Business Overview and History: Icahn Enterprises L.P. (NASDAQ:IEP) is a diversified holding company with a storied history of activist investing and opportunistic acquisitions. Founded in 1987 by renowned investor Carl Icahn, the company has grown to become a major player in various industries, including investment management, energy, automotive, food packaging, real estate, and home fashion.
Icahn Enterprises was established in 1987 as a master limited partnership in Delaware, with Carl Icahn and his affiliates owning a controlling stake. As of June 30, 2024, Icahn indirectly owns and controls approximately 85% of the company's outstanding depositary units. The company's headquarters are located in Sunny Isles Beach, Florida.
Icahn Enterprises operates through various subsidiaries engaged in investment, energy, automotive, food packaging, real estate, home fashion, and pharmaceutical businesses. The investment segment, which invests Icahn's proprietary capital through private investment funds, has been a core part of the business since the company's inception. Over the years, Icahn Enterprises has utilized various strategies, including activist investing, to generate returns from its investment portfolio.
In the energy sector, Icahn Enterprises gained a majority stake in CVR Energy, Inc. in 2012, which became a significant part of the company's operations. The energy segment has faced challenges over the years, including volatility in commodity prices and regulatory changes, such as the Renewable Fuel Standard.
The automotive segment, which includes the Pep Boys automotive services and parts business, has undergone restructuring and management changes to address operational and competitive challenges. In addition to its core business segments, Icahn Enterprises has made strategic investments and acquisitions in the food packaging, real estate, home fashion, and pharmaceutical industries, further diversifying its operations.
In 2024, Icahn Enterprises faced legal challenges, with the company being contacted by the U.S. Attorney's office and the SEC regarding information requests on corporate governance, capitalization, securities offerings, and other matters. The company is cooperating with these requests. Additionally, two putative securities class action lawsuits have been filed against IEP alleging violations of federal securities laws, and a derivative complaint has been filed alleging breaches of fiduciary duties with respect to IEP's disclosures.
Financial Performance and Ratios: As of the latest 10-Q filing on August 7, 2024, Icahn Enterprises reported annual revenue of $11.85 billion and a net loss of $684 million for the full year 2023. The company's operating cash flow for the year was $3.74 billion, while free cash flow came in at $3.43 billion.
For the most recent quarter (Q3 2024), Icahn Enterprises reported revenue of $2.20 billion, a 14% decrease year-over-year due to lower sales in the Energy and Automotive segments. The company reported a net loss of $486 million, which was primarily attributed to lower results in the Energy segment, impacted by lower refining margins and unplanned downtime. Operating cash flow for the quarter was negative $54 million, and free cash flow was negative $112 million, both decreasing due to lower operating results.
Looking at key financial ratios, Icahn Enterprises has a current ratio of 17.17 and a quick ratio of 15.87, indicating a strong liquidity position. The company's debt-to-equity ratio is 0, suggesting a conservative approach to leverage. Profitability-wise, Icahn Enterprises' gross profit margin was 21.3% in 2023, while its net profit margin stood at -5.8%.
Segment Performance: Icahn Enterprises' diversified business model is reflected in its reporting segments. The Investment segment, which includes the company's proprietary investment funds, was the largest contributor to revenue, generating $4.67 billion in the first six months of 2024. However, this segment also experienced significant volatility, with a net loss of $470 million during the same period. As of June 30, 2024, IEP had investments with a fair market value of approximately $2.90 billion in the Investment Funds. The Investment Funds' returns were 8.1% and 8.8% for the three and six months ended June 30, 2024, respectively.
The Energy segment, led by CVR Energy, generated $3.86 billion in revenue but reported a net loss of $103 million in the first half of 2024. This was largely due to unplanned downtime and lower refining margins at CVR's facilities. For the three months ended June 30, 2024, the Energy segment's net sales decreased by 12% to $1.97 billion, and gross margin decreased to 2% of net sales from 11% in the prior-year period. The petroleum business accounted for approximately 93% of the Energy segment's net sales for the six months ended June 30, 2024.
The Automotive segment, which includes the Pep Boys auto parts and service business, saw revenue decline by 14% to $737 million in the first six months of 2024. The segment reported a net income of $2 million, as the company worked to address operational challenges. For the three months ended June 30, 2024, the Automotive segment's net sales and other revenues decreased by 11% to $368 million, with gross margin as a percentage of net sales and other revenues at 31%.
Icahn Enterprises' other segments, including Food Packaging, Real Estate, Home Fashion, and Pharma, contributed mixed results, with varying degrees of profitability. These segments collectively generated $405 million in net sales and other revenues for the three months ended June 30, 2024, down from $423 million in the prior-year period.
Financials: Icahn Enterprises' financial performance has been mixed in recent years, with significant volatility in its investment segment and challenges in its energy and automotive businesses. The company's revenue streams are diversified across multiple industries, which helps to mitigate some of the risks associated with individual sector performance.
In terms of geographic markets, Icahn Enterprises operates primarily in the United States and does not provide a detailed breakdown of its revenues by region.
Liquidity: Icahn Enterprises maintains a strong liquidity position, as evidenced by its high current ratio of 17.17 and quick ratio of 15.87. This indicates that the company has ample resources to meet its short-term obligations and potentially pursue new investment opportunities. The company's conservative approach to leverage, with a debt-to-equity ratio of 0, further underscores its financial stability.
As of Q3 2024, Icahn Enterprises had $1.6 billion in cash at the holding company level and $800 million in the investment funds. The Energy segment had $301 million available under its revolving credit facilities, while the Food Packaging and Home Fashion segments had $25 million and $4 million available under their respective credit facilities.
Challenges and Opportunities: Icahn Enterprises has faced its fair share of challenges in recent years, including the COVID-19 pandemic's impact on its diverse operations, volatility in the energy and commodity markets, and operational issues within its Automotive segment.
In response, the company has taken steps to streamline its businesses, such as the winding down of its Aftermarket Parts division within Automotive. Additionally, Icahn Enterprises has announced plans to increase its ownership stake in CVR Energy, signaling its belief in the long-term potential of the energy business despite the near-term headwinds.
Looking ahead, the company's vast cash reserves and its history of successful activist campaigns suggest that Icahn Enterprises is well-positioned to identify and capitalize on new investment opportunities. The proposed tender offer for additional CVR Energy shares, coupled with the recent reduction in the company's quarterly distribution from $1 per depositary unit to $0.50 per unit, reflect Icahn Enterprises' focus on prudent capital allocation and long-term value creation.
The company is also exploring potential asset sales, including a 45-acre site in Nashville, Tennessee, which management believes could generate proceeds significantly above the current book value.
Guidance and Future Outlook: Icahn Enterprises has not provided specific numerical guidance for the overall company or its segments going forward. However, CEO Andrew Teno indicated that they believe the automotive services division can eventually achieve EBITDA margins in the high single digits or even double digits, compared to the current low single-digit margins.
In the previous earnings call in May 2024, management had guided for the Food Packaging segment to have higher EBITDA profitability in 2024 compared to 2023. However, in Q3 2024, the Food Packaging segment's adjusted EBITDA decreased by $6 million compared to the prior year quarter, attributed to a shift in product mix towards lower margin products and lower pricing, despite increased volumes.
Conclusion: Icahn Enterprises, under the leadership of its renowned founder Carl Icahn, has navigated a diverse array of industries and market conditions over its three-decade history. While the company has faced its fair share of challenges, including recent legal and regulatory scrutiny, its commitment to activist investing and opportunistic acquisitions has allowed it to adapt and evolve.
As Icahn Enterprises continues to streamline its operations and reallocate capital to its most promising business segments, investors will closely watch the company's ability to unlock value and deliver consistent returns. With a strong liquidity position and a proven investment strategy, Icahn Enterprises remains a unique and closely followed player in the investment landscape, despite the recent headwinds and reduced quarterly distribution.