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James.Roberts


Icahn Enterprises: Hedging Strategy and Portfolio Balance in Q2 2023

2023-08-04

Icahn Enterprises held its Q2 2023 Earnings Call, where company executives discussed various topics including the company's hedging strategy, changes in short positions, operating company performance, cash flow improvement, and adjustments in market hedges.

During the meeting, the company's strategy regarding hedging positions and achieving a rational balance portfolio was a key focus. The company has actively managed its short positions, with the size of the short position decreasing from a net negative 47% in the previous year to negative 18% by the end of Quarter 2. This indicates a proactive approach to managing short positions. The company emphasized the need for an overall balance in the portfolio, constantly reviewing and evaluating their shorts on a macro and sector basis.

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The market outlook for the company is cautiously optimistic. While the company has reduced its bearish bets by decreasing short positions, they still believe in the strategy of shortening and continue to make adjustments to achieve an overall balance. The company's owned companies, including CVI, Pep Boys, and Viskase, have been performing well and generating increasing cash flow. Efforts are focused on turning around and improving the performance of these companies.

Market hedges have been significantly reduced, but the company still maintains some level of broad market hedges. Specific name-by-name hedges and sector hedges are also utilized to offset any risk associated with specific long positions.

Overall, the company actively manages its portfolio, adjusting positions to maintain balance and mitigate risk. The owned companies are performing well, and the company closely monitors market conditions to make strategic decisions accordingly.

During the call, participants included Jesse Lynn, the general counsel; David Willetts, the president and CEO; and Ted Papapostolou, the chief financial officer. David Willetts provided an overview of the second-quarter results, highlighting a net loss of $269 million and an adjusted EBITDA of $34 million. The loss was primarily attributed to the performance of the Investment segment and additional losses related to the bankruptcy of Auto Plus. However, positive developments were noted in the automotive and food packaging segments, with continued improvements in EBITDA. The indicative net asset value as of the quarter-end decreased to $5 million. The call also mentioned a negative return of $215 million or 5.4% for the Investment Funds in Q2 2023. Despite the challenges, the company expressed encouragement by the results in July and acknowledged the inherent volatility in the market.

In conclusion, the participants of the Icahn Enterprises Q2 2023 Earnings Call discussed the company's second-quarter results, highlighting a net loss primarily driven by the Investment segment and losses related to the bankruptcy of Auto Plus. However, positive developments were noted in the automotive and food packaging segments. The company acknowledged the inherent volatility in the market and expressed encouragement by the results in July. The company's hedging strategy and overall portfolio balance were key topics of discussion, with active management of short positions and a focus on improving the performance of owned operating companies.