Icahn Enterprises L.P. — Q3 2022 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and nine months ended September 30, 2022. Icahn Enterprises is a diversified holding company with Investment, Energy, Automotive, Food Packaging, Real Estate, Home Fashion and Pharma businesses. The Metals business was sold in December 2021. Carl Icahn and affiliates owned approximately 86% of the outstanding units at quarter-end.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenues | $3.404 billion | $2.649 billion | $11.000 billion | $9.023 billion |
| Net income (loss) | $(215) million | $(211) million | $383 million | $326 million |
| Net income (loss) attributable to Icahn Enterprises | $(123) million | $(148) million | $72 million | $(122) million |
| Basic and diluted earnings (loss) per unit | $(0.37) | $(0.55) | $0.23 | $(0.47) |
| Operating cash flow | Not separately stated for the quarter | Not separately stated for the quarter | $3.340 billion | $66 million |
- Revenue and earnings: Q3 net sales were $3.334 billion, up from $2.657 billion. Total revenues also include investment results: investment activities recorded a $187 million loss in Q3 2022 versus a $177 million loss in Q3 2021. For the nine months, investment activities produced a $310 million gain, down from $1.035 billion.
- Margins and segments: Energy gross margin was $130 million, or 5% of net sales, in Q3, versus $197 million, or 10%, a year earlier. For the nine months, Energy gross margin was $809 million, or 10%, compared with $107 million, or 2%. Automotive gross margin was $169 million in Q3 and $516 million for the nine months. The filing does not provide a single comparable consolidated operating-margin measure.
- Cash flow: Nine-month operating cash flow rose to $3.340 billion from $66 million, with investment-securities transactions an important component. Investing activities used $171 million; financing activities used $403 million. Capital expenditures were $254 million, with a further $74 million of turnaround expenditures.
- Balance sheet and debt: At September 30, total assets were $27.520 billion, total liabilities $17.653 billion and total equity $9.867 billion. Debt was $7.127 billion, down from $7.692 billion at December 31, 2021; its estimated fair value was $6.4 billion. Cash and cash equivalents were $2.432 billion. An additional $4.778 billion was classified as cash held at affiliated partnerships and restricted cash; much of this is not generally available for company liquidity.
- Liquidity: The Holding Company reported approximately $1.7 billion of cash and $5.3 billion of debt. Operating subsidiaries had $740 million of cash and $291 million of reported revolving-facility availability, subject to facility terms and borrowing conditions. The Investment Funds held $3.640 billion in cash that the filing says is not available for general Icahn Enterprises or Investment segment liquidity.
Material changes versus the prior comparable period
- Higher energy prices drove Energy net sales up 43% in Q3 and 60% for the nine months, but higher crude costs and RIN expenses reduced Q3 Energy gross margin. Nine-month Energy profitability improved substantially from the prior-year period.
- Investment Funds returned negative 1.9% in Q3 2022, compared with negative 1.8% in Q3 2021; nine-month returns were positive 2.4%, versus positive 8.8%. Nine-month 2022 investment gains were supported by short positions but offset by losses in certain long positions.
- Automotive Q3 revenue increased 4%, reflecting growth in services, while aftermarket-parts sales declined. Nine-month Automotive revenue decreased 3%, primarily reflecting store closures and lower parts sales.
- Interest expense fell to $139 million in Q3 from $158 million and to $424 million for the nine months from $511 million. Icahn Enterprises redeemed $500 million of 6.750% notes in February 2022; management cited approximately $34 million in expected annual interest savings.
- Depositary units outstanding increased to 337.5 million from 293.4 million at year-end 2021. The partnership sold 10.7 million units through its at-the-market program for $557 million gross proceeds during the nine months. Quarterly distributions declared were $2.00 per unit, with a cash-or-units election.
Outlook, commentary, risks and contingencies
- The filing gives no quantified consolidated earnings or revenue guidance. Management said planned 2022 capital expenditures had not materially changed from the prior annual report.
- Management highlighted inflation, supply-chain constraints, labor availability, higher interest rates, commodity volatility and the Russia-Ukraine conflict as factors that may affect costs, demand and results. COVID-19 effects and a potential global recession also remain risks.
- Energy faces volatile refining margins, crude and product prices, fertilizer markets, and Renewable Fuel Standard obligations. RFS expense was $86 million in Q3 2022 and $328 million for the nine months. The related RFS position was $715 million at September 30, 2022, versus $494 million at year-end 2021. The company is pursuing litigation challenging certain EPA actions; adverse outcomes could materially affect Energy results or cash flows.
- CVR Refining’s environmental and air-emissions proceedings remain unresolved. The filing says the outcome and potential financial impact cannot currently be determined. Environmental liabilities were $24 million consolidated, including $23 million in Energy.
- A proposed $79 million settlement of CVR Energy-related call-option litigation was pending court approval; the estimated probable loss was recorded in the nine-month results. Related insurance disputes were ongoing.
- Controlled-group pension rules may make Icahn Enterprises responsible for certain affiliate pension obligations. The Viskase and ACF plans were estimated to be underfunded by an aggregate $44 million if voluntarily terminated; an affiliate indemnity is not assured of funding.
- Management cited potential investment losses and liquidity effects from market movements, derivatives, short positions and collateral requirements. The filing also identifies the risk of inadvertently becoming an investment company under the Investment Company Act.
- A $2.00-per-unit distribution was declared on November 2, 2022, payable in cash or additional units based on the holder’s election; holders who do not elect are deemed to choose units.
Important facts for investors to verify
- Review the quality and availability of reported cash, particularly restricted cash and funds held by consolidated affiliated partnerships, against upcoming Holding Company debt service and distributions.
- Assess the sustainability of Energy earnings amid changing refining margins, crude prices, RIN costs, and the $715 million RFS position; follow the EPA and environmental proceedings.
- Examine Investment segment exposures and sensitivity: the funds reported 66% long and 120% short exposure, and the filing estimates material fair-value effects from adverse market moves.
- Track unit issuance, the remaining $128 million of at-the-market capacity, and the proportion of future distributions paid in units, including potential dilution and related-party ownership effects.
- Monitor the pending $79 million litigation settlement, pension-related contingent exposure, and any changes in debt covenants, subsidiary borrowing availability or affiliate cash transfers.