Monthly Archives: May 2016

Clayton Home Acquires Site-Built Home Builder in Tennessee

(BRK.A), (BRK.B)

Berkshire Hathaway’s manufactured home builder, Clayton Homes, has done a bolt-on acquisition.

Clayton Homes, the number one builder of manufactured homes, has acquired Goodall Homes, a builder of new single-family homes, townhomes and condominiums since 1983.

The Gallatin, Tennessee-based company is headed by Bob Goodall Jr., a graduate of Lambuth University, and a licensed real estate broker, residential contractor and commercial contractor since 1983.

The move continues to expand the Clayton Homes presence in the site-built home business. The company acquired Atlanta-area builder Chafin Communities in the fall 0f 2015.

According to the company, Goodall Homes has built thousands of new Single Family Homes, Townhomes, Courtyard Cottages, Condominiums, and Villas in the Nashville area. They have developed many residential neighborhoods in many Middle Tennessee locations.

The acquisition of Goodall Homes includes approximately 3,600 lots and 180 homes under construction in a five-county area in Middle Tennessee.

Goodall Homes closed 436 homes in 2015.

© 2016 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

Louisiana Among Key Target Markets for Dairy Queen

(BRK.A), (BRK.B)

Add Louisiana to the target markets for Dairy Queen’s U.S. expansion. The “fan food” and frozen treats franchiser is planning to open as many as 80 new Louisiana locations over the next ten years, including five in Baton Rouge.

The aggressive plans will nearly triple the number of Dairy Queens in The Pelican State from the current 36 stores.

All the stores will be the popular stand-alone “Grill and Chill” design, which Dairy Queen first unveiled in 2002, and now has over 1,000 across the U.S.

A Dozen Target Markets Nationwide

Recently Dairy Queen announced that it would be opening hundreds of new locations in Massachusetts and South Carolina, as well as several hundred in Northern California.

“We have about a dozen targeted markets throughout the United States. Louisiana is one of the primary ones because of the demand for the combination of the food menu and the treat menu items,” said Jim Kerr, International Dairy Queen Inc.’s VP of Franchise Development.

Louisiana’s existing stores are some of the chain’s most profitable, and Kerr notes that the South Sherwood Forest Boulevard “Grill and Chill” has some of the highest numbers of any Dairy Queen in the nation.

For more information read a Mazor’sEdge special report on Dairy Queen.

© 2016 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’s Richline Group Acquires Gemvara

(BRK.A), (BRK.B)

The Richline Group, Berkshire Hathaway’s marketer and distributor of jewelry to thousands of jewelry outlets across all key worldwide distribution channels, has acquired Gemvera. The Boston-based company is a leader in the area of custom-made, fine jewelry shopping online.

Founded in 2006 by two Babson College students, Gemvara had struggled as recently as 2014, but has finally become profitable in just the last year. Key to the turnaround was the introduction of a lower-priced line called Gemma Gray, and a gemstone resetting business called Sequel.

The company has been acquired to bring Richline Gemvera’s ecommerce and in-store digital technology that are needed for Richline’s brands.

“It’s back to the future,” said Gemvera CEO Matt Nichols in BostInno. Nichols came to Gemvara in 2011 from Highland Capital.

Gemvara’s revenues are growing, and currently are under $20 million a year.

© 2016 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.

Benjamin Moore Ranked Number 1 in Customer Satisfaction By J.D. Power

(BRK.A), (BRK.B)

Off to a terrific revenue jump in 2016, Berkshire Hathaway’s paint, color and coatings brand Benjamin Moore has something additional to crow about, as the company has been ranked highest in customer satisfaction with both interior paints and exterior stains by J.D. Power.

According to the 2016 Paint Satisfaction Study, Benjamin Moore achieved the highest numerical scores over all other brands among interior paints (836) and exterior stains (814) on a 1,000-point scale.

“Benjamin Moore is proud to be recognized as the highest-ranking in customer satisfaction for our paints and stains,” said Mike Searles, President and CEO of Benjamin Moore. “We are committed to developing the most innovative, best-performing coatings that meet the needs of customers, contractors and designers, and this honor not only indicates the superiority of our products in the marketplace, but also demonstrates that only Benjamin Moore can make the impossible possible.”

J.D. Power measures customer satisfaction in the interior and exterior paint and stain market across six factors: application, design guides, durability, price, product offerings and warranty/guarantee. Benjamin Moore scored highest in the application, durability and product offerings factors within the interior paint brand segment of the study. Additionally, the brand achieved the highest score in all six study factors within the exterior stain brand segment.

The study is based on 16,128 responses measuring experiences and perceptions of customers who purchased and applied interior paint and exterior stain in the previous 12 months. Customers were surveyed from January through February 2016.

Benjamin Moore’s Strong Growth

2015 was a good year for Benjamin Moore, with the company having its best results in a decade.

The company is off to a strong start for 2016, with its best first quarter in five years.

The key drivers of the growth is a commitment to new distribution outlets.

Benjamin Moore added 265 new outlets in 2015, with a net gain after store closing and changes in brands of 79 locations.

The growth is a combination of operating conversions as existing paint dealers switch to the Benjamin Moore brand, and dealers branching out and opening new outlets.

The company emphasizes that its network of independent dealers is at the heart of customer satisfaction, as people receive a high level of service.

At the 2016 Berkshire Hathaway annual meeting, Dan Calkins, Benjamin Moore’s Executive Vice-President of Sales, noted that Benjamin Moore dealers give excellent customer service “because their livelihoods depend on it.”

Benjamin Moore has made a conscious decision to not sell its products at big box stores, such as Home Depot and Lowe’s.

The company is constantly innovating its product line, and will have a new product launch in November.

© 2016 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.

NetJets Reaches Labor Agreement With Flight Dispatchers

(BRK.A), (BRK.B)

NetJets’ seemingly endless labor disputes look finally to be ending, as the flight dispatchers have now followed the pilots and flight attendants in reaching a new contract with Berkshire Hathaway’s fractional aircraft ownership company.

The International Brotherhood of Teamsters, Teamsters Airline Division and Local 284 report they have reached a tentative agreement with NetJets on a five-year contract for approximately 50 flight dispatchers at NetJets.

The agreement was reached on May 5, and is the first union agreement for the NetJets dispatchers.

According to the union, the average first year wage increase is 18.5 percent.

The contract prohibits displacement or removal from a dispatcher position, furlough or remaining on furlough as a result of implementation of new technology or changes to existing technology. In addition to average signing bonuses in excess of $11,000, the contract prohibits management from increasing out of pocket expenses related to the dispatchers’ health insurance benefits.

The new collective bargaining agreement ends at-will employment and replaces it with just cause protections, access to stewards and other union representatives on the job. It also includes protections against subcontracting or assigning work to employees who are not covered by the contract.

“This moment is the culmination of years of hard work,” said Capt. David Bourne, Director of the Teamsters Airline Division. “This group has overcome many obstacles and fought incredibly hard to attain this contract. They’ve achieved an excellent agreement which contains job protections, large wage increases and improved retirement benefits. I’m proud to be able to call them Teamsters.”

“We’re ready to represent this group,” said Paul Suffoletto, President of Local 284. “Whether it’s signing bonuses, recognition of seniority rights or job security protections, these dispatchers will now be given the status they deserve within the industry. We appreciate the efforts of everyone involved in organizing and negotiations. The work has been greatly rewarded with this agreement, which has the full support of the negotiating committee.”

© 2016 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

Low Interest Rates Cut Value of Berkshire’s Insurance Float

(BRK.A), (BRK.B)

With the advent of unprecedented negative interest rates in Japan and the Eurozone, the value of Berkshire Hathaway’s insurance float is diminished.

Europe’s central banks have slashed interest rates below zero, and at the 2016 Berkshire Hathaway annual meeting, Warren Buffet noted the moves have rewritten Aesop’s ancient adage that a “bird in the hand is worth two in the bush.”

Buffett noted that right now “a bird in the hand is worth 9/10s of a bird in the bush.”

Cheap money has also driven up the costs of Berkshire’s acquisitions, as competitors’ access to capital diminishes one of Berkshire’s key advantages.

Even with Berkshire having just closed on its $32 billion acquisition of aerospace manufacturer Precision Castparts, the company is heading back towards having $40 billion at the ready for acquisitions.

“We have excess cash everywhere at Berkshire,”  Buffett said, as he emphasized that he was ready to put it to work buying more large companies. “We would love to find another three or four types of Precision Castparts.”

With all its cash at the ready for acquisitions, Berkshire still maintains a reserve of $20 billion in case of economic downturns or other needs.

© 2016 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.

“Subtract a Billion” Says Buffett, Lamenting Soaring Auto Dealership Valuations

(BRK.A), (BRK.B)

When Berkshire acquired Van Tuyl Group, Warren Buffett trumpeted the growth potential of the newly renamed Berkshire Hathaway Automotive.

“This is the beginning of a journey that will have no end,” Buffett noted upon completion of the acquisition. “Cecil and Larry have given us the ideal platform with which to build an auto dealership business that will be thriving and growing 50 and 100 years from now. The fun has just started.”

Unfortunately for Berkshire, the acquisition of Van Tuyl set off a dramatic rise in auto dealership valuations that has rippled throughout the industry, and frustrated efforts for Berkshire to add new dealership groups at what it feels are reasonable valuations.

At the 2016 Berkshire Hathaway annual meeting, Buffett acknowledged that they “hadn’t had much luck” in acquiring more dealerships.

One of the few acquisitions was the April 2015 purchase of Frank Kent Honda in Fort Worth, Texas.

Soaring Valuations

The steep rise in valuations has kept Berkshire Hathaway Automotive mostly on the sidelines even as the Kerrigan Advisors’ Blue Sky Report showed that U.S. dealership buy/sell activity soared to record highs in 2015. The Report noted “activity by new entrants outpacing public company acquisitions by over four to one.”

The Blue Sky Report showed that while the competition for auto dealerships was fierce in 2015, it did not favor the public companies, which in addition to Berkshire Automotive also includes CarMax and Penske Automotive Group.

“A number of iconic multi-dealership groups came to market in 2015 and were acquired by both established consolidators and new entrants. Faced with this stiffer competition, the publics found it more difficult to compete for larger group transactions, and represented just 7% of the buy/sell market in 2015.

Meanwhile new dealership buyers, including family offices, private equity firms, and public conglomerates, acquired 29% of the franchises sold, a stunning accomplishment,” said Erin Kerrigan, Managing Director of Kerrigan Advisors. “We believe new entrants will increasingly shape dealership consolidation and meaningfully impact the future of auto retail.”

The Blue Sky Report went on to note that while the market for auto dealerships is still very active, the market may be peaking.

“In 2015, dealership valuations rose to historically high levels, new entrants made sizable acquisitions, manufacturers approved numerous multi-dealership transactions, and real estate prices returned to pre-recession levels,” continued Kerrigan. “In summary, it was a year that is hard to beat.

While the 2016 buy/sell market is expected to be as active as 2015, we anticipate the proportion of sellers completing a successful sale could decline as industry growth plateaus and dealership earnings flatten.

Buffett Says Subtract a Billion

Warren Buffett noted that the $4.1 billion price he paid for Van Tuyl Group also included a billion dollars in securities, as Van Tuyl also has a large float tied to financing and its extended warranty program, which was also acquired by Berkshire.

Buffett said that people should “take a billion off the purchase price,” as the reported price has given other dealership groups an inflated sense of their market value.

Is there still a major auto dealership that’s just ripe for a Berkshire acquisition? There just might be. Read this Mazor’s Edge Special Report.

© 2016 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 Gives Mixed Signals on AmEx Stake

(BRK.A), (BRK.B)

Warren Buffett has long regarded Berkshire Hathaway’s stake in American Express like he views his stake in Coca Cola. It’s one of his “forever stocks.”

With American Express having struggled in recent years, including losing its co-branded relationship with Costco, the question is whether forever is really forever, or just a long time.

Costco’s jump to Visa is expected to take a big bite out of AmEx revenues, as it represented a whopping 8% of total billed credit card charges.

“I personally feel OK about American Express, and I’m happy to own it,” Buffett, said while taking questions at the meeting Berkshire Hathaway annual meeting. He did note AmEx’s problems, stating that it “has been under attack for decades — more intensively lately — and it will continue to be under attack. It’s too big a business, and too interesting a business.”

Buffett acknowledges that banking and finance draw a lot of attention and competitors, and there is always someone trying to knock you off your pedestal.

In that regard, Charlie Munger was less sanguine about AmEx.

“Anybody in payments who’s an established long-time player with an old method has more danger than used to exist,” he said.

Buffett is loath to sell Berkshire’s stake in AmEx and Coca Cola, because the cost basis is very low, and the profits from the sales would incur billions in taxes. The positions are both so large that they would also be hard to unload without affecting share prices.

Buffett also noted that Berkshire’s fund managers Ted Weschler and Todd Combs may not be as wedded to holdings in those companies as he has been when the day comes that they take over the entire $100+ billion portfolio. Each currently manages a $9 billion portfolio.

© 2016 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.

Buffett Throws Cold Water on Ajit Jain Rumors

  • (BRK.A), (BRK.B)

Two weeks ago rumors began flying that perhaps Warren Buffett had just signaled that Ajit Jain would be his successor as CEO of Berkshire Hathaway.

The rumors started when General Reinsurance Corp. Chairman and CEO Tad Montross announced that he would step down near the end of 2016.

Berkshire quickly announced that Ajit Jain, who already runs a large part of Berkshire’s reinsurance business, would add General Reinsurance to his portfolio.

Buffett watchers jumped on the news, speculating that the odds that Jain would someday take over Berkshire Hathaway had dramatically improved.

Not So Fast Says Buffett

Speaking at the 2016 Berkshire Hathaway annual meeting, Buffett threw cold water on the rumors. Buffett watchers, who hoped to divine the future of Berkshire’s leadership, got no help on their visit to the Oracle of Omaha.

Buffett noted that there are “no tea leaves to read in the fact that Ajit is supervising Gen Re from this time forward.”

While Buffett continues to emphasize that the conglomerate has a succession plan, and the Board is fully behind it, he is not going to reveal it to the public.

From his perspective, to do so would be to risk announcing a successor who might not take the job if a personal “situation” comes into play in the interim period. Buffett didn’t define that situation, but health is just one possible factor.

Speaking of health, Buffett, who at age 85 has no problem parrying five hours of questions at the annual meeting, also noted that the exact timing of succession is also an unknown. He doesn’t look to be interested in stepping down as he clearly loves what he is doing, and his recent $32.3 billion acquisition of aerospace manufacturer Precision Castparts shows he can still do it better than anyone else.

Buffett appeared to be in excellent health and spirits, and when asked if he had regrets for anything he wishes he could do over in life, he chuckled.

“I don’t think I would have started with a textile company,” he joked, referring to Berkshire Hathaway’s origins as a failing New England textile mill.

© 2016 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.