Why Icahn Enterprises’ Energy Segment’s Profits Plunged in 2015
About Icahn’s energy segment
In 2015, Icahn Enterprises’ (IEP) energy segment contributed ~34% to its total revenue, with an operating margin of 14%.
From 2012 to 2015, Icahn’s energy segment’s revenue rose at a CAGR (compound annual growth rate) of 10.4%. Its net profit fell at a CAGR of 72%. Let’s try to understand what happened in 2015 that contributed to such a large dip in its revenue as well as its profit.
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Weak commodity prices hurt Icahn’s energy segment
In 2015, the segment’s net sales were $5.4 billion, a fall of 71% compared to $9.1 billion in 2014. The $3.8 billion fall was largely the result of significantly lower sales prices for the transportation of fuels and fuel by-products.
In 2015, the average sales prices for gasoline and distillate were $1.61 and $1.62 per gallon, respectively. Gasoline and distillate fell 36.4% and 42.3%, respectively, compared to 2014.
In 2015, the energy segment’s overall sales volume fell approximately 3.3% compared to 2014. Sales volumes in 2015 were impacted by decreased production resulting from the Coffeyville refinery’s shutdown. The refinery shut down due to a fire and lower purchased product volumes for resale.
In 2014, a refinery shutdown and the consequent reduced crude oil production impacted the energy segment’s sales volumes. Since fixed operating costs remained largely the same, margins dampened.
Investors interested in trading in energy companies can look into the iShares U.S. Energy ETF (IYE) or the SPDR S&P Oil and Gas Exploration & production ETF (XOP). IYE’s major holdings include ExxonMobil (XOM) at 26.3%, Chevron (CVX) at 13.5%, and Schlumberger (SLB) at 6.9%.
Now let’s analyze Icahn’s automotive segment.