Berkshire News Briefs - 8/14/18

Berkshire Hathaway's Operating Earnings Soar 67% in the Second Quarter

Berkshire Hathaway shareholders should be pleased with the company's earnings report for the second quarter. The Omaha-based conglomerate reported operating earnings of $6.9 billion, a 67% increase over the year-ago period, due primarily to higher profits in insurance and a lower tax rate thanks to last year's corporate tax cut. [...] Insurance -- $2.1 billion profit
Railroad -- $1.3 billion profit
Manufacturing, service, and retailing -- $2.1 billion profit
Utilities and energy -- $581 million profit
Finance and financial products -- $429 million profit

Improved Insurance Results Lift Berkshire's Earnings

As wide-moat Berkshire Hathaway reported second-quarter results that were basically in line with our expectations, we are leaving our $330,000 ($220) per Class A (B) share fair value estimate in place. Second-quarter (first-half) revenue, which now includes both unrealized and realized gains/losses from Berkshire's investments and derivatives portfolios, increased 19.3% (decreased 2.9%) to $68.6 ($119.0) billion. Excluding the impact of investment and derivative gains/losses and other adjustments, second-quarter (first-half) operating revenue increased 8.4% (decreased 0.8%) to $62.2 ($120.7) billion. [...]

Warren Buffett’s Berkshire Hathaway is climbing after announcing a $111 billion cash pile that's fueling speculation over its next big investment

The Omaha, Nebraska-based company also said it's sitting on a $111.1 billion nest egg of cash and cash equivalents, giving speculators ample fodder to theorize over Buffett’s next investment. Berkshire in July loosened its policy on share buybacks, which it says will be repurchased when their value is "below Berkshire’s intrinsic value," Chairman Charlie Munger said. [...]

Buffett has not made a big acquisition since January 2016 when Berkshire paid $32.1 billion for the aircraft-parts manufacturer Precision Castparts. Prior to that, he made headlines with his purchase of truck-stop chain Pilot Flying J in the fall of 2017. [...]

BNSF's second quarter OR comes in weakest of the class 1 railroads

For the second quarter of this year, the operating ratio posted by BNSF was 66.8%. That was worse than the 65.3% of the second quarter of 2017, but was an improvement over the 67.9% posted in the first quarter of this year. Virtually every railroad posted an improved OR between the first and second quarters of this year, as the tough weather of winter 2018 faded away to the milder conditoins of spring and early summer.

The BNSF statement does not discuss management's views of the OR. But an OR of 63% posted by Union Pacific brought a decidedly negative reaction when posted a few weeks ago, particularly in comparison to those of CSX and Canadian National, which were both sub-60%. Other class 1 railroads--Kansas City Southern, Norfolk Southern and Canadian Pacific--were all around 64%, and Canadian Pacific's number was negatively impacted by labor disruptions that resulted in just a small strike but the disruption created by two shutdowns. [...]

Buffett's Berkshire Offers Loan to Owner of Former Sears Properties

Billionaire Warren Buffett's Berkshire Hathaway Inc is loaning up to $2 billion to the company that owns some of what used to be some of Sears Holdings Corp's best real estate.

A subsidiary of Buffett's conglomerate, Berkshire Hathaway Life Insurance Company of Nebraska, is offering what is known as a term loan facility to a New York-based real estate investment trust that owns the struggling retailer's formerly owned retail space.

The real-estate trust, Seritage Growth Properties , was formed as a spin-out of some of Sears' 235 top properties into a publicly traded company of its own in 2015. The U.S. department store operator then leased back some of the properties.

Buffett was an early backer of Seritage. He is personally one of the real estate trust's top owners, holding nearly 6 percent of its outstanding shares. [...]

Pilot Flying J lays off 50 at corporate headquarters Monday

“As part of our strategic process, internationally respected consulting firm Deloitte recently created an analysis of our business as we embark on exciting new initiatives and areas of growth,” Pilot Flying J President Ken Parent said in a released statement. “With these new strategies, we will be re-allocating resources to shift attention to new opportunities and to streamline our operations. [...] We do remain focused on continuing to build upon our standards as an industry leader, having opened 15 new stores this year, building nine more, and creating 17 truck care centers as we look to more efficiently grow our company footprint. Last year Warren Buffett's Berkshire Hathaway bought a 38.6 percent stake in Pilot Flying J. The Haslam family retained a 50.1 percent stake, but by 2023, Omaha-based Berkshire Hathaway’s share will increase to 80 percent. [...]

Warren Buffett Is Ending His Meetings With College Students

Billionaire Warren Buffett is ending his long-standing practice of meeting with business students to answer their questions about investing and life.

The Omaha World-Herald reports Buffett's office has told the universities that have been bringing students to Omaha to meet with him for years that he will no longer host the groups. Last year, he met with students from 40 different universities.

One of Buffett's assistants, Joanne Manhart, says Berkshire Hathaway's chairman and CEO is cutting back on speaking engagements.

Manhart says Buffett's health wasn't a factor in the decision, but Buffett will turn 88 on Aug. 30. [...]

Berkshire News Briefs - 11/6/17

Berkshire Hathaway's 3rd Quarter Earnings release: PDF

Hurricanes Drag Down Berkshire's Quarterly Earnings

Bad weather weighed on results at Warren Buffett's Berkshire Hathaway Inc, as losses from insurance claims tied to Hurricanes Harvey, Irma and Maria and an earthquake in Mexico contributed to a 43 percent drop in third-quarter profit.

Berkshire on Friday said net income fell to $4.07 billion, or $2,473 per Class A share, from $7.2 billion, or $4,379 per share, a year earlier.

Operating profit, which excludes investment and derivative gains and losses and which Buffett says better reflects company performance, fell 29 percent to $3.44 billion, or $2,094 per Class A share, from $4.85 billion, or $2,951 per share.

Berkshire said it incurred $1.95 billion of after-tax underwriting losses attributable to the hurricanes and earthquake. [...]

Berkshire Hathaway’s Third-Quarter Operating Profit Falls 29%

Berkshire Hathaway's (NYSE:BRK-A)(NYSE:BRK-B) third-quarter operating earnings declined to $3.44 billion, down from $4.85 billion in the year-ago period, due primarily to large insurance underwriting losses from natural disasters. Third-quarter weather events were particularly troublesome for Berkshire Hathaway Reinsurance, which posted a massive $1.3 billion pre-tax underwriting loss in the third quarter.[...]

• Insurance -- $395 million net loss
• Manufacturing, service, and retailing -- $1.7 billion profit
• BNSF railroad hauls it in -- $1 billion profit
• Utilities and energy -- $963 million profit
• Finance and financial products -- $341 million profit
• Berkshire cash pile -- $109 billion

Under the Hood of Berkshire Hathaway’s Pilot/Flying J

Pilot was founded in 1958 when Jim Haslam purchased a single gas station for $6,000. It dramatically increased in size when it purchased competitor Flying J out of bankruptcy. Because the bankruptcy proceedings are public, there’s valuable information within the filings made at the time, 2009. A value of $3.3 billion was placed on Pilot and Flying J was to be acquired for $300 million – $500 million in cash plus equity in the new company, valuing it in total at $1.8 billion. Post-merger, the combined entity had revenue in excess of $30 billion and would reasonably have an enterprise value of about $5.1 billion. [...]

The segment of the North American gas station industry has three main competitors: Pilot/Flying J, Love’s, and TravelCenters of America. Pilot/Flying J is the largest with $20 billion in revenue and 750 locations, while family-owned Love’s is not far behind at 430 locations and $16 billion in revenue. Travel Centers of America is the only one of the three that’s publicly traded and has 250 locations and $6 billion in annual revenue. [...]

That still leaves the question of how much Pilot is earning and what it’s worth. Margins are slim in this business – operating income is probably no more than 2% of sales, or maybe $500 million a year in total. Using a multiple of 12x operating income (a discount of about a third to the higher margin consumer gas stations of Couche-Tard and Casey’s) gives an enterprise value of $6 billion. That is roughly consistent with the value placed on the company in the Flying J bankruptcy filings in 2009. Subtracting $2.5 billion in estimated remaining debt would value the equity at about $3.5 billion. [...]

PacifiCorp facing regulatory blowback on wind power plans

Staff advisers at Oregon's utility regulator threw cold water on PacifiCorp's plan to spend $3.5 billion, one of its biggest upgrades ever, on wind turbines and a new transmission line.

The Public Utility Commission staff say the utility had failed to justify the need for the massive capital investments, whether to meet its capacity, energy or reliability needs. [...]

"There is no need for the proposed resources at all," said the staff recommendation. "PacifiCorp's existing resources are able to meet its resource needs."

That's not a universally held opinion. Some environmentalists support the wind investments, if not the transmission. And PacifiCorp insists it needs it all. But if commissioners agree with its advisory staff, it would be a big setback for the company. [...]

Carpet maker Shaw acquires Chattanooga-based digital sample provider

Shaw Industries, the country's biggest carpet maker, is buying a Tennessee-based producer of digital carpet samples and design tools.

Shaw, a subsidiary of Warren Buffett's Berkshire Hathaway, acquired Tricycle Inc. for an undisclosed sum.

Tricycle was founded in Chattanooga in 2002 and works with commercial manufacturers, interior designers and architects to visualize carpet designs and colors digitally. The company says its three-dimensional, color corrected digital images reduce waste by removing the need to produce physical samples. [...]

Warren Buffett – Mistakes of the First Twenty-Five Years

One of the best resources available to investors are the Berkshire Hathaway shareholder letters. One of my personal favorites is the 1989 letter in which Warren Buffett wrote a piece called – Mistakes of the First Twenty-five Years (A Condensed Version). It’s a great insight into how even the greatest investors can make mistakes. The lesson of course is not to make the same mistake twice. But it seems even Buffett did make the same mistake over and over in buying some of his cigar-butt companies simply because they were cheap. This of course changing when he met Charlie Munger and he coined the phrase, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Let’s take a look at some of the mistakes that Buffett highlighted from his first 25 years of investing [...]

Berkshire Hathaway News Briefs - 10/7/17

Buffett bets on truck stops, to buy majority of Pilot Flying J

Warren Buffett's Berkshire Hathaway Inc bought a major stake in Pilot Flying J, the largest U.S. truck stop operator, and said it will become the majority owner in six years, deepening its commitment to the American economy.

Pilot Flying J has more than 750 locations in 44 U.S. states and Canada selling gas, diesel fuel, and convenience goods, and offering trucks more than 70,000 parking spaces and 5,000 diesel lanes.

While terms for Tuesday's transaction were not disclosed, Pilot Flying J is 15th-largest private company in the United States, with annual sales of $19.6 billion, Forbes magazine said. The family-run company employs more than 27,000 people.

Berkshire bought 38.6 percent of Pilot Flying J from several investors and plans to boost ownership to 80 percent in 2023.

The controlling Haslam family retained a 50.1-percent stake, and will own the remaining 20 percent once Buffett takes over. [...]

Why Autonomous Trucks Aren't A Threat To Buffett's Investment In Pilot Flying J

As fast charging of EVs takes greater hold across the U.S., places like Pilot Flying J will become even better revenue machines than they are now. When truckers and car travelers stop at one of their places now for gas and diesel, they are apt to shop as well during the 15-20 minute stay they have now. Fast charging of batteries, which takes up to 45 minutes, will extend the time a customer has to spend money on goods, as well as the changing service itself.

The point of Buffett’s investment is not just to take advantage of the strong business of Pilot Flying J now as a well branded, preferred network of truck stops serving today’s long-haul diesel truck driver, but as a growing network of places to serve the needs of gas, diesel and EV vehicles. [...]

Berkshire Hathaway's New Moat? Helping America's Family-Run Businesses Protect Their Legacy

[...] Buffett’s held out Berkshire as a safe place for family-owned businesses to turn to when they want to sell and he's beginning to pile up a major trove of deals.

In 2006, Buffett took control of Israeli billionaire Stef Wertheimer’s precision tool company ISCAR, ponying up $4 billion for 80% of the business and taking full control a handful of years later. The Pritzker family turned to Berkshire in 2007, selling a 60% stake in their industrial conglomerate Marmon Holdings, then the world’s 36th largest privately-held company. Seven years later, Berkshire bought the remaining 40% of Marmon and that year it also bought Van Tuyl Auto Group, America’s largest private-held car dealership operator with $8 billion in annual revenues. For Larry Van Tuyl, son of company founder Cecil Van Tuyl, the deal was a 'no-brainer' way to protect a proud legacy; he took a role as chairman of Berkshire Hathaway Automotive when it closed in early 2015.

Now Buffett is at again. On Tuesday morning, Berkshire Hathaway announced it will take a 38.6% investment in travel center operator Pilot Flying J , buying shares from the Haslam family of Tennessee. [...]

Nine years ago Warren Buffett bet on an unknown Chinese battery maker, and it’s sort of paying off

Nine years ago this week, as stocks were tanking in the global financial recession, Warren Buffett put money into a little-known mobile phone battery maker in Shenzhen. This year, with China making it clearer than ever that fossil-fuel cars aren’t going to be welcome for long, that bet is doing better than it’s done in a while.

On Sept. 27, 2008, MidAmerican Energy, controlled by Buffett’s holding company Berkshire Hathaway, announced it was putting $230 million (paywall) into China’s BYD, paying about HK$8 a share (a little over US$1). Back then, BYD, which started out in 1995, was just on the verge of getting into selling electric vehicles. It’s now China’s biggest seller of electric vehicles and saw its stock price increase nearly 60% this year, sending the value of MidAmerican Energy’s stake to about $1.9 billion as of Monday’s closing price. [...]

Russell to cease production of athletic uniforms

Fruit of the Loom, the parent company to Russell Athletic & Activewear, announced Thursday it was getting out of the team uniform business. [...]

“Today, we will begin to transition away from the team uniform business to allow greater emphasis on the consumer retail market. With this shift, we will continue to offer high quality athletic lifestyle and performance apparel for distribution through multiple retail and wholesale channels, including continued distribution of collegiate licensed products along with non-uniform apparel through the team dealer network.” [...]

Dairy Queen, getting a new CEO, looks to freshen brand

International Dairy Queen Inc. will be getting a new chief as the company continues an effort to modernize its  77-year-old brand.

The Edina-based company said Thursday that President and CEO John Gainor will retire at the end of the year and current Chief Operating Officer Troy Bader will take his place, effective Jan 1. [...]

Dairy Queen, a subsidiary of Berkshire Hathaway Inc., has been replacing its old-style restaurants in recent years to compete in the cutthroat quick-service restaurant category. Through its DQ Grill and Chill remodels, the company has updated its seating, beefed up its menu with more food items and tried to offer more specials and creative ice cream treats. It also has made a deliberate push to expand internationally. [...]

Berkshire Weathers the Storms

Given the storm damage and flooding created by hurricanes Harvey, Irma, and Maria during the third quarter, we find it unlikely that wide-moat Berkshire Hathaway will come away unscathed. [...] While we expect the company to experience material losses, it is more than adequately reserved to deal with this year’s hurricane season. [...]

All in, we’re probably looking at $1.5 billion-$3.0 billion in total insured losses for Berkshire’s insurance operations from hurricanes Harvey, Irma, and Maria (based on the dispersion of insured losses from other periods of heavier hurricane activity), with our expectations being somewhere in the middle of that range.

For some perspective, Berkshire recorded $3.4 billion in hurricane-related losses in 2005 when hurricanes Katrina ($2.5 billion), Rita, and Wilma ($900 million) struck the Gulf Coast, with Geico reporting $200 million in pretax losses, General Re posting $685 million in insured losses, and BHRG seeing $2.5 billion in pretax losses. With Hurricane Sandy in 2012, Berkshire’s total insured losses were $1.1 billion on a pretax basis, with $490 million coming from Geico, another $266 million tied to General Re, and $364 million from BHRG. [...]

Consolidation of BH Media Group newspaper printing begins at Journal plant

The consolidation of newspaper printing by BH Media Group’s North Carolina affiliates has begun at a $10 million expansion of the Winston-Salem Journal’s production plant. [...]

The consolidation involves the News & Record of Greensboro, as well as newspapers in Morganton, Marion, Hickory, Statesville and Mooresville printed at the Hickory Daily Record. The plant eventually will take over printing for newspapers in Concord and in Rockingham County. [...]

Berkshire Hathaway's Gen Re Targets Indian Market

General Re, a unit of Warren Buffett’s Berkshire Hathaway Inc. which won a license to open an Indian office in May, is seeking a larger slice of the world’s fastest-growing reinsurance market.

The unit plans to expand in health and life insurance, as well as explore opportunities in property and casualty cover, said Venkatesh Chakravarty, chief executive officer of General Reinsurance AG India Branch. [...]

Building a business in India could help Gen Re’s turnaround. A glut of capital in the global reinsurance industry in recent years has caused prices for some kinds of coverage to sag. Rather than take on policies at those lower rates, Gen Re has said it’s turning away some business.

By contrast, India’s reinsurance market, grew at a compound annual rate of 26 percent from 2012 to 2016, according to Reports Monitor, luring in global reinsurers. [...]

Buffett's Berkshire Expands Bet on Italy With Stake in Cattolica

Berkshire Hathaway Inc. said Thursday it agreed to buy about 9 percent of Italian insurer Societa Cattolica di Assicurazioni Scrl from Banca Popolare di Vicenza SpA, one of two failed banks in the northern region of Veneto. [...]

The purchase follows the December acquisition by Berkshire unit Marmon Holdings Inc. of Modena, Italy-based Zephir SpA, a manufacturer of industrial tractors and vehicles that move train cars in rail yards. Earlier last year, Marmon announced it would buy Italian pasta-equipment maker Dominioni Punto & Pasta Srl and catering-equipment firm Angelo Po.

While Italy, Europe’s third-largest economy, has been struggling with slow growth, Buffett has long said he’s willing to endure sluggish periods at businesses with attractive long-term prospects. [...]

Berkshire Hathaway starts building 212-MW wind farm

BHE Renewables LLC, a unit of Warren Buffett's Berkshire Hathaway Energy, has commenced construction on a 212-MW wind farm in Illinois, the Putnam County Record said Tuesday. [...]

BHE Renewables bought the Walnut Ridge project from renewables developer Geronimo Energy LLC in 2015. The scheme has a power purchase agreement (PPA) for 140 MW with the General Services Administration (GSA) of the US government. [...]

Inside Buffett’s Precision Castparts, a Union Scores a Foothold

On Friday, a group of about 100 welders at the company’s manufacturing operations in Portland, Oregon, voted 54-38 in favor of joining a union. Among the reasons they cited: a lucrative employee stock incentive program that went away after Buffett’s Berkshire Hathaway Inc. bought Precision early last year.

Unionizing is something to watch closely at Precision Castparts, where Chief Executive Officer Mark Donegan is known for a relentless focus on costs. [...]

Precision Castparts -- now one of Berkshire’s largest companies -- has said the welders’ vote might ultimately have a broad effect on its highly integrated manufacturing operations in Portland, where the company is based. A push to unionize thousands of workers in that region failed in 2013. [...]