The Berkshire Beat: November 8, 2024

All of the latest Warren Buffett and Berkshire Hathaway news!

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On Monday, I wrote all about Berkshire Hathaway’s Q3 2024 earnings report — and, in particular, that eye-popping $305.5 billion cash number.

Today, I’m back with even more. I’ve gone through the 10-Q with a fine-tooth comb and gathered up all the interesting odds and ends that I could find.

But, first, let’s check in on the latest news and notes out of Omaha…

A couple of notable Berkshire followers released new intrinsic value estimates for the conglomerate this week. (This is low-key one of my favorite aspects of earnings season. I’m a sucker for Berkshire intrinsic value discussion.) Up first, Greggory Warren of Morningstar maintained his fair value estimates for Berkshire at $700,000 for Class A shares and $467 for Class B shares. Pre-Covid, Warren served on the analyst panel at Berkshire AGMs — which is probably a fair sign that Warren Buffett considers him to be a sharp analyst.

• Whitney Tilson came in slightly higher with $719,000 for Class A shares and $479 for Class B shares. “That’s not a bad discount,” he wrote on Tuesday, “but the undervaluation isn’t as great as it has been at certain times in the past.”

CStore Decisions named Pilot its 2024 Chain of the Year. The trade journal hosted a bash for Pilot staff out in Las Vegas to celebrate the coveted accolade — and chatted with CEO Adam Wright about what sets his travel center network apart. The answer: Pilot’s people-first culture and innovation mindset. “Companies are nothing but a compilation of people,” said Wright. “We say here that the P in Pilot stands for people. Our 30,000 team members make this place what it is. They create all the experiences. They serve the guests. They have all the best ideas. We just want to continue to honor and serve them — but [also] harness their good ideas.”

• Pilot is working with GM and EVgo to create a nationwide EV charging network. But, said Wright, the company remains “fuel agnostic and customer focused”. Pilot will cater to whichever types of vehicles its customers prefer.

• Pilot Energy — the third-largest tanker fleet in the country — drops a load of fuel (“anywhere from 7,000-9,000 gallons of diesel or gasoline”) every 25 seconds.

Occidental Petroleums CEO Vicki Hollub got in on the awards action, too. She was named Hart Energy and Oil & Gas Investor’s Executive of the Year — and sat down for a wide-ranging interview on all things O&G that is well worth a read. With Berkshire already owning 28.2% of her company, Hollub was asked: How much is too much? “We would never consider it to be too much,” she said. “It’s good to have conversations with Berkshire and others to make sure that we keep the dialogue going as to what they’re seeing, what they like about what we’re doing, [and] suggestions.”

• Oxy and Berkshire recently formed a joint venture — TerraLithium — to advance domestic lithium mining. “We’re trying to provide a solution to getting lithium out of brine water,” said Hollub. “It’s a great source to create what we need [for battery production in America]. What we’re doing with Berkshire in the Salton Sea is we’ve already tested our technology there. It works. Our view and plans are to ultimately export TerraLithium’s technology beyond the Salton Sea to places like Arkansas and places internationally.”

  • “When you combine the brine water that our chemicals business uses with the brine that we produce as part of our oil and gas operations,” she said, “we probably are one of the largest handlers of brine in the U.S. — so that’s a core competency for us.”

• Hollub also sang the praises of Oxy’s bread and butter: the Permian Basin. “The Permian is the basin that keeps on giving,” she said. “It’s going to be the last basin standing in the U.S. and maybe one of the last basins standing in the world.”

🤑 Dividends: Today, Berkshire will collect $106.1 million in quarterly dividends from American Express and another $2.6 million from Mastercard.

NetJets wrapped up a busy month by making a little history. “Some may be surprised to learn that October is historically our busiest month in terms of customer flight volume,” NetJets president Patrick Gallagher posted on LinkedIn. “This held true in October 2024 and October 27th was our busiest day on record with 898 customer (and several hundred repositioning) flights safely completed in our US program!”

The great Brooklyn Investor returned from a one-year absence with a new post about (among other things) Berkshire’s cash. “This large selling and huge cash pile may be more a function of how successful the Apple investment was, and how dominant it became in the portfolio. I know [Buffett] is not the type to rebalance a portfolio because of too much concentration, but selling an expensive stock for a low tax rate before it may go up certainly feels right. If Apple didn’t do so well and get so big, would [Berkshire] have $300 billion in cash now? Nope. It is more about how incredible the Apple investment was rather than how bearish Buffett has become.”

And a couple more links to check out:

• Value Stock Geek
  and guest Matthew Cochrane talk Poor Charlie’s Almanack.

• Mark Tobak over at Hedge Fund Alpha shares how Charlie Munger — both in business and in life — always kept things simple.

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Odds & Ends from Berkshire Hathaway’s 10-Q

Every quarter, it seems like just a few pieces of news — like that $300+ billion cash mountain and selling 100 million shares of Apple stock — drown out almost everything else from Berkshire Hathaway’s 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 the most balanced accounting of Berkshire’s recent performance as possible.

THAT CASH NUMBER: Where else could we possibly start?

• Berkshire’s cash total of $305.5 billion was bigger than the fair value of its stock portfolio ($271.7 billion) at quarter’s end. That remains true even if you include equity method investments like Occidental Petroleum and Kraft Heinz, too.

• Fun fact: Berkshire held $16.4 billion more in short-term cash equivalents like Treasury Bills than in all of its investments in equity securities. And, with so much cash parked in T-Bills, it’s no surprise that interest and other investment income increased by 104.8% ($1.8 billion to $3.5 billion) during the quarter.

LITIGATION: Later this month, HomeServices of America (the real estate brokerage owned by Berkshire Hathaway Energy) hopes to have its class settlement for the real estate commission conspiracy case approved by the district court. Under the terms of this settlement agreement, HomeServices will pay $250 million over the next four years. If the settlement is not approved, though, the brokerage vows to “vigorously appeal on multiple grounds the jury’s findings and damage award”.

PILOT: The travel center network’s pre-tax earnings dropped 25.4% in the third quarter on lower average fuel prices and a decline in the wholesale fuel biz, though its gross sales margin crept upwards 1%. But, due to drastically lower income tax and non-controlling interest expenses, Pilot eked out an 8.2% gain in net earnings.

• Here’s a great example of how becoming part of Berkshire brings with it some pretty great ancillary benefits. In March 2024, Pilot borrowed $5.7 billion from some of Berkshire’s insurance subsidiaries in order to repay existing third party obligations. We don’t get the specific details of this arrangement, but Pilot seems to have gotten much better terms on this in-house borrowing. Interest expense declined from $113 million in Q3 2023 to $66 million now.

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 to fly high with a 25.1% boost in pre-tax earnings on $2.6 billion of revenue — fueled by higher demand for aerospace products and improved manufacturing and operating efficiencies

  • 10-Q: “Long-term industry forecasts continue to show growth and considerable demand for air travel and aerospace products.”

• Lubrizol’s pre-tax earnings increased 36.2%

• Marmon’s earnings dropped 13.0% — dragged down by its Transportation Products, Metals Services, Retail Solutions, Crane Services, and Electrical groups

• IMC’s earnings down 13.0% on $1 billion of revenue

  • 10-Q: “IMC’s operations in Israel have not been significantly impacted to date by the conflicts in the region.”

• Clayton Homes sank 15.6% — a decline of $86 million

• Johns Manville increased sales volume, albeit at a lower average selling price

• Forest River’s year-to-date earnings are up 3.9%

• Jazwares revenue rose 11.6% in the first nine months of 2024

• Apparel and footwear earnings raced ahead 41.0% — with revenue at Brooks Running up 8.9% over the first nine months of the year

• Duracell’s earnings increased, too, though the 10-Q does not specify by how much

• TTI’s earnings plummeted by 48.3% due to lower sales and price competition

• Aviation services hit some turbulence with a 17.5% decline in earnings

• Berkshire Hathaway Automotive — which accounts for 70% of the retailing segment’s revenue over the first nine months of 2024 — saw earnings fall 10.0%

• McLane’s earnings increased 25.0% ($29 million) on margin improvements