Monthly Archives: November 2015

Low Fuel Prices & Grain Shipments Boost BNSF’s Profits

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While low crude oil prices reduce demand for BNSF Railway’s mobile oil pipeline business that hauls crude from the Bakken formation to west coast refineries, corresponding low fuel prices have had a positive impact on the railroad’s earnings.

BNSF had a boost in third-quarter earnings from $1.04 billion in 2014 to $1.16 billion in third-quarter 2015.

Big Agricultural Boost

Crude oil shipments may be down, but BNSF has seen a 13.93 percent year-to-date boost in agricultural shipments as compared to 2014. The rise in grain shipments has offset the 9.03 percent year-to-date drop in petroleum shipments.

Combined U.S. rail grain shipments hit their highest levels in five years, and the number of days behind schedule has dropped dramatically.

At its low point in June of 2014, the average delay for grain shipping for BNSF was a whopping 32 days. It’s now running only three days behind.

The bottom line is that business is good. BNSF’s total year-to-date carload units, including intermodal units, are up just under one percent with a combined rise of 0.85%.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

BNSF to Benefit from Amtrak Rail Upgrades on LA to Chicago Route

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Speeds for BNSF Railway’s freight service moving through New Mexico will receive a boost thanks to a $21.3 million upgrade of 158-miles of track between Pierceville, Kansas, and Las Animas, New Mexico.

The upgrades are needed to provide speeds up to 79 miles-per-hour for Amtrak’s Southwest Chief service that runs daily between Chicago and Los Angeles. The Southwest Chief carried 352,000 passengers in fiscal year 2014.

Funding for the improvements come from a $12.5 million Transportation Investment Generating Economic Recovery grant, with an additional $9.3 million in state, local and private funds. BNSF is contributing $2 million of the private funds.

Passenger Service at Risk

Deteriorating track conditions had put Amtrak’s Southwest Chief in jeopardy, and the Colorado legislature in 2013 created the Southwest Chief Commission to negotiate with Kansas and New Mexico on saving the route.

Faster Passenger Service Means Faster Freight Too

Track improvements to speed up passenger service, and in some cases to save routes running on substandard track, brings significant benefits nation-wide to freight railroads such as BNSF.

The Southwest Chief’s route is not the only route being upgraded. High-Speed Intercity Passenger Rail funds currently being invested to bring higher speed passenger rail service in the Pacific Northwest will also bring benefits to BNSF’s freight hauling capacity.

Under the American Recovery and Reinvestment Act (ARRA), a 467-mile rail corridor between Eugene, Oregon and Vancouver, B.C., is being upgraded in order to bring improved passenger rail service for Amtrak’s Cascades service.

In the Pacific Northwest, the improvements include new bypass tracks to add capacity, upgrades to warning signal systems, safety-related improvements, and multiple upgrades to existing track. A new rail bridge will cross the Coweeman River near Kelso, Washington, and there will be upgrades to wayside signal systems components at all control points, sidings and turnouts between the U.S./Canada border and Vancouver, Washington.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Berkshire Wants to Change How You Drink Beer

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First Berkshire Hathaway wanted to change the way you drink milk, now they want to change the way you drink beer.

In August 2015, Berkshire’s subsidiary Cornelius, Inc. signed a strategic partnership agreement with Dairyvative that made Cornelius the exclusive provider of equipment to hold and dispense concentrated milk using Dairyvative’s patented SEVENx technology.

Now, Cornelius and Sustainable Beverage Technologies (“SBT”), a Colorado-based developer of concentrated beer technologies, are launching a strategic partnership to market concentrated beer dispensing solutions to beverage brand owners and foodservice retailers across the globe.

According to SBT, using only traditional brewing ingredients (water, malt, hops, and yeast), SBT’s patented BrewVo technology utilizes a unique process called “Nested Fermentation”, in which brewers manage the fermentation environment where a highly concentrated beer is produced. When the beer concentrate is later mixed with carbonated water, the result says SBT compares to any premium beer on the market.

Under the terms of the agreement, Cornelius will be the exclusive provider of equipment to dispense the concentrated beer provided by SBT. Using Cornelius’ technology, the dispenser will utilize a state-of-the-art water filtration system that will mix carbonated water with the beer concentrate to provide the end user with a premium beverage. This solution will significantly reduce beer related space requirements within bars and restaurants creating an easy install for owners.

Cornelius, Inc., the world-leader in beverage dispensing equipment, was acquired by Berkshire Hathaway’s Marmon Group in January 2014.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Berkshire Reveals Price it Paid for GE Railcar Services’ Fleet

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The price for Berkshire Hathaway’s acquisition of substantially all of GE Railcar Services’ owned fleet of railroad tank cars has just been revealed.

Berkshire’s Marmon Holdings, Inc. acquired the assets on September 30, 2015, but at the time no price was announced.

In a filing on Friday, November 6, Berkshire revealed that the price was $1 billion.

Approximately 25,000 full-service and net-leased tank cars were acquired in the transaction, and Marmon also will take over certain GE Railcar Repair Services’ repair and maintenance facilities by the end of 2015.

Marmon already owns tank car manufacturer UTLX, which manufactures tank cars and engages in full-service leasing. UTLX furnishes all the services that are normally the responsibility of an owner and backs those services with the necessary specialists to keep fleet records of maintenance, repairs, and other administrative details.

GE is selling its remaining railcar leasing business, General Electric Railcar Services LLC, to Wells Fargo & Co.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Keystone Pipeline Decision Benefits BNSF

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The Obama Administration’s decision to reject the Keystone XL pipeline’s fourth phase will have a positive impact on BNSF Railway. BNSF, which since the oil boom in the Bakken Formation has become a mobile oil pipeline, is facing increased competition from a variety pipelines.

Keystone Was a Major Threat

Keystone XL, the fourth phase of the Keystone pipeline, would have moved crude oil from Alberta’s tar sands to refineries in Texas and Illinois, and most importantly in relation to BNSF, would have also carried about 100,000 barrels a day from the Bakken Formation in North Dakota and Montana.

Roughly twelve percent of Keystone XL’s capacity would have been used to carry Bakken crude through a lateral addition called the Bakken Marketlink.

While BNSF offers an advantage to crude of oil producers of being able to route shipments to different refineries depending on demand, it has about a $2 per barrel cost disadvantage versus pipeline transport.

Pipelines Keep Coming

BNSF will not be able to avoid pipeline competition forever, in fact, some of it has already started.

The Keystone XL’s Bakken Marketlink is not the only threat to BNSF’s mobile pipeline business. In August, Kinder Morgan’s 485-mile Double H pipeline began carrying crude from the Powder River Basin by way of a new connection in Douglas, Wyoming.

The Double H pipeline originates in the Bakken oil production areas near Dore, North Dakota and Sidney, Montana, and terminates near Guernsey, Wyoming. Double H interconnects with the Pony Express pipeline for further transportation to the Phillips 66 Refinery in Ponca City, Oklahoma, or the Deeprock Terminal in Cushing, Oklahoma.

The Double H pipeline has a capacity of 99,000 barrels per day and is expandable.

Kinder Morgan acquired the pipeline from Hiland Partners in January 2015.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Clayton Homes in $50 million Deal to Acquire Chafin Communities

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Berkshire Hathaway’s Clayton Homes is acquiring Chafin Communities, a Georgia home builder that builds extensively in northeast Atlanta.

The roughly $50 million acquisition will give Clayton Homes 1,100 building lots.

Chafin Communities’ principals, brothers Eric and Daryl Chafin, are staying on board to head up the new division. The two began working in construction as teenagers and founded their first construction company in 1966. The company’s 25 employees will all become Clayton employees.

Chafin Communities has constructed over 4,500 homes to date, and in 2014 Chafin Builders LLC/Chafin Communities ranked #13 in the Atlanta’s TOP 20 Home Builders List, based on Homes closed in 2013.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Kraft Heinz Axes 7 Factories and Moves Oscar Mayer Headquarters

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As part of its ongoing belt-tightening aimed at wringing out $1.5 billion in annual savings, Kraft Heinz has announced that it will close seven factories in the U.S. and Canada.

The factories are in Fullerton, California; San Leandro, California; Federalsburg, Maryland; St. Marys, Ontario, Canada; Campbell, New York; Lehigh Valley, Pennsylvania; and Madison, Wisconsin.

The factories will close in 12-24 months with the product lines being moved to existing factories.

Kraft Heinz will also shutter its Davenport, Iowa, meat processing plant with its production to be taken over by a nearby facility that is under construction, and move some of its cheese-making operations away from  Champaign, Illinois.  Where they will be moved to has not been announced.

In total, 2,600 jobs will be eliminated.

In addition, the company will relocate Oscar Mayer and its U. S. meats from Madison, Wisconsin, to Chicago. The move caught local union officials by surprise.

Michael Mullen, Senior Vice President of Corporate & Government Affairs at The Kraft Heinz Company, released a statement about the plant closings:

”Our decision to consolidate manufacturing across the Kraft Heinz North American network is a critical step in our plan to eliminate excess capacity and reduce operational redundancies for the new combined company.”

“This will make Kraft Heinz more globally competitive and accelerate the company’s future growth,” he added. “We have reached this difficult but necessary decision after thoroughly exploring extensive alternatives and options.”

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

BHSI Offers Directors & Officers Liability Insurance to Asia

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Berkshire Hathaway Specialty Insurance Company (BHSI) has begun selling Executive First™ Directors & Officers (D&O) Liability and Professional First™ Professional Indemnity Insurance policies in Asia.

Designed for commercial and financial firms, Executive First D&O Liability Insurance provides coverage for companies, directors, officers and executives facing securities litigation and regulatory investigations. Additional Side A protection is available for individual directors and officers.

Professional First Professional Indemnity Insurance provides professional services firms with comprehensive protection. The policy also has options to extend coverage to independent contractors and consultants and to automatically reinstate exhausted limits.

“With the launch of these two primary policies, we look forward to bringing BHSI’s exceptional local executive and professional lines expertise and customer-centric underwriting across Asia,” said Marc Breuil, President of Asia, BHSI. “Our customers and brokers can look forward to new products coming soon — all backed by BHSI’s financial strength.”

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Berkadia Arranges $5.1 Billion for Acquisition of Multifamily Portfolio

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Berkadia has secured $5.121 billion for a portfolio of 107 multifamily properties located across nine states.

Berkadia’s Managing Director Anthony Cinquini of the Los Angeles office worked with the borrower, Lone Star Real Estate Fund IV (Lone Star), to originate the seven-year loan through Berkadia’s Freddie Mac Program.

“This is the largest multifamily transaction Berkadia has executed with Freddie Mac to date, representing an outstanding team effort by everyone involved,” said Cinquini.
According to Berkadia, Lone Star used the mortgage financing to assist in its acquisition of Home Properties, Inc., which previously owned more than 36,500 total units in Florida, Illinois, Massachusetts, Maryland, Maine, New York, New Jersey, Pennsylvania and Virginia.

About Berkadia

Founded in 2009 as a 50/50 joint venture between Berkshire Hathaway and Leucadia National Corporation, Berkadia is a third-party commercial mortgage servicer, as well as an approved lender for Fannie Mae, Freddie Mac, and HUD/FHA. The company was among the top Freddie Mac and Fannie Mae multifamily lenders for 2013.

Berkadia owes its origins to GMAC Commercial Mortgage Corporation, which was acquired in 2009 by Kohlberg Kravis Roberts & Co., Five Mile Capital Partners LLC, and Goldman Sachs Capital Partners. Christened Capmark Financial, the company had $10 billion of originations in 2008 and a servicing portfolio of more than $360 billion before running into bankruptcy in October 2009.

In a deal approved by the bankruptcy court, Capmark sold its mortgage loan and servicing to the newly formed Berkadia in a deal worth $515 million.

The deal brought Berkshire into the heart of the commercial loan serving business, and the company has one of the largest commercial real estate servicing portfolios.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

BYD Number One in Electric Vehicles in August

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While everyone watches Tesla and Nissan to get the pulse of EV car sales, Chinese car-maker BYD is quietly topping their world-wide sales figures month after month.

BYD Co Ltd, which Berkshire Hathaway holds a minority stake in of nearly 10%, sold 5,307 pure electric cars in August 2015. The sales substantially topped both Tesla and Nissan, which had sales of 2,805 and 3,405 respectively.

The August win meant that the company beat Tesla’s and Nissan’s sales figures for the top EV manufacturer for the fourth month in a row.

For the year to date, BYD is in second place behind Nissan and ahead of Tesla.

Multiple Models

BYD’s Qin and Tang models make the company the only automaker to have two models in the top ten. The Qin ranks number one and the Tang is number eight, and  BYD will be adding two SUV models, the Song and Yuan, to the product lineup as well.

BYD’s marketing strategy has seen it make inroads across the globe, and it currently has buses and taxis running in over 160 cities in 36 countries.

BYD, which is the world-leader in rechargeable batteries, has yet to enter the U.S. car market with either its all-electric or hybrid vehicles. In the U.S., the company has focused on the battery-powered zero emission bus market, winning contracts in San Diego and Long Beach, California, and in Colorado, Oregon and Washington. The company has built a factory to assemble the buses in Long Beach.

However, BYD is inching toward U.S. car sales. In the spring of 2015 it began a pilot program with Uber in Chicago that used BYDs E6 sedan. The car is a cross between a sedan and SUV, and currently gets roughly 186 miles (300 km) of driving range per charge. The 2016 E6 will reportedly get a range increase to 250 miles (400 km).

For More on BYD, read the Special Report: BYD, Berkshire’s Tesla.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.