Business context and reporting period
Icahn Enterprises L.P. is a diversified holding company with Investment, Energy, Automotive, Food Packaging, Real Estate, Home Fashion and Pharma businesses. The unaudited report covers the three months ended March 31, 2022; comparisons are with the first quarter of 2021 unless stated otherwise. Metals was sold in December 2021. Carl Icahn and affiliates owned approximately 87% of outstanding depositary units at quarter-end.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / prior date |
|---|---|---|
| Total revenues | $4.084 billion | $3.384 billion |
| Net sales | $2.968 billion | $2.218 billion |
| Net income | $885 million | $599 million |
| Net income attributable to Icahn Enterprises | $323 million | $162 million |
| Diluted income per LP unit | $1.06 | $0.65 |
| Operating cash flow | $1.920 billion | $(551) million |
| Investing cash flow | $38 million | $116 million |
| Financing cash flow | $(435) million | $214 million |
| Debt at March 31 | $7.126 billion | $7.692 billion at December 31, 2021 |
| Total assets / total equity at March 31 | $27.829 billion / $9.758 billion | $27.746 billion / $9.343 billion at December 31, 2021 |
Investment activity materially shapes consolidated results: reported revenues include $939 million of net investment gains, and Investment segment net income was $895 million. Operating cash flow also reflects substantial securities transactions, so it should not be read as a straightforward measure of recurring operating cash generation. Consolidated gross or operating margin is not presented as a single comparable measure in the filing.
Segment and margin developments
- Investment: Investment Funds returned 9.6%, versus 9.2% in Q1 2021. Long positions gained $1.494 billion and short positions lost $586 million; management attributed much of the long gains to two energy investments, while energy hedges and credit-default swaps weighed on shorts.
- Energy: Revenue rose 62% to $2.373 billion; gross margin improved to $250 million from a loss of $116 million, or 11% of sales versus negative 8%. Higher refined-product prices and crack spreads, fertilizer pricing and lower net RIN costs contributed; increased RFS compliance costs were an offset.
- Automotive: Revenue declined 7% to $554 million and the segment reported a $28 million loss attributable to Icahn Enterprises, improved from a $46 million loss. Store closures and transformation actions reduced parts sales, partly offset by services growth.
- Other businesses: Food Packaging sales were flat, with margin at 20% versus 21%. Home Fashion sales rose 34%, supported by hospitality demand; Pharma sales fell 48%, mainly because Q1 2021 included a one-time customer sale.
Liquidity, debt and distributions
Cash and cash equivalents were $2.160 billion at March 31. A further $3.801 billion was reported as cash held at consolidated affiliated partnerships and restricted cash; $2.084 billion was Investment Funds cash not available for general liquidity needs and $1.717 billion was restricted cash. The Holding Company reported approximately $1.4 billion of cash and $5.3 billion of debt. Subsidiary revolving-facility availability totaled $443 million. The filing reports compliance with debt covenants; based on note indentures, the Holding Company could not incur additional indebtedness except for qualifying refinancing.
In February, the Holding Company redeemed $500 million of 6.75% notes due 2024, and CVR Partners redeemed $65 million of 9.25% notes. Management estimated annual future interest savings of approximately $34 million and $6 million, respectively. A $2.00-per-unit quarterly distribution was declared; the Q1 distribution was recorded as a $603 million liability and was subsequently paid partly in units and partly in cash. A further $2.00 distribution was declared in May, with unitholders able to elect cash or additional units. The Q1 at-the-market offering issued approximately 3.44 million units for $182 million gross proceeds, with up to $145 million of additional gross proceeds available under the agreement at quarter-end.
Outlook, risks and unusual items
The filing provides no quantified consolidated earnings or revenue guidance. Management says results depend heavily on Investment Funds performance and Energy product demand and pricing; past Investment Funds returns are not indicative of future results. It describes a multi-year Automotive transformation plan and renewable-diesel projects intended, among other aims, to reduce Energy’s RFS exposure.
- Management identifies economic volatility, inflation, higher input and freight costs, labor and supply-chain constraints, the Russia/Ukraine conflict, COVID-19 effects, commodity-price and refining-margin volatility, and market movements as risks.
- CVR Refining faces Clean Air Act and consent-decree proceedings. A court denied review of approximately $6.8 million in stipulated claims; statutory claims remained pending. The company was evaluating appeal options.
- RFS compliance expense was $107 million in Q1 2022. The reported RFS position liability rose to $585 million from $494 million at year-end. EPA decisions on refinery exemptions and related litigation could materially affect Energy results.
- CVR Refining is defending Delaware litigation related to a call option; plaintiffs alleged damages exceeding $300 million. No ruling had been issued, and the outcome could materially affect Energy.
- Controlled-group pension exposure includes approximately $90 million of aggregate underfunding if the Viskase and ACF plans were voluntarily terminated. Starfire has provided an indemnity, but the filing cautions it may not be able to fund its obligations.
- Icahn Enterprises notes the risk that asset-value changes or transactions could cause it to be deemed an investment company, requiring steps to avoid registration. It also flags cybersecurity, counterparty, derivative and liquidity risks.
Important facts for investors to verify
- How much of earnings and cash flow is repeatable operating performance versus investment gains and securities-related cash movements.
- Investment Funds’ exposures, collateral needs and sensitivity to adverse market movements; the filing estimates a 10% adverse fair-value change could negatively affect securities owned, securities sold short and derivatives by approximately $728 million, $478 million and $1.007 billion, respectively, before considering Icahn Enterprises’ share of Fund results.
- The outcome and potential financial effect of the RFS matters, environmental claims and CVR Refining litigation, including the $585 million RFS liability.
- Holding Company liquidity, debt maturities, covenant capacity and the extent to which subsidiary cash can be transferred upstream.
- Distribution funding and dilution: the declared $2.00-per-unit distribution permits payment in additional units, and further ATM unit sales remained authorized.
- Related-party governance and portfolio-management arrangements, including the May 5 amendment permitting separately tracked additional portfolios not subject to the existing manager agreement.