The Berkshire Beat: August 9, 2024
All of the latest Warren Buffett and Berkshire Hathaway news! Including updates on Berkshire's 10-Q, Bank of America, Pilot, Occidental Petroleum, Coca-Cola, See's Candies, and more...
Happy Friday and welcome to our new subscribers!
Berkshire Hathaway released its Q2 2024 earnings report on Saturday morning.
And, six days later, we’re all still trying to wrap our heads around the headline news: Warren Buffett sold nearly half of his gargantuan Apple common stock position and revealed that Berkshire now holds over $271 billion of cash and equivalents.
For the full story, check out my earnings report wrap-up from earlier in the week.
Once you’re all caught up, let’s move on to the latest news and notes out of Omaha…
Warren Buffett’s 12-day streak of selling Bank of America stock ended last Friday. Between July 17 and August 1, he unloaded 90.4 million shares of BAC 0.00%↑ for more than $3.8 billion. But it’s not terribly surprising that the streak ended when it did — the bank’s stock price dropped like a rock on Friday (and again on Monday) and remains well under Buffett’s average selling price.
Berkshire’s stake in Occidental Petroleum just got a little smaller. The O&G giant’s outstanding share count increased from 886.6 million to 905.6 million over the past quarter. As such, Berkshire’s ownership percentage slips from 28.8% to 28.2%.
Reminder: Oxy paused share repurchases last October and said they would not resume until the company’s debt dropped below $15 billion. (This was in the run-up to the CrownRock acquisition.) As a result, its outstanding share count has increased in each of the past few quarters.
On Wednesday, the Knoxville News Sentinel profiled Pilot CEO Adam Wright. Buffett once called him “Horatio Alger squared” and it’s not hard to see why. Wright wakes up each morning at 3 a.m., hits the gym, and then spends most of the day at the office. But the former NFL player has time for fun, too: He wears Jordans sneakers to work every Thursday and plays Call of Duty with his son on the weekends. Wright came up through the ranks at Berkshire-owned MidAmerican Energy — before departing for Pacific Gas & Electric in 2021. Greg Abel then personally recruited him to come back and run Pilot after Berkshire assumed majority control of the travel center network last year. Through it all, Wright has remained surprisingly humble. “There are probably a lot of people that could do this job,” he told Knox News. “I don’t get so full of myself that for a minute I would ever think there’s something that’s uniquely special about me.”
Coca-Cola is embroiled in a tax dispute with the IRS that could eventually cost up to $16 billion. Basically, the soft drink maker stands accused of hiding profits in low-tax countries (like Ireland) so as to avoid paying taxes stateside. The company will soon pay an initial $6 billion for back taxes from 2007 to 2009 — but the ultimate amount could yet rise as high as $16 billion to cover subsequent years. Coke, for its part, remains confident that it will prevail on appeal and get that $6 billion back. Stay tuned.
Financial Times: “[Coca-Cola] has provisioned just $456 million in previous earnings statements to cover what it thinks it will actually end up owing — and has stood by its assessment that it will probably beat the IRS on all the central issues.”
🤑 Berkshire will receive $106.1 million in quarterly dividends from American Express and another $2.6 million from Mastercard today.
JPMorgan Chase CEO Jamie Dimon is on his annual bus tour through the Midwest — and made time to see his friend Warren Buffett. “I was with Warren yesterday,” he told CNBC on Wednesday, “and we always talk about the resiliency of America. It is extraordinary. It’s in these towns, it’s in the universities, it’s in the businesses, [and] it’s in the governments. They’re always looking for ways to improve our life.”
The New York Times published a story about Buffett’s decision to cut off the Gates Foundation after his death. Lots of unnamed sources — so salt to taste — but it seems like Buffett grew concerned by the foundation’s inflated operating costs and risk-averse approach to solving big problems.
Last year, Todd Combs shared how Buffett’s approach to philanthropy differs from his approach to investing. In effect, shooting for the moon — and being unafraid of failure — is the only way to tackle the thorniest societal problems. If you try to bat 1.000, you’re playing the philanthropic game way too safe. “Warren talks about this with philanthropy,” said Combs. “You want to be striking out a lot. You want to be pushing the envelope.”
Morningstar took a closer look at See’s Candies — and came to the conclusion that great stocks need not be growth companies. “The quiet part of the See’s story — and it’s the very best part — is that its operations required almost no outlays,” wrote John Rekenthaler. “Such can be the benefit of sluggish unit growth. From 1972 through 2007, See’s Candies generated $1.35 billion in pre-tax profits but spent a mere $32 million on capital improvements.”
What happened to all of that excess cash? It was shipped off to Omaha for Warren Buffett and Charlie Munger to allocate as they saw fit. A pretty sweet deal for all involved.
Over at the Collab Fund blog, best-selling author Morgan Housel shared a short story about Charlie Munger and his beloved Costco. “Podcaster David Senra asked Munger: Why are there so few speeches or interviews with [Costco founder] Jim Sinegal? ‘He was busy working,’ said Munger. The most impressive people don’t spend their lives on social media or managing their publicity.”
Odds & Ends from Berkshire Hathaway’s 10-Q
Let’s be honest: Warren Buffett’s big sale of Apple stock — and ending the second quarter with over $271 billion of cash on hand — drowned out just about everything else from Berkshire Hathaway’s latest earnings report.
But, here at Kingswell, I try not to let any interesting Berkshire-related facts or figures slip through the cracks.
So, today, I’ve gathered together as many of these little factoids from the 10-Q as I could find — all in hopes of giving us the most balanced accounting of Berkshire’s recent performance as possible.
THAT CASH NUMBER: Where else could I possibly start?
Berkshire’s cash total of $271.5 billion now accounts for 24.5% of the company’s total assets. That’s a lot higher than normal. According to Chris Bloomstran, cash has averaged 13% of assets since 1997. So we’re kinda in uncharted territory here.
Buffett has $234.6 billion of that total parked in short-term treasuries. Meaning that Berkshire owns more T-bills than the Federal Reserve ($195.3 billion). 👀
The sum of Berkshire’s cash and fixed maturity investments often roughly approximates the company’s float. Not anymore. The combined total of $288.3 billion now far exceeds Berkshire’s $169 billion of float. (h/t The Rational Walk)
STOCK PORTFOLIO: Lost in all the excitement surrounding the Apple sales, it seems that Buffett also sold a bit more Chevron stock in the second quarter. That makes it 16 consecutive quarters that the Oracle has chopped and changed his CVX 0.00%↑ position. We’ll get a full look at Berkshire’s investment activity from last quarter when the conglomerate files its 13F next Thursday.
BNSF: On Friday, I linked to a story in Trains about the recent boom in intermodal business. That materialized in BNSF Railway’s results for the second quarter — with consumer products enjoying a 15.0% boost “primarily due to higher intermodal shipments from West Coast imports and volumes from a new intermodal customer”. Agricultural products proved to be another bright spot for the railroad — in sharp contrast to laggards like industrial products and coal. Overall, car/unit volumes increased by 4.2% in the second quarter.
PACIFICORP: The beleaguered Berkshire Hathaway Energy subsidiary remains mired in litigation stemming from West Coast wildfires in 2020. So far, PacifiCorp has paid out $1.02 billion in losses — with another $199 million in settlements on the way. In all, the company expects to pay approximately $2.66 billion because of the wildfires.
MSR: We’re always sort of at Berkshire’s mercy as to what earnings information we get about the specific companies that make up the vast “Manufacturing, Services, & Retailing” segment of the conglomerate. After scouring through the 10-Q, here’s what I managed to turn up…
Precision Castparts continued its resurgence with a 27.5% boost in pre-tax earnings — fueled by higher demand for aerospace products
10-Q: “Long-term industry forecasts continue to show growth and strong demand for air travel and aerospace products.”
Lubrizol’s sales increased by 11% en route to a 53.2% gain in pre-tax earnings
Marmon’s earnings dropped 8.8% — dragged down by its Transportation Products, Metals Services, Retail Solutions, and Crane Services divisions
IMC (International Metalworking Companies) down 8.7%
Clayton Homes sank 10.0% — a decline of $55 million
Johns Manville increased sales volume, albeit at a lower average selling price
Forest River’s earnings dipped 3.6%, even though unit sales rose 9.4%
Jazwares revenue shot up 20.3% in the first half of 2024 on higher volumes
Apparel and footwear earnings rocketed up 40.8% — thanks to Brooks Sports
TTI’s earnings plummeted by 50.8%
Aviation services hit some turbulence with an 8.0% decline
Berkshire Hathaway Automotive’s pre-tax earnings slumped 8.2%
The rest of Berkshire’s retailers had a miserable quarter with earnings down 48.6%
10-Q: “Nearly all of our other retailers generated lower earnings in 2024 compared to 2023, reflecting challenging business conditions that contributed to reduced sales and increased operating expenses.”
McLane’s earnings increased 10.1% ($13 million) on gross margin improvements
Great edition!
Many thanks again for your detailed research!