Categories
Dairy Queen

Dairy Queen Targets South Carolina for Major Expansion

(BRK.A), (BRK.B)

The state of South Carolina, and the Myrtle Beach area in particular, is about to become Dairy Queen territory, as the quick-service restaurant chain owned by Berkshire Hathaway looks to build some 75 new Dairy Queen Grill & Chill restaurants in South Carolina in 2016.

Dairy Queen opened 84 new outlets in the United States in 2015, and its goal of 85 new stores in 2016 means that the vast majority of them will be in South Carolina.

Eight of the locations are planned for the popular Grand Strand beach area that runs from North Myrtle Beach to Georgetown.

Why South Carolina? The company cites its “state-of-the-art analytics” for its interest in expanding the state, and the new stores will mean Dairy Queen will have over 90 locations including existing stores.

As a corporate strategy, Dairy Queen shuns company owned stores, instead focusing on its franchise business, and it is looking for franchise owners that want to run multiple stores.

In recent years, new franchises have popped all over Florida, and overseas in places such as Bahrain, Brunei, Dubai, Egypt, Oman, Qatar, and Saudi Arabia.

DQ a Winner for Berkshire

With 6,700+ locations worldwide, Dairy Queen is far smaller than McDonald’s or Burger King, but to its advantage it has only three company owned stores. The cost of the bricks and mortar are born by the franchisees, and Dairy Queen makes its money from franchise fees and a percentage of the sales.

Each franchise pays a $35,000 franchise fee, a royalty fee of 4%, and a marketing fee of 5% – 6%.

In the aggregate the franchises net Berkshire Hathaway hundreds of millions a year on its investment of only $585 million. Increasingly Dairy Queen is making that money year-round as its stronger focus on its food business, including its new DQ® Bakes! line-up, has customers seeing it as more than just a summer treats purveyor.

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.

Categories
Berkshire Hathaway Specialty Insurance Insurance

Berkshire Hathaway Specialty Insurance Launches Medical Stop Loss Division

(BRK.A), (BRK.B)

Berkshire Hathaway Specialty Insurance Company (BHSI) has established a dedicated Medical Stop Loss Division and appointed John Snyder to lead the effort.

BHSI also named David Friedly as Head of Underwriting and Glenn Funk as Actuary for Medical Stop Loss.

“We are pleased to have the talent and experience of John, David and Glenn fueling our move into medical stop loss and building out our team for this product line,” said Sanjay Godhwani, Executive Vice President, BHSI. “Their deep expertise, coupled with BHSI’s strong balance sheet, will allow buyers to make their medical stop loss choice with confidence.”

BHSI notes that John Snyder comes to the company with nearly four decades of experience specializing in employer self-funded medical plans. During the course of his career, he served as a Third Party Administrator (TPA), an employee benefits broker and a Managing General Underwriter (MGU) of stop loss business. He retired from AIG in 2013 after more than a decade as President and Chief Executive Officer of Medical Excess, LLC.

David Friedly has more than 40 years of life and health insurance experience with major commercial insurers and benefits organizations. His career has included leadership roles in operations, compliance, claims and underwriting, with a focus on medical stop loss. David holds a bachelor’s degree in Political Science from the University of Southern California.

Glenn Funk joins BHSI with more than 40 years of industry experience, most recently serving as Vice President and Actuary at AIG Benefits Solutions. Previously, Glen was Executive Vice President and Chief Actuary at Medical Excess, LLC, and served as Chief Actuary at American Health & Life Insurance Company, General Reassurance Corporation and Anthem Insurance Companies. Glenn is a Fellow of the Society of Actuaries. He holds a bachelor’s degree in Mathematics from Yale University and a master’s degree in Actuarial Science from Northeastern University.

All three executives are based in BHSI’s office in Irvine, California.

© 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.

Categories
Nebraska Furniture Mart

Berkshire’s Furniture Retailing Revenues Soar in 2015

(BRK.A), (BRK.B)

Berkshire Hathaway’s furniture retailing companies, which include Jordan’s, Nebraska Furniture Mart, R.C. Willey, and Star Furniture, delivered stellar results in 2015, with Berkshire’s revenues from retail rocketing up 64% to $564 million.

Much of the increase was due to the opening of the massive new Nebraska Furniture Mart in Dallas, Texas.

Proving that everything’s bigger in Texas, the mega-store boasts a 560,000-square-foot retail showroom and 58 acres of parking. The store’s massive loading area can load 120 cars simultaneously.

Before the new store opened, Berkshire was predicting that it would have annual revenues of $600 million, which is $200 million more than Nebraska Furniture Mart’s Kansas City store generates.

Shareholders Generate Spectacular Furniture Sales

Some of Berkshire’s millions in furniture sales come from the more than 40,000 shareholders that descend on Omaha every May for the conglomerate’s annual meeting.

In his 2015 annual letter to shareholders, Warren Buffett encouraged the shareholders to use their Berkshire Hathaway shareholder discount, which is good for the week of the annual meeting.

“Last year in the week encompassing the meeting, the store did a record $44,239,493 of business,” Buffett explained. “If you repeat that figure to a retailer, he is not going to believe you.”

Buffett went on to say that an average week for the store was roughly $9 million in sales, a figure that by itself would have any other furniture retailer in the stratosphere.

© 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.

Categories
Berkshire Hathaway Energy

Berkshire Acquires Second Solar Portfolio from Geronimo Energy

(BRK.A), (BRK.B)

Berkshire Hathaway Energy has acquired the Minnesota Community Solar Garden developments from Geronimo Energy, LLC.

The portfolio of solar projects was acquired by BHE Renewables, LLC, which is a subsidiary of Berkshire Hathaway Energy.

The acquisition will give BHE an additional of 66 megawatts of solar garden projects spread across 21 locations and 16 Minnesota counties when construction is completed at the end of 2017.

The deal is the second between BHE and Geronimo in the last twelve months.

In May 2015, BHE acquired Geronimo’s Grande Prairie Wind Farm in Holt County, Nebraska; the to be developed Walnut Ridge Wind Farm in Bureau County, Illinois; and a portfolio of future Minnesota solar projects.

The total combined solar power portfolio will produce nearly 100 MW of electricity.

Working with Utility-Scale Developers

Berkshire has a strategy of purchasing solar projects from outside developers, including the 579 megawatt Solar Star Projects (formerly Antelope Valley Solar Projects), which are two co-located solar installations in Kern and Los Angeles Counties in California, that were purchased from SunPower in 2013

This latest deal will not be the last between Berkshire and Geronimo, a utility-scale wind and solar energy developer based in Edina, Minnesota.

“We are pleased to expand our partnership with BHE Renewables,” says Geronimo Energy President, Blake Nixon. “Geronimo looks forward to continuing to grow our relationship with BHE Renewables through our work in Community Solar Garden programs and deliver on our promise to positively impact rural economies, specifically here in our home state of Minnesota.”

© 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.

Categories
Minority Stock Positions

BYD Receives Big Pure-Electric Bus Order from AVTA

(BRK.A), (BRK.B)

The Antelope Valley Transit Authority (AVTA), which serves some 450,000 residents of the cities of Lancaster and Palmdale, California, and the unincorporated portions of northern Los Angeles County, has ordered up to 85 pure-electric buses from China’s BYD Company Limited.

The buses will be built at BYD’s manufacturing facility in Lancaster, California.

Berkshire Hathaway owns roughly 9.1% of the company, and Berkshire’s stake is worth roughly $12.3 billion.

“BYD Coach and Bus is proud to partner with AVTA on its groundbreaking decision to completely electrify its fleet,” said Stella Li, president of BYD Motors. “With more than 6,000 electric buses deployed world wide and 90 million miles of dependable service already accumulated, we know that our technology will help AVTA save money and improve local air quality. Pure-electric powered transportation is no longer in the future – it’s here now. I hope other transit agencies in California and across the country take note and follow the example AVTA has set today.”

AVTA notes that it is anticipating a cost savings as a result of electrifying its fleet. Over the lifetime of the new electric bus fleet, the transit agency forecasts it could save more than $46 million compared to an all diesel bus fleet, equivalent to $46,000 per bus per year in savings. And, by reducing dependence on foreign oil imports, AVTA will no longer be subject to oil price volatility for its bus fleet. This will help create greater stability for budget forecasting for the fleet manager – an important factor for a public agency.

The AVTA expects to take delivery of 29 electric buses within the next 12 months and is working to secure additional grant funding from the Air Resources Board to purchase another 17 buses.

“This is a historic day for AVTA which has been working diligently to secure grant funding to purchase these state-of-the- art zero-emission vehicles,” said Len Engel, executive director of AVTA. “We are proud to be the first transit system to adopt a goal of ‘100% Green in 2018’ and we look forward to leading the nation toward a new alternative in public transportation.”

Additional benefits AVTA will see as a result of electrifying its entire fleet include:

• Noise Pollution Reduction: noise pollution will be reduced by 50 percent, making it a more pleasant ride for bus operators and transit passengers.

• Emissions Reductions: AVTA’s all-electric fleet will provide elimination of CO2, NOx, PM10 and PM2.5, thereby improving air quality and positively impacting human health.

• Safer Work Environment for Technicians: The electric batteries are safe, thermal runaway proof, non-toxic, and maintenance free. There are no diesel or diesel emission fluids needed for bus maintenance, providing a safer and healthier working environment for vehicle technicians.

BYD’s Pure-Electric Buses Around the Globe

BYD’s electric buses have been hot sellers not only in China, but around the world, with orders from the U.S, Brazil, Columbia, England, Malaysia and Thailand.

In September 2015, BYD scored a massive order in the U. S. from the state of Washington. BYD won a contract from the Washington State Department of Transportation (WSDOT) for up to 800 pure electric buses.

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

© 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.

Categories
Minority Stock Positions Stock Portfolio Todd Combs and Ted Weschler

Buffett’s Belief in Todd Combs and Ted Weschler Continues to Grow

(BRK.A), (BRK.B)

Todd Combs and Ted Weschler, the former hedge fund managers that Warren Buffett hired to manage a portion of Berkshire Hathaway’s stock portfolios, have continued to see their portfolios grow.

Combs was hired in 2010, and Weschler was hired in 2011, and each was initially given a billion dollar portfolio to separately manage. Over the past five years Buffett has increased their portfolios as he has grown confident in their abilities, with the portfolios reaching $7 billion each in 2014.

Those portfolios have now reached $9 billion each, according to information in Warren Buffett’s 2015 annual shareholder’s letter.

The total stock holdings for Berkshire total a whopping $132 billion.

As Warren Buffett’s handpicked protégés, Buffett has praised their success, noting that “They have made Berkshire billions already that we wouldn’t have otherwise made,” Buffett said on CNBC in 2014. “They both have a fundamental combination of soundness and brilliance.”

That brilliance has certainly played out big in 2014 and 2015.

It was Todd Combs’s belief in aerospace manufacturer Precision Castparts that directly led to Buffett’s $32 billion acquisition of the company.

“You have to give Todd Combs credit for the deal,” Buffett said, noting that he had never heard of the company before Combs brought it to his attention. ”Todd told me a lot about it, and over the last few years I have become familiar with it,” he added.

Another winner was Combs and Weschler’s positions in DirecTV in 2014. The satellite broadcaster’s acquisition by AT&T brought an over $3 billion windfall for Berkshire, as its 4.5 million shares were purchased at roughly half the tender price of $95 per share offered by AT&T.

Sooner or later, the day will come when the entire Berkshire portfolio will be in Todd Combs and Ted Weschler’s hands, and Berkshire’s shareholders will be able to sleep well at night knowing it is well-managed.

© 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.

Categories
Minority Stock Positions

BYD Profits Surge as Electric Vehicle Sales Soar

(BRK.A), (BRK.B)

BYD Company Limited, the Chinese battery and vehicle-maker that is 9% owned by Berkshire Hathaway, saw its net profits in 2015 grow a dramatic 550% to 2.82 billion yuan ($431 million).

The growth comes as BYD took over the number one position as the world’s top selling EV manufacturer.

BYD was only ranked seventh in 2014, and its position as the global leader comes while it has yet to retail its EV cars in the United States.

BYD’s success is due in part to the popularity of its Qin sedan and Tang SUV in China, and on the growing sales of its pure-electric buses, not only in China, but around the world.

BYD has pure-electric bus orders from the U.S, Brazil, Columbia, England, Malaysia and Thailand.

In September 2015, BYD scored a massive order in the U. S. from the state of Washington. BYD won a contract from the Washington State Department of Transportation (WSDOT) for up to 800 pure electric buses.

On the auto front, the company will introduce two new models in 2016, the SUVs Song and Yuan.

In 2008, Berkshire Hathaway bet on BYD’s potential and purchased 225 million shares, and today owns roughly 9.1% of the company.

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

© 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.

Categories
Clayton Homes Warren Buffett

Warren Buffett Vigorously Defends Clayton Homes in Annual Shareholder Letter

(BRK.A), (BRK.B)

“The Best defense is a good offense,” is the old saying, that is exactly the approach Warren Buffett continues to take in defending Berkshire Hathaway’s mobile-home manufacturer Clayton Homes from those who say it preys on low-income home buyers.

It was less than a year ago that the company first came under attack, when with the force of a volcano, a Seattle Times and the Center for Public Integrity investigative report titled “The Mobile Home Trap” accused Clayton Homes of relying on “predatory sales practices, exorbitant fees, and interest rates…trapping many buyers in loans they can’t afford and in homes that are almost impossible to sell or refinance…”

Buffett’s immediately addressed the accusations head on at the 2015 Berkshire Hathaway annual meeting, when he said, “I make no apologies whatsoever about Clayton’s lending terms.”

Now, in his 2015 annual letter to shareholders, Buffett has a devoted one and a half pages to defending Clayton Homes from its detractors.

In a vigorous defense, Buffett wrote:

“Our retail outlets, employing simple language and large type, consistently inform home buyers of alternative sources for financing – most of it coming from local banks – and always secure acknowledgments from customers that this information has been received and read.”

In an unusual move, Buffett went so far as to include the actual form on page 119 of the 2015 annual report.

In the Same Boat as the Home Buyer

In defending Berkshire’s practices as a home seller and mortgage lender, Buffett points to Berkshire’s holding on to the mortgages it originates rather than selling them off in the broader market. Buffett notes that this adds risk to Berkshire, and that by holding on to the mortgages it is in the same boat as the home buyer. If a home buyer defaults on their mortgage it leaves Berkshire not only with a bad loan, but it also has to eat the costs associated with repossessing a used mobile home.

“At Clayton, our risk retention was, and is, 100%. When we originate a mortgage we keep it (leaving aside the few that qualify for a government guarantee). When we make mistakes in granting credit, we therefore pay a price – a hefty price that dwarfs any profit we realized upon the original sale of the home. Last year we had to foreclose on 8,444 manufactured-housing mortgages at a cost to us of $157 million. The average loan we made in 2015 was only $59,942, small potatoes for traditional mortgage lenders, but a daunting commitment for our many lower-income borrowers. Our buyer acquires a decent home – take a look at the home we will have on display at our annual meeting – requiring monthly principal-and-interest payments that average $522.

Some borrowers, of course, will lose their jobs, and there will be divorces and deaths. Others will get overextended on credit cards and mishandle their finances. We will lose money then, and our borrower will lose his down payment (though his mortgage payments during his time of occupancy may have been well under rental rates for comparable quarters). Nevertheless, despite the low FICO scores and income of our borrowers, their payment behavior during the Great Recession was far better than that prevailing in many mortgage pools populated by people earning multiples of our typical borrower’s income.”

Congress Weighs In

The Seattle Times report did not fall on deaf ears in the halls of Congress. In January, Representatives Maxine Waters, Michael Capuano, Emanuel Cleaver and Keith Ellison wrote a letter to the Justice Department and the Consumer Financial Protection Bureau calling for a probe of the company’s lending practices.

So far, there has been no action by the Justice Department or the Consumer Financial Protection Bureau, and in his annual letter Buffett forcefully touts what he feels is Berkshire’s outstanding record in regards to adhering to the regulations that govern mortgage lending.

“Let me talk about one subject of which I am particularly proud, that having to do with regulation. The Great Recession caused mortgage originators, servicers and packagers to come under intense scrutiny and to be assessed many billions of dollars in fines and penalties.

The scrutiny has certainly extended to Clayton, whose mortgage practices have been continuously reviewed and examined in respect to such items as originations, servicing, collections, advertising, compliance, and internal controls. At the federal level, we answer to the Federal Trade Commission, the Department of Housing and Urban Development and the Consumer Financial Protection Bureau. Dozens of states regulate us as well. During the past two years, indeed, various federal and state authorities (from 25 states) examined and reviewed Clayton and its mortgages on 65 occasions. The result? Our total fines during this period were $38,200 and our refunds to customers $704,678. Furthermore, though we had to foreclose on 2.64% of our manufactured-home mortgages last year, 95.4% of our borrowers were current on their payments at yearend, as they moved toward owning a debt-free home.”

While all has been quiet recently in regards to Clayton Homes, the fact that Buffett has devoted so much space in his annual letter to defending the company may mean that more tremors are coming, and issues related to Clayton Homes could erupt again in the future.

© 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.

Categories
Commentary

Commentary: Never Mind the Stock Price, Berkshire’s Booming!

(BRK.A), (BRK.B)

With Berkshire Hathaway’s stock price down roughly -12% in 2015, you would think that the conglomerate was suffering a series of major setbacks. Nothing could be further from the truth, as Berkshire just reported record year that brought a 6.4% gain in book value, and saw profits skyrocket 32% in the fourth quarter.

Earnings per share in Q4 were $3,333 (up from $2,529 for the same period in 2014), which beat Wall Street estimates by a hair.

Nervous shareholders may be feeling a little bit better these days, as Berkshire’s stock price year-to-date has been steady (if flat) while the S&P 500 is down -4.59%, and they should rest assured that better days are ahead.

You want to be nervous? Just look at Chesapeake Energy (CHK), and its plunging stock price in 2015, if you want to see a stock really worth panicking about. Chesapeake saw its stock down a precipitous -77.5%, which was related to a very real drop in energy prices that is bringing bankruptcies to a number of players in the sector.

Berkshire on the other hand is flourishing, and it’s only getting stronger with the newly completed acquisitions of aerospace manufacturer Precision Castparts, and battery-maker Duracell.

The stock market is just that, a market, and it is not always logical—at least not in the short term.

While the disconnect between Berkshire’s profits and its languishing stock price draws lots of sniping from pundits, it should be remembered that a stock can’t wander too far from its fundamentals forever. Eventually, it’s going to move up or down based on the actual value of the company.

As Benjamin Graham famously said, “’In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

© 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.

Categories
Berkadia

Berkadia Continues to Rise as Freddie Mac and Fannie Mae Lender

(BRK.A), (BRK.B)

In 2015, Berkadia, Berkshire Hathaway’s joint venture with Leukadia, was the second largest Freddie Mac Program Plus lender and the third largest Fannie Mae DUS lender for multifamily loans.

Berkadia arranged $6.35 billion with Freddie Mac in 2015, up from $4.4 billion the year prior, which was the fourth consecutive year that the company has been named the second largest lender.

Berkadia was also in the number one spot as the top DUS Producer for seniors housing in 2015 by Fannie Mae, up from second in 2014, as well as the top Program Plus Seller in the Western Region by Freddie Mac for the second year in a row.

“Berkadia’s rankings speak volumes to our teams’ deep expertise and dedication to delivering the best financing across the country,” said Berkadia CEO Justin Wheeler. “We are extremely proud of our continued performance and strong record as a top Fannie Mae and Freddie Mac lender, and we look forward to building upon our momentum in 2016.”

In 2015, Freddie Mac provided nearly $47 billion in multifamily loans, accounting for 650,000 units. Fannie Mae settled $42.3 billion in financing for the multifamily market, comprising 569,000 multifamily units.

© 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.