Like him or hate him, Carl Icahn has built a multi-billion dollar fortune based on an ability to discern value and an unwavering dedication to realizing the desired results for himself and his partners. While his earlier methods were somewhat dubious, Mr. Icahn’s recent activities are indicative of a long-term strategy. Indeed, he returned outside partners’ money and folded his funds into publicly-traded Icahn Enterprises LP (NASDAQ:IEP) back in 2011. So, which sectors hold his attention in the current market environment?
Icahn Enterprises holds a controlling stake in Federal-Mogul Corporation (NASDAQ:FDML), a leading supplier of system components to the global automobile industry. The company also manufactures a diverse variety of parts for the aftermarket segment, including brake and chassis components. Despite rising domestic new vehicle sales over the past two years, Federal-Mogul’s sales have been flat due to improved vehicle quality and lower demand for aftermarket parts.
In FY2012, Federal-Mogul reported weak financial results, with decreases in revenue and adjusted operating income of 3.6% and 29.3%, respectively, versus the prior year. The company’s weak profitability was caused by production volume declines in various international markets, as well as a shift to lower margin products. The European market, in particular, has increasingly moved from diesel-powered vehicles to cheaper, gasoline-powered vehicles, a shift that has led to a lower profit margin for Federal Mogul (NASDAQ:FDML)’s powertrain business.
Looking ahead, the company continues to build its aftermarket parts business, which is less susceptible to the cyclical nature of the auto business. Federal-Mogul also recently initiated a restructuring plan to improve results in its original equipment manufacturing business, which will likely result in eliminating unprofitable product lines and downsizing its facilities. Despite Federal-Mogul’s steep stock price decline over the past year, Icahn Enterprises continues to add to its investment, as it believes in the favorable, long-term fundamentals of the global auto business.
Icahn Enterprises engaged in a proxy fight and tender offer at CVR Energy, Inc. (NYSE:CVI), ultimately gaining control of the company and building its stake to the current level of 82%. CVR Energy, Inc. (NYSE:CVI) is a major Midwest refiner and distributor of petroleum products, as well a manufacturer of nitrogen-based fertilizers. The company has been a beneficiary of a much-improved refining margin over the past two years, as gasoline prices have posted gains, in line with a rebound in global transportation activity.