Icahn Enterprises L.P. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Icahn Enterprises is a diversified holding company with Investment, Energy, Automotive, Food Packaging, Real Estate, Home Fashion and Pharma businesses. Figures are unaudited and in U.S. dollars; financial statement amounts are in millions except per-unit data.
Financial performance and condition
- Q2 revenue: Net sales were $2.684 billion, down 29% from $3.796 billion. Total reported revenues, which include investment activity, were $2.540 billion versus $3.503 billion; the quarter included a $500 million net investment loss.
- Q2 earnings: Net loss attributable to Icahn Enterprises was $269 million, compared with a $128 million loss a year earlier. Loss per limited partner unit was $0.72 versus $0.41.
- First-half results: Net sales were $5.442 billion versus $6.764 billion. Total reported revenues were $5.181 billion versus $7.596 billion. Net loss attributable to Icahn Enterprises was $539 million, compared with net income of $195 million; loss per unit was $1.46 versus income of $0.64.
- Operating segments: Q2 Energy net sales fell to $2.237 billion from $3.144 billion; gross margin was $247 million (11% of sales), down from $429 million (14%). Automotive revenue was $412 million versus $608 million, primarily reflecting Auto Plus deconsolidation; gross margin was 24% versus 31%. For the first half, Food Packaging and Pharma reported higher sales and gross margins as a percentage of sales, while Home Fashion sales declined.
- Cash flow: First-half operating cash flow was $1.977 billion versus $2.629 billion; investing cash use was $156 million versus $69 million, and financing cash use was $1.621 billion versus $333 million. Cash, cash equivalents and restricted cash totaled $5.086 billion at period end, compared with $6.669 billion a year earlier.
- Debt and liquidity: Consolidated debt was $7.078 billion, little changed from $7.096 billion at year-end 2022. Holding Company cash was approximately $1.6 billion against $5.3 billion of Holding Company debt. The company reported $316 million of available revolving credit capacity at operating subsidiaries. Much of reported cash and restricted cash is not freely available for general liquidity needs, including cash pledged for investment margin requirements.
- Balance sheet: Total assets were $22.214 billion, down from $27.914 billion at December 31, 2022; total equity declined to $7.187 billion from $9.558 billion. Investment balances and securities sold short also decreased substantially.
Material changes versus comparable periods
- Investment Funds returned negative 5.4% in Q2 and negative 9.3% in the first half, versus negative 4.8% and positive 4.3%, respectively, in 2022. First-half investment results shifted to a $943 million net loss from a $497 million gain, with losses particularly affected by short positions and broad-market hedges.
- Lower crude and refined-product prices, reduced refinery volumes during a planned outage, and lower fertilizer prices contributed to Energy’s lower sales. Lower crack spreads weighed on Energy’s Q2 gross margin percentage.
- Auto Plus filed for Chapter 11 on January 31, 2023 and was deconsolidated that day. The company recorded a $246 million non-cash deconsolidation loss and a $116 million credit loss on its related-party note; it estimated $82 million would be collected. Auto Plus asset sales were approved, and its liquidation plan had not yet become effective as of the filing.
- Icahn Enterprises issued 3.4 million units through its at-the-market program in the first half, raising $175 million. Unit distributions declared for the first two quarters totaled $4.00 per unit, payable in cash or additional units at the holder’s election; 36.5 million units were distributed to holders electing units. Units outstanding rose to 393.5 million from 353.6 million at year-end.
Outlook, risks and unusual items
- No consolidated earnings or revenue guidance is provided. Management reported no material change to planned 2023 capital expenditures from the estimate in its 2022 Form 10-K. CVR Energy ended its review of a possible nitrogen fertilizer business spin-off and will not pursue it at this time.
- Management cited volatility in investment returns, commodity prices, refining margins, fertilizer demand, RIN costs, interest rates, supply chains and labor availability. Energy markets may also be affected by the Russia-Ukraine conflict and refinery outages.
- CVR Energy’s RFS obligations remain a material uncertainty. The balance-sheet RFS position was $599 million at June 30, 2023. First-half compliance expenses were $37 million versus $241 million in 2022. Adverse outcomes in ongoing RFS challenges could materially affect Energy results, cash flows or financial position.
- Other contingencies include Clean Air Act proceedings and insurance-coverage litigation involving CVR Energy. A significant Real Estate tenant defaulted and its lease was terminated; the company concluded no impairment was required.
- The company said the U.S. Attorney’s Office for the Southern District of New York and SEC Enforcement staff requested information on corporate governance, capitalization, offerings, disclosures, dividends, valuation and related matters. Two putative securities class actions were filed. The company is cooperating and stated it did not then expect a material impact, while noting outcomes are uncertain.
- Mr. Icahn and affiliates held approximately 85% of units and had pledged 320 million units and about $2 billion of Investment Fund interests as of July 10, 2023. The filing describes potential effects on unit price, fund liquidity and the partnership if pledged assets are sold or fund withdrawals occur. It also identifies risks related to partnership tax status and compliance with the Investment Company Act.
- On August 2, 2023, the general partner declared a subsequent $1.00-per-unit quarterly distribution, payable in cash or units at the holder’s election. The company also authorized potential repurchases of up to $500 million of notes and $500 million of units; none had occurred by June 30.
Important facts for investors to verify
- Review the Investment Funds’ positions, exposure, collateral and performance sensitivity; the filing estimates a 10% adverse fair-value change could negatively affect securities owned, securities sold short and derivatives by approximately $482 million, $337 million and $880 million, respectively.
- Assess Holding Company cash availability against its $5.3 billion debt, upcoming maturities—including $1.102 billion of notes due in 2024—and the restrictions on subsidiary transfers and distributions.
- Track Auto Plus liquidation, recovery on the $82 million note receivable and continuing effects of deconsolidation on Automotive sales and results.
- Monitor RFS liabilities and litigation, Clean Air Act settlement discussions, and the SEC and U.S. Attorney information requests and class actions.
- Verify future distribution amounts and cash-versus-unit elections, unit dilution, and the potential liquidity implications of Mr. Icahn’s pledged holdings and Investment Fund redemptions.