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Berkshire Hathaway Energy

NV Energy Moves Away From Coal

(BRK.A), (BRK.B)

Plunging coal shipping volumes have sent BNSF Railway’s shipping volumes to numbers not seen since the 2007 Great Recession, and Berkshire’s own energy companies are partly responsible as they aggressively drop coal generation for cleaner forms of energy.

The numbers are stark. BNSF Railway’s year-to-date coal shipments are down 35.45% from 2015 levels.

Berkshire’s NV Energy plans to eliminate all of its coal-fired generation fleet in Nevada and will eliminate our coal resources in Southern Nevada by 2017 and in Northern Nevada by 2025.

Here Comes the Sun

The company cites the less than 4 cents a kilowatt-hour for large-scale solar contracts as the reason for the rapid pace.

NV Energy notes that it is creating a less carbon-intense energy supply for its customers, and is achieving that goal without raising the prices that its customers pay.

© 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.

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Berkshire Hathaway Energy

Denmark’s Vestas to Supply 1,000 Turbines for Berkshire’s Iowa Wind Farm

(BRK.A), (BRK.B)

Vestas, the only global energy company dedicated exclusively to wind energy, will supply up to 1,000 V110-2.0 MW wind turbines for MidAmerican Energy’s new Iowa 2 GW Wind XI farm.

The deal is pending the project’s anticipated approval by the Iowa Utilities Board, and when completed would mean that 85% of the state’s power comes from wind generation.

MidAmerican’s eventual goal is to be the first utility to provide its customers with 100% renewable energy generation.

The turbines will be installed between 2016 and 2019, and Vestas will also receive a five-year Active Output Management 4000 service agreement that includes extension options for up to 10 years.

Headquartered in Denmark, Vestas has already installed 55,000 wind turbines in more than 70 countries across six continents. The company has four manufacturing plants in Colorado.

© 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.

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Berkshire Hathaway Specialty Insurance Insurance

Berkshire Hathaway Specialty Insurance Opens German Office

(BRK.A), (BRK.B)

Berkshire Hathaway Specialty Insurance Company (BHSI) in coordination with its affiliate Berkshire Hathaway International Insurance Limited (BHIIL), has established an office in Düsseldorf, Germany, and filled key executive roles in Northern Europe.

“We are laying the foundation to provide customers throughout Europe with a full line of specialty insurance solutions, backed by BHSI’s industry-leading financial strength and underwriting and claims expertise,” said Gregor Koehler, President, Northern Europe, BHSI. “This is the beginning of our exciting journey to provide long term solutions for customers throughout the region.”

BHSI appointed the following executives to key posts in the Düsseldorf office:

• Jörg Bechert, SVP, Head of Executive and Professional Lines, Northern Europe. He was most recently Head of Strategy and Innovation at AON Germany and has almost 30 years of experience in the insurance industry.

• Ulrich Kütter, SVP, Head of Marine, Northern Europe. He joins BHSI with almost 25 years of insurance industry experience and was most recently Head of Marine, Central and Eastern Europe at Allianz Global Corporate & Specialty SE.

• Leander Metzger, SVP, Head of Property, Northern Europe. He joins BHSI with more than 20 years of insurance industry experience. Most recently he was Director, AFM at FM Insurance Company Limited’s Central European Operation. Leander is a Fellow of the Chartered Insurance Institute.

• Robert Scherf, VP, Head of Human Resources, Northern Europe. He was most recently Head of Human Resources at Catlin Europe, and brings nearly 30 years of experience to the role.

In addition, BHSI named Ute Huhmann as Executive Assistant, Northern Europe.

“This latest strategic expansion reflects BHSI’s commitment to growing both our global footprint and our worldwide capabilities,” said Peter Eastwood, President and CEO, BHSI. “We look forward to delivering sound insurance solutions for companies throughout the UK and Europe, while continuing to deepen our global team of individuals with standout capabilities and character.”

In March, BHSI announced its intention to offer a specialty insurance solution in Europe, pending regulatory approval. It named Gregor Koehler to lead the company’s efforts in Northern Europe, and Tom Bolt as President, UK and Southern Europe, BHSI.

© 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.

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Charlie Munger Warren Buffett

Buffett Warm, Munger Cool on Initiating a Stock Buyback

(BRK.A), (BRK.B)

At the 2016 Berkshire Hathaway Annual Meeting in April, Warren Buffett expressed enthusiasm for a potential stock buyback of Berkshire stock if the share price fell below 120% of book value. He noted that the company would repurchase “a lot” of stock, especially if the amount of cash the company generates “burns a hole in your pocket” and grows to levels over $100-$120 million with no good candidates for acquisition.

In the past, Buffett has been skeptical of shareholder demands for stock buybacks, noting that it’s foolish if the price is too high. All the way back in 2000, Buffett addressed the logic of stock buybacks, noting:

“There is only one combination of facts that makes it advisable for a company to repurchase its shares: First, the company has available funds — cash plus sensible borrowing capacity — beyond the near-term needs of the business and, second, finds its stock selling in the market below its intrinsic value, conservatively calculated.”

However, also at the 2016 Annual Meeting, vice chairman of Berkshire Hathaway Charlie Munger still seemed less than convinced.

“These buyback plans got a life of their own, Munger noted. “It’s gotten quite common to buy back stock at very high prices that really don’t do the shareholders any good at all. I don’t know why people exactly are doing it and I think it gets to be fashionable.

We’re always behaving a lot like what some might call the Episcopal Prayer. We prayerfully thank the Lord that we’re not like these other religions who are inferior and I’m afraid there’s probably too much of that in Berkshire but we can’t help it.”

© 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
Dairy Queen

Dairy Queen Plans Major Chicago Expansion

(BRK.A), (BRK.B)

Dairy Queen is planning to add 30-35 new locations in Chicago. The exact locations are still to be determined and will be built over the next five years.

The Chicago stores will be in Chicago and in Lake and Cook counties. Dairy Queen currently has 269 stores in Illinois with 20 in the Chicago area.

A company spokesman cited the popularity of Dairy Queen and that the company just needed to make it more convenient for people to find a nearby store.

The Berkshire Hathaway-owned company has already announced aggressive expansion plans that will see it opening hundreds of new locations in California, Louisiana, Massachusetts and South Carolina.

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.

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GEICO Insurance

GEICO to Benefit From Strong Auto Insurance Growth Through 2020

(BRK.A), (BRK.B)

While some people are already worrying about what the self-driving car will do to auto insurers over the long term, the global motor vehicle insurance market is looking forward to robust growth for at least the next five years.

This growth will benefit auto insurers, including Berkshire Hathaway’s GEICO.

In Research and Markets most recent edition of the “Global Motor Vehicle Insurance Market 2016-2020” report the company is forecasting that the global motor vehicle insurance market will grow at a compound annual growth rate of 5.91% during the period 2016-2020.

The report covers the present scenario and the growth prospects of the global motor vehicle insurance market for 2016-2020. To calculate the market size, the report considers two types of end users:

• Personal insurance premiums
• Commercial insurance premiums

According to the report, a trend that is already impacting the market is the implementation of advanced analytics tools to reduce fraudulent claims. According to the National Insurance Crime Bureau (NICB), insurance fraud is the second biggest white-collar crime in the US after tax evasion. Advanced tools, such as big data analytics and geospatial analysis, are making it easier for insurance companies to reduce losses stemming from fraud claim.

The report also notes that a key growth driver is the mandate to buy insurance policies. A motor vehicle insurance covers any financial risk that can crop up while driving the vehicle. In other words, an insurance company will cover losses arising from theft, damages, or accidents – if such incidents are covered under the policy.

© 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
Kraft Heinz

Kraft Heinz Set to Close Pennsylvania Plant

(BRK.A), (BRK.B)

Kraft Heinz’s streamlining, which has been moving forward aggressively since Berkshire and 3G Capital took the reins in 2015, is continuing with plant closings that were first announced in November 2015.

The Lehigh Valley, Pennsylvania plant will close July 31, with its product lines moving to facilities in Michigan, Illinois and Canada. The plant manufactures A-1 steak sauce, Grey Poupon mustard, and Keurig coffee.

The plant is one of seven plants that will be closed. The others are in Fullerton and San Leandro, California; Federalsburg, Maryland; St. Mary’s, Ontario; Campbell, New York and Madison, Wisconsin.

The Leigh Valley plant is closing despite having received grant money in 2014 from the Department of Community and Economic Development when it was owned by Kraft.

The grant was provided to expand the facility and hire more workers, and Kraft Heinz will repay $200,000 to the State of Pennsylvania for closing the plant.

State vs. State

States across the U.S. have been a fierce battle to retain Kraft Heinz plants, and under an agreement spearheaded by U.S. Senator Charles Schumer and Governor Andrew Cuomo, $20 million in New York state funds were committed to keep open and expand Kraft Heinz’s plants in Walton, Avon and Lowville, New York.

© 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.

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McLane

McLane Company Announces Fresh Produce+

(BRK.A), (BRK.B)

Berkshire Hathaway’s McLane Company, a $48 billion supply chain services leader, providing grocery and foodservice supply chain solutions for convenience stores, mass merchants, drug stores and chain restaurants throughout the United States, is rolling out the McLane Kitchen’s nationwide Fresh Produce + supply chain solution.

Fresh Produce + is a turnkey solution that provides top quality products, operational best practices, merchandising units, information on suggested retail pricing and best-in-class customer service to help operators establish their locations as destinations for fresh produce.

According to Mclane, what makes Fresh Produce + truly unique is McLane’s unmatched ability to deliver fresh produce nationwide, allowing operators in multiple regions to offer a consistent product mix of healthier options. For single c-stores, McLane’s nationwide distribution means leveraging the company’s buying power to better compete pricewise, while ensuring the high-quality fresh produce.

Because choice in pricing is a key factor in creating a solution that works for every retail customer, Fresh Produce + offers mark-up options associated with varying levels of product guarantee. Fresh Produce + is also fully compatible with McLane’s Premium Ordering Management Suite (POMS) and smart handheld technology, giving operators the ability to order fresh items just like any other SKU. Over the coming months the solution will integrate seasonal items and category management to ensure operators continue to grow their return.

According to an independent study, close to half of the nation’s population visits a convenience store each month. What’s more,48 percent of Americans say c-stores are a place to buy fresh items.

According to a 2015 NACS retailer sentiment survey, 50 percent of c-stores have expanded fresh fruit sales, while 30 percent have increased cut fruit and vegetable offerings.

“We recognized our customers wanted a consistent way to fill their consumers’ need for safe, fresh, better-for-you produce,” said Holly Veale, product director for foodservice at McLane. “McLane Kitchen’s Fresh Produce + solution makes fresh produce and cut fruit available to all our customers, regardless of size or location.”

In conjunction with the nation-wide rollout of McLane Kitchen’s Fresh Produce + solution, McLane recently announced its affiliation with The Partnership for a Healthier America (PHA), a nonpartisan nonprofit organization devoted to working with the private sector to ensure the health of the nation’s youth by solving the childhood obesity crisis within a generation. McLane is the first grocery and chain restaurant distributor to make a commitment to PHA.

“We’re honored to come on board as the first grocery and chain restaurant supply chain distributor to support PHA’s efforts,” said Tony Frankenberger, president of McLane Grocery Distribution. “It is now more important than ever for the food, retail and distribution industries to work together to help solve the childhood obesity problem, and to offer consumers fresh and healthier products to make better food choices on a daily basis.”

“Consumers are shopping more and more at convenience stores throughout the week, and their demand for healthier options — regardless of where they shop — is not slowing down,” said PHA CEO Lawrence A. Soler. “We are proud that companies like McLane are stepping in and joining the ranks to provide thousands of Americans access to nutritious foods. This is a tremendous opportunity to reach customers where they are — in convenience stores, drug stores, mass retailers and restaurants.”

“The fresh and better-for-you food category will continue to expand as consumers become more health-conscious and the c-store industry places additional emphasis on growth,” added Veale.

“Now, through Fresh Produce + and McLane’s nationwide distribution network, location will no longer hinder a retailer from offering fresh produce choices to their customers.”
Veale concluded, “McLane’s role in making fresh products available to any c-store location — no matter the size or individual buying power — will be a game changer in the industry.”

© 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 Automotive

Berkshire Hathaway Automotive Finally Snags Another Dealership

(BRK.A), (BRK.B)

When Berkshire Hathaway completed its $4.1 billion acquisition of the Van Tuyl Group in April 2015, it talked about aggressively adding to its new automotive retailing empire that was rechristened the Berkshire Hathaway Automotive Group.

BHA got off to a promising start, as that same month it acquired Frank Kent Honda of Fort Worth, Texas.

“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 also 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.

BHA finally made some progress this month, acquiring North Park Toyota in San Antonio, Texas. The acquisition includes a 20-year lease of North Park Toyota’s 23.7-acre property that includes an option to buy.

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 Please 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.

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Berkshire Hathaway Energy

FERC Throws Cold Water on NV Energy’s Rate Structure

(BRK.A), (BRK.B)

Berkshire Hathaway’s NV Energy has been issued an order from the Federal Energy Regulatory Commission to redo its rates, including issuing revised rates that go back retroactively to Jan. 9, 2015.

The new rates will bring consumers refunds as FERC found that NV Energy, and Berkshire’s other utility PacifiCorp, were not allowed to sell electricity at market rates.

“…we find that the additional information supplied by the Berkshire MBR Sellers has failed to rebut the presumption of market power in the PACE, PACW, Idaho Power, and NorthWestern balancing authority areas. In the absence of reliable delivered price test (DPT) analyses rebutting the presumption of market power, we find that continuation of the Berkshire MBR Sellers’ market-based rate authority in these four balancing authority areas is not just and reasonable.”

FERC went on to order new rate plans.

“Therefore, we herein revoke the Berkshire MBR Sellers’ market-based rate authority in the PACE, PACW, Idaho Power, and NorthWestern balancing authority areas. Accordingly, the Berkshire MBR Sellers are directed to file revised market-based rate tariffs further limiting sales at market-based rates to areas outside of the PACE, PACW, Idaho Power, and NorthWestern balancing authority areas within 30 days of the date of this order.”

The order comes as Berkshire has been reaping millions in benefits from the recently formed western Energy Imbalance Market.

NV Energy entry into the real-time market in December 2015 produced significant benefits because their participation increases transfer capability between the participants. Interregional transfers enabled in EIM allows each balancing area to take advantage of lower cost resources in other areas.

According to the California Independent System Operator (ISO), total benefits realized in the 2015 fourth quarter were $12.29 million, which increases the total benefit since the November 2014 EIM launch to $45.7 million.

Besides the benefits produced by interregional transfers, savings were also realized by avoiding having to reduce renewable resources’ output in the ISO control area during times of oversupply.

The total avoided energy reduction for Q4 was 17,573 megawatt hours, which greatly outpaced the avoided reductions of 828 megawatt-hours in Q3.

Avoiding the renewables output reductions in Q4 displaced an estimated 7,521 metric tons of carbon emissions.

About the Energy Imbalance Market

The EIM improves the integration of renewable resources and increases reliability by sharing information between balancing authorities on electricity delivery conditions across the entire EIM region. The only real-time energy market in the Western U.S., advanced ISO market systems automatically balance supply and demand for electricity every fifteen minutes, dispatching the least-cost resources every five minutes.

© 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.