Icahn's Automotive Segment Posts $52M Loss

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August 15, 2018—Icahn Enterprises L.P.'s automotive segment reported $18 million and $52 million losses from continuing operations for the three- and six-month periods ended June 30, respectively, despite higher sales in both periods, reported Tire Business.

The segment—which represents about 21 percent of Icahn Enterprise's overall revenue—comprises Pep Boys, IEH Auto Parts Holding and the AAMCO Automotive, Cottman Transmission and Precision Tune Auto Care franchise businesses.

Just over one year ago, Icahn Automotive Group acquired 250 Precision Tune Auto Care locations, giving Icahn control of more than 1,000 auto repair shops.

As Jim Lang, president of Lang Marketing, pointed out to Ratchet+Wrench, Icahn is practicing vertical integration. Contrary to horizontal integration, where firms control one component of a market or process, vertical integration engages multiple segments of production.

So, as the owner of Pep Boys and Just Brakes as well, Icahn's intentions were clear to Lang: Those 1,000 shops will now buy their products from the Icahn-owned Auto Plus, which will buy its parts from the Icahn-owned Federal-Mogul, stretching Icahn’s pull in the marketplace.

Icahn did not comment on the reasons for the losses. It did, however, note that the business unit's gross margin improved for the both periods, "reflecting higher margin percentages from franchisor operations as well as higher margins in automotive services due to cost improvements and selective price increases."

The segment reported 5.7-percent higher sales in the second quarter of $737 million and 6.6 percent in the first half to $1.42 billion. The sales increases were due to acquisitions, which accounted for $71 million of the increase, and organic revenue growth of $57 million for the six months.

On an organic basis, Icahn said services sales (including labor) and commercial sales both increased 6 percent ($33 million and $25 million, respectively) due to growing do-it-for-me and fleet businesses and growth in Pep Boys' commercial programs as well as increases in IEH Auto sales. Retail sales decreased by $1 million

The segment's revenue breaks down as 46 percent automotive services, 35 percent commercial sales and 19 percent retail sales.

Icahn is in the process of implementing a "multi-year transformation plan" for the segment, which includes integrating and restructuring of the operations of the various entities that make up the segment, the company said in its second quarter 10-Q filing with the Securities and Exchange Commission.

Among the initiatives being implemented are:

  • Positioning the service business to take advantage of opportunities in the do-it-for-me market and vehicle fleets;
  • Growing the commercial parts distribution business in high volume markets;
  • Optimizing inventory across Icahn Automotive's parts and tire distribution network;
  • Optimizing the store and warehouse footprint through openings, closings, consolidations and conversions by market;
  • Digital initiatives including a new e-commerce platform and enhanced e-fulfillment capabilities;
  • Investment in customer-experience initiatives such as enhanced customer-loyalty programs and selective upgrades in facilities;
  • Investment in employees with focus on training and career development investments; and
  • Continued integration of the businesses including, but not limited to, supply chain and information technology capabilities.

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