and 15% for nine months, up from 10%. Automotive gross margin was 31% in Q3 versus 30%, and 30% year to date versus 31%. Overall consolidated margin is not presented as a comparable measure in the filing.
  • Cash flow: Nine-month operating cash flow was $3.621 billion, versus $3.340 billion; investing cash use was $81 million, and financing cash use was $2.314 billion. Operating cash flow includes substantial investment-securities activity and should not be read as operating-business cash generation alone.
  • Liquidity and debt: September 30 cash and cash equivalents were $2.890 billion; an additional $3.222 billion was held at consolidated affiliated partnerships or restricted. Some of these funds are unavailable for general liquidity. Total debt was $7.075 billion, including $5.308 billion at the holding company. Holding-company cash was approximately $1.8 billion. The $1.102 billion holding-company notes due in September 2024 are a near-term refinancing consideration.
  • Balance sheet: Total assets were $21.757 billion, down from $27.914 billion at year-end 2022; total equity was $6.628 billion, down from $9.558 billion. The company reported $3.801 billion of securities sold, not yet purchased.

Material changes and drivers

  • Energy segment nine-month revenue declined 14% to $7.045 billion, but gross margin increased to $1.081 billion from $809 million. Management cited lower crude oil prices, lower RFS costs and a favorable RIN liability revaluation.
  • Automotive revenue fell 28% year to date, primarily because Auto Plus filed for Chapter 11 and was deconsolidated effective January 31, 2023. The deconsolidation reduced reported activity and resulted in a $246 million noncash loss. A $139 million credit-loss expense was recorded on the related-party Auto Plus note; the remaining net note receivable was $59 million.
  • Icahn Enterprises sold part of its CVR Energy stake for $158 million during Q3, reducing ownership to approximately 66% from 71% at June 30.
  • Unit distributions declared in the first nine months totaled $5.00 per unit. Unitholders could elect cash or additional units; cash distributions to electing holders totaled $190 million. Unit count increased to 410.8 million from 353.6 million at year-end 2022, including units issued for distributions and through the at-the-market program.

Outlook, risks and contingencies

  • The filing gives no consolidated earnings or revenue guidance. Management said planned 2023 capital expenditures had not materially changed from its prior annual report. It was evaluating refinancing or redeeming the 2024 notes; higher interest rates mean refinancing may not be on the same or favorable terms.
  • Management cited potential effects from the Russia/Ukraine and Israel/Hamas conflicts on oil, fertilizer, agriculture and supply chains. Energy results remain exposed to crude prices, refining margins, fertilizer demand and RFS/RIN costs; Automotive, Home Fashion and other businesses face demand, competition and operating risks.
  • Energy’s RFS obligations were valued at $413 million at September 30. Challenges to EPA decisions and RFS requirements remain unresolved; an adverse outcome could materially affect the Energy business. The 45Q agreements also expose CVR Partners to fees of up to $15 million annually, capped at $45 million, for specified supply shortfalls.
  • The company reported U.S. Attorney and SEC staff information requests relating to governance, capitalization, offerings, disclosures, dividends and asset valuation, as well as consolidated securities class actions and a derivative action. The company said it was cooperating and did not then expect a material impact, while noting outcomes are uncertain.
  • Other notable exposures include a potential $35 million aggregate underfunding of certain pension plans if terminated, for which the company may have controlled-group liability; environmental liabilities of $20 million; and litigation concerning Energy insurance coverage and RFS matters. A proposed Clean Air Act settlement remained subject to approval.
  • The company disclosed significant short and derivative exposures in its Investment Funds, and warned that investment-company classification or failure to maintain partnership tax status could have substantial consequences. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting.
  • Subsequent to quarter-end, a $1.00 per-unit distribution was declared, payable in cash or units at the holder’s election. CVR Energy also declared dividends expected to provide Icahn Enterprises approximately $133 million.

Most important facts for investors to verify

  1. The sources, availability and restrictions on reported cash, and the distinction between cash at the holding company and funds held by investment funds or restricted.
  2. The refinancing plan and terms for the $1.102 billion 2024 notes, alongside holding-company debt covenants and subsidiary cash-transfer restrictions.
  3. Investment Funds’ returns, short/derivative exposures, collateral needs and the effects of affiliate redemptions; Mr. Icahn and affiliates redeemed $2.022 billion from the funds during the first nine months.
  4. Auto Plus bankruptcy liquidation, recovery on the $59 million note receivable and the continuing effect of deconsolidation on Automotive results.
  5. Developments in the SEC and U.S. Attorney inquiries, securities and derivative litigation, RFS challenges, and related potential costs or outcomes.
  6. Future distribution policy and dilution: distributions may be paid in units, and the company retains capacity to sell units under its at-the-market agreement.