Icahn Enterprises L.P. — Q2 2021 Form 10-Q
Business context and reporting period. Unaudited results cover the three and six months ended June 30, 2021, compared with the same 2020 periods. Icahn Enterprises is a diversified holding company with Investment, Energy, Automotive, Food Packaging, Metals, Real Estate, Home Fashion and Pharma businesses. Its subsidiary, Icahn Enterprises Holdings, owns substantially all assets and conducts substantially all operations; the two registrants’ results are substantially the same.
Financial results and key metrics
| Metric ($ millions, except per-unit data) | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenues | 2,988 | 2,709 | 6,372 | 2,649 |
| Net sales | 2,612 | 1,326 | 4,830 | 3,187 |
| Net gain (loss) from investment activities | 206 | 1,235 | 1,212 | (893) |
| Net income (loss) | (62) | 864 | 537 | (1,442) |
| Net income (loss) attributable to Icahn Enterprises | (136) | 299 | 26 | (1,085) |
| Basic and diluted income (loss) per LP unit | (0.53) | 1.36 | 0.10 | (4.97) |
- Margins and segment performance: Energy reported Q2 gross margin of $26 million, or 1% of net sales, versus $30 million, or 4%, a year earlier. Automotive gross margin was $176 million (28%) versus $153 million (26%). For the first half, Energy recorded a gross loss of $90 million versus $88 million; Automotive gross margin increased to $349 million from $313 million.
- Cash flow: First-half operating cash flow was negative $364 million, compared with negative $1.138 billion in 2020. Investing activities provided $246 million, versus using $506 million; financing activities provided $284 million, versus using $532 million. Cash, cash equivalents and restricted cash totaled $3.463 billion at June 30, 2021, up from $3.291 billion at year-end.
- Liquidity: Balance-sheet cash and cash equivalents were $2.194 billion; a further $1.269 billion was held at consolidated affiliated partnerships or restricted. Of that latter balance, $223 million was held by Investment Funds and unavailable for general liquidity, while $1.046 billion was restricted, primarily for derivative margin requirements. The company reported $579 million of additional borrowing availability under certain subsidiary revolving facilities.
- Debt and balance sheet: Total debt was $8.065 billion, essentially unchanged from $8.059 billion at December 31, 2020. Total assets were $27.901 billion and total liabilities $17.876 billion; total equity was $10.025 billion. Holding Company debt was $5.811 billion and reporting-segment debt was $2.254 billion.
- Distributions and units: The partnership declared $4.00 per unit for the first half; holders could elect cash or additional units. Cash distributions to electing holders totaled $56 million. Units outstanding increased from 241.3 million at year-end to 264.5 million at June 30. The 2021 at-the-market program generated $384 million of gross proceeds through June 30, with up to $16 million remaining under its $400 million authorization.
Material changes versus the prior comparable periods
- Q2 moved from $299 million of net income attributable to Icahn Enterprises in 2020 to a $136 million loss. The investment-activity gain fell to $206 million from $1.235 billion, a major driver of the comparison.
- First-half attributable results improved to $26 million of income from a $1.085 billion loss in 2020, as investment activities swung to a $1.212 billion gain from an $893 million loss.
- Net sales increased, especially in Energy: Q2 Energy sales rose to $1.783 billion from $675 million, reflecting higher volumes and more favorable pricing as fuel demand recovered. However, the segment’s gross margin declined as increased crude costs, RIN expense and weaker derivative performance offset improved crack spreads.
- Automotive Q2 combined net sales and other operating revenue rose 9% to $637 million, primarily from higher service revenue; aftermarket-parts sales fell 6%, partly reflecting store closures under its transformation plan.
- Investment Funds returned 1.4% in Q2 2021, versus 11.7% in Q2 2020; first-half returns were 10.8% versus negative 7.9%. First-half 2021 gains on long positions were partly offset by losses on short positions.
- The company refinanced 2022 notes: it issued $750 million of 4.375% notes due 2029 and $455 million of additional 5.250% notes due 2027, using proceeds to redeem the remaining 6.250% notes due 2022. CVR Partners also issued $550 million of 6.125% secured notes due 2028 to partially redeem higher-coupon 2023 notes.
Outlook, management commentary, risks and contingencies
- Management said economic conditions improved in 2021 as restrictions eased and businesses resumed operations, while noting ongoing COVID-19 uncertainty and its potential effects on markets and operating segments. No consolidated earnings or revenue guidance is provided in the supplied filing text.
- Energy remains exposed to crude and refined-product prices, demand, refining margins and volatile RIN costs. RFS compliance expense was $351 million in the first half, versus $35 million in 2020; the recorded RFS position was $485 million at June 30, up from $214 million at year-end. The planned renewable-diesel project is intended to help reduce RFS exposure, but management cautioned that regulatory and market outcomes could limit the benefit.
- Automotive is executing a multi-year restructuring and transformation plan, including store closures, market exits and operational changes; related restructuring costs may be significant. Home Fashion cited higher material and freight costs, and Food Packaging cited manufacturing and distribution cost pressure.
- Investment results are sensitive to market movements, portfolio positioning and short exposure. At June 30, Investment Funds had 108% long and 103% short notional exposure relative to net asset value. Securities sold, not yet purchased, were $4.231 billion, versus $2.521 billion at year-end.
- The company disclosed a pending CVR Refining environmental matter involving alleged Clean Air Act and related violations; the company said the outcome and potential financial effect could not be determined. It also reported that trial concluded in July 2021 in litigation over CVR Energy’s exercise of a call option; no ruling had been issued and the outcome was uncertain.
- Controlled-group pension rules could make Icahn Enterprises liable for certain pension obligations of affiliated entities. Viskase and ACF plans were estimated to be underfunded by approximately $114 million upon voluntary termination, although minimum funding requirements were met. Starfire indemnified the company for certain liabilities, but may not be able to fund its obligations.
- Management reported compliance with debt covenants. It also cautioned that asset-value changes or transactions could cause the partnership to be classified as an investment company under the Investment Company Act; there is no assurance it could avoid that classification.
Important facts for investors to verify
- Whether investment gains and losses, including the effects of short positions and derivatives, continue to drive substantial earnings volatility.
- Energy’s refining margins and RIN costs, the $485 million RFS position, and the timing, cost and expected economics of renewable-diesel projects.
- Automotive transformation progress, store and asset dispositions, restructuring costs, and whether service growth offsets aftermarket-parts declines.
- Accessible liquidity versus restricted or fund-held cash, subsidiary borrowing availability, debt covenants and the ability to fund Holding Company obligations from subsidiaries.
- Potential dilution from unit-based distributions and the at-the-market offering, and the sustainability and form of future distributions.
- Developments and potential exposure in the CVR environmental and call-option litigation, and changes in controlled-group pension obligations or the Starfire indemnity.