Berkshire News Briefs: January 2017

Thursday, January 26, 2017

Berkshire News Briefs - 1/26/17

BNSF budgets $3.4 billion for 2017 capex plan

BNSF Railway Co. unveiled a $3.4 billion capital expenditure plan for 2017, the Class I announced yesterday. Similar to last year's $3.9 billion plan, the largest component of this year's program will be to replace and maintain the railroad's core network and related assets. That aspect of this year's work will amount to about $2.4 billion, BNSF officials said in a press release. [...] In addition, BNSF expects to spend $400 million on expansion projects; $100 million on positive train control implementation; and $400 million on locomotives, freight cars and other equipment acquisitions.[...]

Kansas logistics park offers big intermodal-growth potential for BNSF

BNSF Railway Co. has tried to accelerate ID efforts in recent years to gain as big a business boost as possible, especially of the intermodal variety. From 2011 through 2015, the Class I each year landed more than $1 billion worth of new or expanded facilities along its lines, including $1.2 billion in 2015 and nearly $1.5 billion in 2014. And as of late last month, BNSF was on pace to surpass the $1 billion mark for the sixth-straight year, with about 100 ID projects on the 2016 docket, including several at a fast-growing, footprint-swelling logistics park in Kansas. [...]

J.B. Hunt, BNSF will review revenue split

[...] Last year, about $3.7 billion -- 60 percent of J.B. Hunt's revenue -- came from its intermodal segment. Michael Haverty, who was the president of Santa Fe Railway when he approached J.B. Hunt with the original intermodal deal in 1989, has estimated that BNSF makes about $1 billion annually from the deal. Santa Fe Railway Corp. and Burlington Northern Inc. merged to form BNSF in 1993.

The "evergreen" intermodal contract automatically renews each year. The agreement stipulates that the revenue division will be negotiated by the two companies and is reviewed quarterly. J.B. Hunt is questioning the period beginning May 1, 2016. [...]

Richline Group Acquires The Aaron Group

Richline Group, a wholly-owned subsidiary of Berkshire Hathaway, and The Aaron Group, a leading jewelry manufacturer and marketer, announced today that Richline has acquired The Aaron Group business effective today, January 11th. [...]

Since its founding as Samuel Aaron Jewelry in 1950, the Aaron Group has grown from its New York City roots to become a widely renowned, vertically integrated international jewelry manufacturer. Along the way, the Aaron Group has remained a true family business and, under the stewardship of third-generation leader Robert (Bobby) Kempler, has achieved stature as a major global force, with operations, factories, partnerships and hundreds of employees in New York, London, Mumbai, Hong Kong, and Guangzhou. [...]

Buffett’s Berkshire Buys German Pipe Company Wilhelm Schulz

A unit of Warren Buffett’s Berkshire Hathaway Inc. agreed to buy Wilhelm Schulz GmbH, a closely held German maker of piping components, as the billionaire accelerates an expansion in Europe.

Rainer Floeth, chief executive officer of Krefeld, Germany-based Wilhelm Schulz, confirmed by phone that Berkshire’s Precision Castparts had agreed to buy the company. He declined to elaborate on terms due to contractual obligations. The deal was first reported by German newspaper Handelsblatt, which cited Precision Castparts Corp. CEO Mark Donegan. [...]

AIG to pay Buffett's Berkshire about $10 billion in insurance deal

American International Group Inc (AIG.N) has agreed to pay roughly $10.2 billion to Warren Buffett's Berkshire Hathaway Inc (BRKa.N) to take on many long-term risks on U.S. commercial insurance policies it has already written.

The reinsurance transaction covers "long-tail" exposures, which are liabilities that emerge long after policies are issued, from excess casualty, workers compensation and other AIG policies issued before last year.

Berkshire's National Indemnity Co unit, led by Buffett's reinsurance chief Ajit Jain, will take on 80 percent of net losses in excess of the first $25 billion, with a maximum liability of $20 billion. [...]

The 5 Operating Principles Behind Berkshire Hathaway’s Uniquely Profitable Reinsurance Business

In his 2015 letter, Warren Buffett warned Berkshire Hathaway shareholders that prospects for the reinsurance industry had dimmed. However, as this week's $1.5 billion deal with The Hartford illustrates, five operating principles will enable Berkshire's reinsurance activity to beat competitors and remain comfortably profitable. [...]

1. Maintain unmatched financial strength and reputation
2. Focus on large, unusual risks
3. Price risks rationally and act quickly
4. Keep risks on your books
5. Stay disciplined and carry on

Thursday, January 5, 2017

Berkshire Misc. Briefs - 1/5/17

There was a lot of news last month, and I fell behind on posting, so there are three posts this time. This is part 3, with miscellaneous news that didn't fit in the other two categories. That doesn't mean these are any less interesting, though!

(Part 1 - General Business | Part 2 - Subsidiaries)

HBO Sets Warren Buffett Documentary Premiere Date

HBO announced the premiere date for upcoming documentary “Becoming Warren Buffett” on Wednesday. The personal profile will premiere on Jan. 30 at 10 p.m./9c and will tell the true story of how an ambitious, numbers-obsessed boy from Nebraska became one of the richest men in the world.

Told primarily in Buffett’s own words, the film features never-before-released home videos, family photographs, archival footage and interviews with family and friends. [...]

Watch the trailer on YouTube.

Why Yahoo Shared an Investor Meeting in Omaha With the World

In April 2016, for the first time Yahoo Finance livestreamed the Berkshire Hathaway annual meeting; a profitable venture for the industry-leading site (Yahoo Finance in November recorded 63 million monthly unique visitors, per comScore). This livestream was Yahoo Finance's longest, most complex endeavor to date, given it hosted the event on its platform. [...]

It all started with an email from Berkshire Hathaway CEO Warren Buffett. "It said, 'Call me,'" recalled Yahoo Finance editor Andy Serwer. "So, I called him up. And he said 'I've got this idea. What do you think about livestreaming my annual meeting?' And I said 'yes' as quickly as I could!" [...]

The first-of-its-kind meeting was Buffett's idea. "I asked him later why he came to us," said Serwer. "He said there were several reasons: you successfully executed an NFL game. (The Buffalo Bills-Jacksonville Jaguars matchup in October 2015 netted 15.2 million viewers.) You have the technology to do it. You have the global platform. And, then he also said, 'I have this relationship with you and I know that I can just call you up anytime and get through to you.'"

Berkshire Hathaway to bet on earthquake insurance in Japan

An insurance company under Berkshire Hathaway of the U.S. is considering making a foray into Japan, betting on the potential of the country's earthquake insurance market.

Berkshire Hathaway Specialty Insurance plans to operate as a reinsurer, purchasing earthquake insurance contracts from casualty insurers in Japan, according to Marc Breuil, a BHSI executive in charge of Asia. [...]

After BHSI starts selling earthquake reinsurance in Japan, earthquake policies may become widespread in the country. Currently, about 10% of Japanese companies are insured against temblors. This is stunted compared to the rate in other earthquake-prone countries.

One major reason for the low percentage is the relatively high premiums for earthquake insurance when compared to fire insurance. Another reason is that insurers have refrained from actively selling earthquake policies to companies, citing unstable prices in the reinsurance market.

Buffett's Berkshire Is Urged to Sell Fossil Fuel Stocks

A Nebraska nonprofit has said it will propose that Warren Buffett's Berkshire Hathaway Inc. sell its investments in oil refiner Phillips 66 and other companies involved in fossil fuels over 12 years.

The Nebraska Peace Foundation, which focuses on anti-war, civil rights and environmental issues, said it submitted a formal proposal for Berkshire shareholders to consider at the Omaha-based conglomerate's annual meeting next May 6.

Buffett’s Son Steps Down From Coke Board to Focus on Charity

Howard Buffett, the son of Berkshire Hathaway Inc. Chairman Warren Buffett, is stepping down from the board of Coca-Cola Co. to spend more time working at his foundation. [...] He runs the Howard G. Buffett Foundation, which supports sustainable agriculture and conflict resolution programs. He also has operated a 1,500-acre (600-hectare) farm in Illinois and has written books on topics such as world hunger and conservation.

Warren Buffett makes appearance at Dolphins-Cardinals game

The Miami Dolphins have a special guest for Sunday’s game against the Arizona Cardinals. Business tycoon Warren Buffett roamed the Dolphins’ sideline pregame to talk to members of the organization and show his support.

Buffett, who is one of the richest people in the world, has attended Dolphins games in the past. He was at last year’s home opener and is friends with four-time Pro Bowl defensive tackle Ndamukong Suh. [...]

Berkshire Subsidiary Briefs - 1/5/17

There was a lot of news last month, and I fell behind on posting, so there are three posts this time. This is part 2, with news about Berkshire Hathaway's subsidiary companies.

(Part 1 - General Business | Part 3 - Miscellaneous)

The Dairy Queen® System Announces Plans to Develop 50 DQ Grill & Chill® Locations in Korea Over the Next Five Years

International Dairy Queen, Inc. today announced the signing of a multi-unit development agreement to expand into the Republic of Korea with plans to open 50 DQ Grill & Chill locations within the next five years. [...]

(On a tangentially related note, did you know you could ask DQ staff to add coffee to a Blizzard? I can't believe I didn't know about this "secret menu" item before last week.)

Fruit of the Loom names Melissa Burgess-Taylor CEO

Fruit of the Loom, a Berkshire Hathaway Inc. unit, said it named Melissa Burgess-Taylor as the chief executive officer and chairman, following the death of Rick Medlin.

Medlin, who had held the top post at the apparel company since 2010, died on Sunday of natural causes, the company said. [...]

Burgess-Taylor, who has been with the company for more than 17 years, is currently senior vice president of brand management and sales for Fruit of the Loom and Vanity Fair Brands.

Lubrizol names Schnur as CEO

Global thermoplastic polyurethane leader Lubrizol Corp. has named company veteran Eric Schnur as chairman, president and CEO.

Schnur has been with Wickliffe, Ohio-based Lubrizol for more than 27 years. He’s held the roles of president and chief operating officer since June. Prior to that move, Schnur served as president of the firm’s Advanced Materials unit — including TPU — for eight years.

The move was effective Jan. 2. Schnur replaces James Hambrick, who’s retiring after a 38-year career with Lubrizol. [...]

Nebraska Furniture Mart COO Ron Blumkin’s successor named

Nebraska Furniture Mart President and Chief Operating Officer Ron Blumkin will leave his position as part of the company’s long-term succession planning, the company said Friday.

Tony Boldt, director of the Mart’s Kansas City store, will take the role of president and COO. Blumkin will serve as chairman, and Irv Blumkin will remain chief executive. [...]

Berkshire Hathaway Unit Acquires Snappy Company

Berkshire Hathaway company unit MiTek Industries, Inc. announced that its subsidiary, M&M Manufacturing, has acquired Snappy Company.

Snappy is a leading supplier of metal duct systems for the residential HVAC market, with manufacturing facilities in Detroit Lakes, MN; Medina, NY; and corporate offices in Marietta, GA.

Snappy will complement M&M Manufacturing, a leading producer of sheet metal products, primarily servicing the air distribution and ventilation markets. [...]

OCI Solar Power seeks to sell Alamo 6 solar farm to Warren Buffett-owned company

San Antonio-based solar developer OCI Solar Power is seeking state approval to sell its Alamo 6 solar farm to a subsidiary of Warren Buffett's multinational holding company Berkshire Hathaway. A sale price has not been disclosed but OCI Solar Power officials confirmed that the company signed a purchase agreement to sell the West Texas solar farm. Located in Pecos County, Alamo 6 remains under construction but once complete it will supply 110.2 megawatts of electricity to San Antonio's municipally-owned utility company CPS Energy. [...]

The sharing economy brings tycoon lifestyles within reach of some

Tycoon living begins with a private jet. Whereas yachts are dispensable (not everyone wants to float around for weeks with the same dinner companions) private jets are necessities for the aspiring billionaire. [...]

No longer do you need a net worth in the hundreds of millions of dollars to have one. With 700 jets, NetJets is now the fifth-largest airline by number of planes, after Southwest Airlines, and it has access to thousands of private airports. Its main innovation was to apply the principle of fractional ownership, or time-sharing, to the ultimate executive tool. Customers buy a share in a jet which entitles them to, say, 200 hours of travel a year. [...]

Berkshire News Briefs - 1/5/17

Warren Buffett of Berkshire Hathaway Inc. and interviewer Carol Loomis of Fortune

There was a lot of news last month, and I fell behind on posting, so there are three posts this time. This is part 1, with general business news about Berkshire Hathaway itself.

(Part 2 - Subsidiaries | Part 3 - Miscellaneous)

Berkshire Hathaway year in review: Soaring stock can console Warren Buffett after election, a few business setbacks

The election might not have gone the way Warren Buffett preferred, but as the books close on 2016, the Berkshire Hathaway chairman and chief executive can take heart in his company’s stock price: For the first time, its Class A shares topped $250,000 each. [...]

Still, even as its stock has risen, some of Berkshire’s business operations during 2016 have faced choppy waters: The parent company’s profits are being dragged down by reduced earnings at auto insurer Geico and BNSF Railway [...]

Will Donald Trump Blow Warren Buffett’s Clean-Energy Bet Off Course?

[...] Berkshire Hathaway—owner of everything from Dairy Queen Blizzards to Brooks running shoes to Benjamin Moore paint—will likely also be the largest producer of wind energy in America. In early 2016, Berkshire announced its largest project yet, a 2,000-megawatt wind complex in Iowa. Construction on the $3.6 billion project begins next year. When it’s done, Berkshire will have the capacity to produce 11,139 megawatts of green energy an hour, enough to power nearly eight Las Vegases or 24 Times Squares or 7.3 million homes, much of it by wind. [...]

Perhaps most important, a huge part of Berkshire’s wind-energy play is pegged to tax credits, of which it recognized $336 million in 2016. The government is set to phase those out over the next decade, and that may accelerate under President-elect Trump, who has called global warming a hoax and who has said he doesn’t want to subsidize wind power. But Berkshire Hathaway is fully committed to remaking the landscape—figuratively in energy, and literally in Iowa. [...]

Donald Trump’s Tax Plan Could Boost Warren Buffett’s Company by $29 Billion

[Berkshire Hathaway] could get a $29 billion boost to its book value as a result of the president-elect's plan to lower corporate taxes from an estimated 35% to around 15%, a team of Barclays analysts wrote in a Monday note. [...]

By the end of 2015, Berkshire recorded a deferred tax liability of $63 billion. Gelb's analysis covered about $50.5 billion of that that total, discounting the liabilities associated with Berkshire's regulated utility units, where the tax cuts are expected to benefit the utility customers rather than Berkshire Hathaway.

Even if Trump's administration managed to lower taxes by just 10 percentage points to 25%, Berkshire would still clock an increase in its book value by $14.4 billion. [...]

Dow Chemical to Redeem Cash-Draining Preferred Stock Held by Buffett

Dow Chemical Co. finally gained the right to convert $4 billion of preferred stock into common shares, ridding the company of an expensive burden and depriving Warren Buffett of another lucrative crisis-era investment.

A recent rally in Dow stock on Thursday triggered a clause allowing the chemical giant to convert the shares. That will enable the company to start keeping $255 million it has been sending to Mr. Buffett’s Berkshire Hathaway Inc. every year [...]

The Midland, Mich., company announced after the close it would convert the shares on Dec. 30. They will hand Berkshire roughly 6% of Dow’s common stock [...] Mr. Buffett has indicated he’s a seller.

If you read a recent article in The Wall Street Journal about Berkshire Hathaway's investment in Dow Chemical, you might have gotten the impression that Warren Buffett tried to manipulate the market to his advantage by shorting the company's stock.

I think that's a stretch. In reality, Buffett may have made an obvious, yet brilliant, trade. [...]

Warren Buffett Just Made a $1.2 Billion Flip-Flop -- and We Shouldn't Be Surprised

After decades of decrying the airline industry -- Buffett once famously said, "If a capitalist had been present at Kitty Hawk back in the early 1900s, he should have shot Orville Wright. He would have saved his progeny money" -- Warren Buffett's Berkshire Hathaway recently invested $1.2 billion in not one, but three airlines: American Airlines Group, Delta Air Lines, and United Continental Holdings.

Buffett has a long history of saying one thing, only to act in a very contrary way down the road -- actions that would have him branded the worst kind of flip-flopper, were he a politician. In reality, it's another reminder that Buffett's mental flexibility and temperament continue to set him apart. [...]

What Can Investors Expect from Berkshire Hathaway in 2017?

(A seven-part series of posts on predictions for the various business divisions in 2017: insurance, BNSF, energy, manufacturing, and services.)

Warren Buffett could look to utilize existing cash reserves for more acquisitions in the upcoming quarters—especially in manufacturing space. It will be impacted by the new presidential administration and expected policy measures towards domestic manufacturing. [...]

Morningstar: Berkshire Hathaway Closes Out 2016 Near Full Value

We came into 2016 believing it would be a better year for wide-moat-rated Berkshire Hathaway (BRK.B) and were big proponents of the shares in the first quarter, when shares dropped down near CEO Warren Buffett's 1.2 times book value per share threshold for buying back stock--the first time since the fourth quarter of 2012 that the shares had come down close to those levels. With the firm's shares now trading close to our fair value estimate of $255,000 ($170) per Class A (B) share, though, having risen in value more than 23% last year, we now view Berkshire as fairly valued. [...]