Icahn Enterprises L.P. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Icahn Enterprises is a diversified holding company with Investment, Energy, Automotive, Food Packaging, Real Estate, Home Fashion and Pharma businesses. Figures below are in millions of dollars unless otherwise stated.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / prior period |
|---|---|---|
| Net sales | $2,758 | $2,968 |
| Total reported revenues | $2,641 | $4,093 |
| Net income (loss) attributable to Icahn Enterprises | $(270) | $323 |
| Basic loss (income) per LP unit | $(0.75) | $1.08 |
| Cash provided by operating activities | $247 | $1,920 |
| Interest expense | $142 | $134 |
- Total reported revenues include investment gains and losses: investment activities recorded a $443 loss in Q1 2023 versus a $939 gain in Q1 2022. This was a major driver of the year-over-year earnings decline.
- At March 31, 2023, total assets were $26,269, total liabilities $17,773 and total equity $8,496. Debt was $7,091, nearly unchanged from $7,096 at year-end 2022; holding-company notes accounted for $5,309.
- Cash and cash equivalents were $2,608; an additional $2,481 was cash held at consolidated affiliated partnerships and restricted cash. The filing says Investment Funds cash is not available for general liquidity needs. Holding Company cash was approximately $1,868, with $5,309 of debt.
- Energy gross margin increased to $360 from $250; gross margin as a percentage of net sales rose to 16% from 11%. Automotive gross margin fell to $103 from $170, with margin percentage down to 23% from 31%.
- Consolidated cash from operations declined to $247 from $1,920. Investing activities used $45; financing activities provided $1. Capital expenditures were $58.
Material changes and significant items
- Investment Funds returned negative 4.1% versus positive 9.6% in Q1 2022. Short positions drove the current-period loss, partly offset by gains in long positions.
- Auto Plus filed for Chapter 11 on January 31, 2023, and Icahn Enterprises deconsolidated it. The company recorded a $226 non-cash loss; Auto Plus aftermarket-parts sales were a key factor in Automotive revenue falling 20% to $441.
- Icahn Enterprises sold 3.4 million depositary units through its at-the-market program for $175 gross proceeds in Q1; up to a further $149 million could be sold under the existing authorization.
- A $2.00-per-unit distribution was declared for Q1, with unitholders able to elect cash or units. In April, $70 million was paid to cash-electing holders and 12.2 million units were distributed to others. A further $2.00-per-unit distribution was declared in May for payment around June 30, 2023.
- On May 9, the board authorized repurchases of up to $500 million of senior notes and up to $500 million of depositary units; the authorization is discretionary and has no fixed expiry.
Outlook, risks and contingencies
- CVR Energy is exploring a potential spin-off of its nitrogen fertilizer business; completion is uncertain and subject to board approval and other conditions. The Energy segment also expects renewable-diesel pretreatment work to be completed in Q3 2023 at an estimated cost of $92 million.
- Energy results remain exposed to refining margins, crude and product prices, fertilizer markets, RIN costs and regulatory outcomes. The filing reports ongoing Clean Air Act and Renewable Fuel Standard proceedings; adverse outcomes could materially affect the business.
- A significant Real Estate tenant defaulted and its lease was terminated after quarter-end. The property had a $218 million net book value; potential impairment is under assessment and cannot yet be estimated.
- The U.S. Attorney’s Office for the Southern District of New York requested information on May 3 concerning the company and certain affiliates. The filing says the company is cooperating and that no claims or allegations had been made, while noting the matter remains under evaluation.
- Mr. Icahn and affiliates held approximately 84% of outstanding units and had pledged 202.6 million units as of May 8. The filing warns that a forced sale or margin call could pressure the unit price. It also describes recent volatility following a short-seller report.
- Other risks include the potential for the partnership to lose its tax status or become subject to Investment Company Act registration; pension obligations within the Icahn-controlled group; and Auto Plus bankruptcy and related-party exposure. At March 31, the company reported a $189 million related-party note receivable from Auto Plus, including $18 million funded under a debtor-in-possession facility.
- Management gave no consolidated earnings guidance in the supplied filing text. It stated that planned capital expenditures had not materially changed from the 2022 Form 10-K estimate.
Key facts investors should verify
- Investment Funds’ performance, short exposures and liquidity effects, including the April $867 million redemption by Mr. Icahn and affiliates; the filing says it did not change the Investment segment’s liquidity.
- Auto Plus asset-sale proceeds, bankruptcy recoveries and collectability of the related-party note and DIP financing.
- Developments in the federal inquiry, short-seller-related matters, pledged-unit arrangements and associated market volatility.
- Potential impairment of the $218 million Real Estate property and outcomes of Energy environmental and RFS proceedings.
- Whether the proposed fertilizer spin-off proceeds, and the cash-versus-unit mix and dilution associated with distributions and any future unit issuance.