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Buffett Successors Todd Combs and Ted Weschler Warren Buffett

Are Ajit Jain and Greg Abel the Successors to Warren Buffett and Charlie Munger?

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Despite Warren Buffett being a spry age 84, and Charlie Munger a youthful 91, the question of the successor or successors that will lead Berkshire Hathaway continues to be on analysts’ and commentators’ minds.

“Both the board and I believe we now have the right person to succeed me as CEO — a successor ready to assume the job the day after I die or step down,” Buffett has said.

Now, in his letter published in the 2014 Annual Report, Charlie Munger seems to hint that Ajit Jain or Greg Abel could be in line to provide the leadership that will carry Berkshire forward.

“For instance, Ajit Jain and Greg Abel are proven performers who would probably be under-described as “world-class.” “World-leading” would be the description I would choose. In some important ways, each is a better business executive than Buffett.

And I believe neither Jain nor Abel would (1) leave Berkshire, no matter what someone else offered or (2) desire much change in the Berkshire system.”

While neither Buffett nor Munger has officially revealed the next leader or leaders of Berkshire Hathaway, both Jain and Abel would seem to fit the bill.

First, they would be promoted from inside the company, and thus are steeped in Berkshire’s unique corporate culture.

Secondly, they are both young enough to have long reigns at a company that certainly has no interest in a mandatory retirement age, and each of them would bring essential skill sets to the job.

Both have played important leadership roles heading two of Berkshire’s largest units.

Ajit Jain, as the man who has built Berkshire’s insurance and reinsurance empire, is better equipped than almost anyone in the world to take on the important task of making sure Berkshire’s insurance companies don’t try to grow by taking on undue risk.

Greg Abel, as the head of Berkshire Hathaway Energy, certainly knows about capital allocation. Under his leadership, BHE has grown into one of the world’s largest energy providers and a leader in renewable energy generation. He also sits on the Board of Heinz, and BHE includes Berkshire Hathaway Home Services, Berkshire’s rapidly expanding real estate sales unit. Both of these companies give him additional insight into consumer markets.

As for their ages, Jain is age 63, and Abel is only 52, so they hopefully would have many years to put their stamps on Berkshire.

So which one is it?

Why not both of them?

Well, while Buffett spoke in the singular, he has already stated that his replacement would probably see his various roles filled by several people.

The job of managing Berkshire’s $125 billion and growing stock portfolio will almost certainly fall to Ted Weschler and Todd Combs, who Buffett has been grooming by giving each a multi-billion dollar stock portfolio to manage.

Together, Jain and Abel would also be sounding boards and counter balances for each other in much the same way that Buffett has used Munger.

While Warren Buffett rightly gets the lion’s share of credit for Berkshire’s phenomenal growth, Charlie Munger’s sage advice has often been overlooked by the press.

It certainly hasn’t been overlooked by Buffett.

While the latest buzz comes from Munger, Buffett has repeatedly praised both Jain and Abel.

On Jain, Buffett said “It is impossible to overstate how valuable Ajit [Jain] is to Berkshire. Don’t worry about my health; worry about his.”

On Abel, Buffett has highlighted the impact that he and Mathew Rose (CEO of BNSF) have had on Berkshire, stating “I am also both proud and grateful for what they have accomplished for Berkshire shareholders.”

So, if Ajit Jain and Greg Abel are indeed the future leaders of Berkshire, shareholders can look forward to continued smart and capable leadership.

And we shouldn’t forget BNSF’s executive chairman Mathew Rose, who is only in his mid-fifties. He is certainly a prime contender as well.

© 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.

Categories
Acquisitions

MiTek Industries Acquires M&M Manufacturing

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Berkshire Hathaway’s wholly owned MiTek Industries has acquired M&M Manufacturing, which is based in Fort Worth, Texas.

According to a MiTek press release, M&M Manufacturing is one of the country’s largest producers of sheet metal products, primarily servicing the air distribution and ventilation market. M&M provides a comprehensive range of round, rectangular, oval and spiral ductwork, fittings and accessories for residential and commercial construction.

M&M Manufacturing was founded by the Stepp family in Fort Worth, Texas in 1958, as a small sheet metal shop. The is now one of the largest HVAC ductwork and product manufacturers in the United States, with 6 manufacturing facilities producing more than 9,000 different products and employing nearly 800 team members.

M&M’s own extensive growth over the past decade included acquiring the Wilkins Corporation of Little Rock, Arkansas, in 2010. Wilkins manufactures steel duct pipe and fittings for the HVAC industry. M&M also opened a new a manufacturing plant in Austin, Texas, in 2014.

MiTek Industries is a “diversified, global business supplying a wide range of engineered products, proprietary design software, and automated equipment sold into the broad construction and industrial end markets.”

MiTek has been aggressive in its acquisitions, and in 2013 and 2014 acquired Benson Industries, Kova Solutions, Cubic Designs, and Ellis & Watts Global Industries.

© 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.

Categories
Acquisitions Warren Buffett

Berkshire Opens Door to Europe with Acquisition of Devlet Louis Motorradvertriebs

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“Capital travels,” notes Warren Buffet, and Buffett’s recent comments that he was looking towards Europe for acquisitions has turned into reality with the purchase of Devlet Louis Motorradvertriebs, a mail-order and retail chain selling motorbike clothing, helmets, leisurewear, add-on parts, and spare parts.

The acquisition price was just over 400 million euros, according to the Financial Times.

The Hamburg, German-based retailer has 1,600 staff in their Europe-wide mail order business and at 70 retail stores in Germany and Austria. Its online business reaches 25 countries.

Annual revenues are 270 million euros ($308 million).

The deal was done directly with Ute Louis, the widow of company founder Detlev Louis, who sold all her shares to Berkshire.

Like many of Berkshire’s acquisitions, such as carbide metalworking tool manufacturer ISCAR, Berkshire was approached directly by Detlev Louis Motorradvertriebs with the acquisition proposal. Berkshire is an attractive option for owners to cash out without their companies being sold off piecemeal.

High Customer Satisfaction

Devlet Louis Motorradvertriebs has drawn praise for its high customer satisfaction. The readers of Europe’s biggest motorbike magazine, Motorrad, have voted them “Best Brand” in the retail chain category for nine straight years.

Room for Growth

Motorcycles are a very popular form of transportation throughout Europe with 33 million PTWs (Powered Two Wheelers) registered in the 27 EU member states, according to the U.S. Department of Commerce. They project that the number of two-wheeled vehicles will increase to 37 million by 2020.

“Germany is a terrific market, lots of people, lots of buying power, productive, it’s got a legal system we feel very good with, it’s got a regulatory system we feel very good with, it’s got people we feel very good with—and customers,” Warren Buffett explained in an interview in German newspaper Handelsblatt.

Buffett characterized the acquisition as a “door-opener,” and noted that while the 400 million euros size of the acquisition was smaller than Berkshire usually looks for (except for bolt-on acquisitions), this certainly serves notice on European companies that Berkshire has its eye on Europe as it hunts for ways to invest its over $30 billion in cash.

(This article has been updated from when it was first published.)

© 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.

Categories
Warren Buffett

Berkshire Hathaway Saves Billions With Capital Gains Tax Strategy

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Investing in Berkshire Hathaway is often compared to investing in a mutual fund. Yes, Berkshire’s ownership of GEICO, BNSF, McLane, Lubrizol, Berkshire Hathaway Energy, Dairy Queen, Fruit of the Loom, and a host of other companies certainly give it a lot of diversification. Its ownership of the Marmon Group, which alone encompasses 160 separate companies, means that people almost on a daily basis come in contact with Berkshire’s products, often without knowing it.

However, there is an interesting difference between Berkshire Hathaway and a mutual fund, which directly impacts its shareholders. The difference is Berkshire’s ability to avoid capital gains taxes through asset acquisitions.

Berkshire Hathaway, unlike a mutual fund, is all about the buying and owning of whole companies. And while a mutual fund can own a portion of a company, its later sale of appreciated shares in that company generates a capital gain that is passed through to the mutual fund’s shareholders.

It is in this area that Berkshire has demonstrated a key advantage. In 2014 alone, Berkshire avoided capital gain taxes on $2.357 billion of appreciated stock by swapping its shares of appreciated stock for business units to add to its conglomerate.

Berkshire’s acquisition of Graham Holding’s WPLG-TV, Phillips 66’s pipeline-services business, and Procter & Gamble’s Duracell battery unit all enabled it to cash in billions of dollars of appreciated stock without capital gains taxes.

There’s More to the Story

While these acquisitions added new units to Berkshire’s portfolio, they also served as a conduit for bringing in cash tax free, because the companies that were acquired had sizable cash positions on their books.

In the case of Duracell, Berkshire’s $4.7 billion stake in Procter & Gamble came from an original investment in Gillette of only $600 million. In cashing out its position, Berkshire not only gets control of Duracell, but Duracell has been recapitalized by P&G with $1.7 billion in cash. This equivalent of leaving a very large bag of cash in the desk drawer in Duracell’s president’s office, allows Berkshire a transfer of cash that is three times its original investment in Gillette, and the entire $4.7 billion transaction incurs no capital gains taxes.

Similarly, the acquisition of Phillips Specialty Products Inc. from Phillips 66 included approximately $450 million in cash. Berkshire’s acquisition of WPLG-TV, which was part of the unwinding of Berkshire’s position as a shareholder in the Washington Post, also brought to the company roughly $328 million in cash and $444 million Berkshire shares that had been owned by Graham Holdings. In this case, Berkshire avoided substantial capital gains that would have been owed on its original $11 million investment in the Washington Post.

Over the years, Warren Buffett has been shrewd in getting into stock positions that have generated amazing appreciation. Berkshire’s $16 billion stake in Coca Cola, on a cost basis of only $1.29 billion, is just one example. And it should be recognized that his ability to liquidate positions without capital gains consequences has been equally shrewd.

So, the next time you are looking at your end-of-year mutual fund statement and wondering why you have to pay capital gains, even though you didn’t redeem any shares, just think of the tax free acquisitions that have saved Berkshire’s shareholders billions.

© 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.

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Berkshire Hathaway Energy

Berkshire’s NV Energy Doubles its Renewable Energy RFP

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NV Energy, a unit of Berkshire Hathaway Energy, has issued a new RFP (Request for Proposals) seeking an additional 100 megawatts of renewable energy resources for its Southern Nevada customers.

NV Energy’s 2014 renewable energy RFP called for adding 100 megawatts of renewable energy, The new RFP combines the 2014 RFP with a new 2015 RFP to bring the total requested renewable energy to 200 megawatts.

The move comes after the Public Utilities Commission of Nevada pushed NV Energy to develop additional renewable energy resources before the expiration of federal energy tax credits and other public-interest benefits.

Fear of Tax Credit Reduction Accelerates Solar Plans

The current solar Investment Tax Credit will plunge from 30% to only 10% for utility-scale solar projects in 2017 unless Congress steps in.

Large scale solar projects have gone mainstream in recent years due in part to favorable tax credits, and Berkshire Hathaway has been a major player.

Among its acquisitions, MidAmerican Energy Holdings Company purchased two large-scale solar photovoltaic power plants from SunPower in 2013.

According to the company, bidders responding to the original 2014 RFP will be provided an opportunity to refresh their original proposals.

NV Energy, Inc., brings energy services to 1.3 million Nevada customers, and its renewable energy sources include 20 geothermal energy plants, nine solar energy projects, six hydro facilities, a large windfarm and a variety of biomass, methane and waste-heat recovery projects.

© 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.

Categories
Berkshire Hathaway Energy

Will Berkshire Bid on Oncor?

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Will Berkshire Hathaway Energy enter the bidding for Energy Future Holdings’ electricity transmission business, Oncor?

Oncor is a regulated electric transmission and distribution service provider that serves 10 million customers across Texas. The sixth largest in the U.S., the company is the largest distribution and transmission system in Texas, with approximately 119,000 miles of lines and more than 3 million meters across the state.

Oncor is currently owned by a limited number of investors, including majority owner, Energy Future Holdings Corp., which landed in bankruptcy after amassing $40 billion in debt from a leveraged buy-out engineered by private equity firms KKR & Co. and TPG.

Oncor was originally scheduled to be auctioned in November 2014, but Judge Christopher Sontchi halted the process in order to give creditors more time to negotiate. Judge Sontchi recently okayed the restart of the bidding process, which is now on track for March 2015.

A strong fit for Berkshire?

Berkshire’s interest is no secret. In September 2014, Berkshire Hathaway Energy and several other energy companies, including NextEra Energy, signed confidentiality agreements for the purpose of exploring the acquisition of Oncor.

The acquisition of transmission lines have been high on Berkshire Hathaway Energy’s list of late. In April 2014, the company made a $2.9 billion purchase of Canadian company AltaLink from SNC-Lavalin Group Inc.

Oncor’s price will be substantially larger than AltaLink, with an estimated value in the range of $17.5 billion. This puts it in line with Warren Buffett’s goals to acquire more “elephants” in the $20 billion range.

In June 2014, Buffett noted that Berkshire had already poured $15 billion into acquiring energy companies and he declared “There’s another $15 billion ready to go, as far as I’m concerned.”

Could Oncor fit that bill?

© 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.

Categories
Berkshire Hathaway Automotive

Soros Follows Buffett’s Lead in Acquiring Auto Dealerships

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Automotive News is reporting that investor George Soros is following Warren Buffett’s lead in acquiring multiple auto dealership groups.

Soros Fund Management is reportedly ready to invest up to $1 billion to get into the slowly consolidating retail auto sales business.

The news of Soros’s interest in acquiring auto dealerships broke at the NADA’s 98th annual convention in San Francisco, which was held January 23-26, 2015.

In October 2014, Berkshire Hathaway announced the purchase of the Van Tuyl Group, a family-owned dealership network which has 78 stores throughout the Sunbelt states. The auto group will be rebranded as Berkshire Hathaway Automotive. The sale was for $4.1 billion, wh0ch is roughly 4 times annual sales.

Auto sales continue to heat up as middle and lower income consumers rebound from the recession. The combination of lower gas prices and pent-up consumer demand are predicted to push new car and light truck sales to roughly 16.94 million for 2015.

Ripe for Consolidation

Like the grocery retailing sector, auto retailing is a slim-profit business, with an average profit margin of 2.2 percent. The slim profit margin makes consolidation attractive for economies of scale. Counterbalancing the tight profit margins are the exclusive territory that dealers gain to represent automotive brands.

There is still plenty of room for consolidation in the retail auto sales sector, which has 17,665 auto dealerships in the U.S., according to NADA. The largest dealership group is currently AutoNation, which has 228 outlets. Recently, AutoNation has been actively buying back its own stock, which is a further indicator that this sector is undervalued.

Penske Automotive Group, which is second in size behind AutoNation, has also been expanding with a doubling of its North American commercial truck dealerships among its top priorities.

(Portions of this article have been updated with new information.)

© 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.

Categories
Acquisitions Berkadia Berkshire Hathaway Automotive Berkshire Hathaway Energy Berkshire Hathaway Specialty Insurance BH Media Lubrizol Marmon Group

2014 Berkshire Hathaway Acquisitions You Didn’t Hear About

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2014 was a busy year for Berkshire Hathaway, with over $5 billion in acquisitions both directly by Berkshire Hathaway and through its companies. I’m sure you heard about the purchase of Procter & Gamble’s Duracell battery division, but did you know that other acquisitions made Berkshire the leader in beverage dispensing, and got Berkshire into automobile retailing for the first time? Here is a list of some of the other lesser-known acquisitions. Did you miss any of them?

Marmon Retail & End User Technologies Acquires Cornelius, Inc.
Date: January 2014
What it is: Cornelius, Inc. is the world’s leading supplier of beverage dispensing and cooling equipment. They manufacture and market a broad line of beverage dispense solutions for soft drink, beer, ice, juice, tea, and frozen as well as a complete line of accessories.

Berkshire Hathaway Specialty Insurance Acquires MyAssist, Inc. from Noel Group
Date: January 2014
What it is: MyAssist is a technology-driven, cloud-based personal assistance solution that leverages advanced technologies to give customers a customized, personal experience. MyAssist provides Mercedes-Benz and Ford with live-agent personal-assistance and telematics service using “location-aware technology” from Verizon Communications Inc.

MiTek Acquires Ellis & Watts Global Industries
Date: April 2014
What it is: Ellis & Watts is the recognized leader in the engineering, design, and fabrication of highly customized HVAC and other products sold into the nuclear, military, and other industrial end markets.

EXSIF Worldwide, Inc. Buy’s OCS
Date: April 2014
What it is: OCS Limited is a tank rental and chemical supply company based in Aberdeen, United Kingdom. OCS operates in the offshore oil and gas sector, serving clients in the North Sea.

Berkshire Hathaway Acquires Van Tuyl Group
Date: April 2014
What it is: Van Tuyl Group is the nation’s largest privately-owned auto dealership group, which ranks fifth among all U.S. auto dealership groups.

Berkshire Hathaway Energy Acquires AltaLink
Date: May 2014
What it is: AltaLink owns 12,000 kilometers of transmission lines and 280 substations that bring electricity to 3 million customers in Alberta, Canada.

Berkadia Acquires Keystone Commercial Capital
Date: May 2014
What it is: Keystone Capital is a full-service commercial mortgage banking company headquartered in Phoenix that services more than $2 billion in commercial real estate loans.

BH Media Acquires Catamaran Group
Date: September 2014
What it is: Catamaran Group publishes 12 weekly papers, with circulations ranging from 7,000 up to 15,000, serving the southern New Jersey shore area. While the individual circulations are small, the combined circulations exceed 111,000.

Lubrizol Acquires Warwick Chemicals
Date: November 2014
What it is: Warwick Chemicals is a leading global developer, producer and supplier of stain removal technology with hygiene benefits. Headquartered in Mostyn, North Wales, Warwick Chemicals has strong positions with global and regional detergent producers. Their products are an essential element in laundry detergent powders and automatic dishwashing products used across five continents and in more than 50 countries.

Lubrizol Acquires Engineered Chemistry and Integrity Industries
Date: December 2014
What it is: Engineered Chemistry supplies additives and fluids for a range of oilfield activities, including cementing, drilling, flow assurance and fracturing. It offers chemistry expertise to solve problems throughout the oil and gas drilling process. The business consists of a core manufacturing and research organization which supports a global field distribution network. Engineered Chemistry was built through a series of acquisitions over the past 12 years and is headquartered in Houston, TX. It operates 10 sites located predominantly in North America. Integrity Industries manufactures drilling fluid systems, including diesel, mineral oil and synthetic oil based fluids. The company supplies these drilling fluid systems to retail drilling fluid companies along with technical support.

Berkshire Hathaway Acquires Charter Brokerage
Date: December 2014
What it is: Charter Brokerage is a leading global trade services company providing complete customs, import, export, drawback and related services.

There you have it!

Bolt-On Acquisitions Continue to Power Berkshire’s Growth

© 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.

Categories
BNSF

BNSF Ups Capital Investment for 2015

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In 2014, BNSF Railway made a record $5 billion in capital expenditures, coupled with another $500 million in other network expansion initiatives. The massive $5.5 billion in spending was part of an effort to keep up with record demand coming from all sectors, including from oil producers in the Bakken formation, utilities demanding coal deliveries, grain producers, and a wide-range of intermodal shippers.

The record shipping demand generated a tsunami of complaints about delays, and left BNSF facing questions from both government regulators and customers. In March of 2014 the backlog for grain shipments alone hit 8,000 cars, before being trimmed to 1,000 cars by October.

Among the regulators concerned with the impact of delays, the U.S. Surface Transportation Board (STB) instructed BNSF to provide a detailed description of its contingency plans to prevent potential coal shortages for electric utility shippers.

The $5 billion in single-year capital expenditures represented record spending not only for BNSF, but according to the company, for any railroad ever. And, in order to continue to tackle its demand issues and delay backlogs, BNSF will again set a record in 2015 with an announced capital plan that totals $6 billion of investment in everything from rails, ties and ballast, to a slew of new locomotives.

Roughly $500 million of the record capital expenditure will be spent in the North Dakota region, with 55 miles of new double track running between Minot, North Dakota, and Glasgow, Montana, to be a top priority.

2014 Progress

In a letter to customers, BNSF’s Group Vice President, Consumer Products, Katie Farmer, laid out the impact of some of the 2014 expenditures.

“Projects in 2014 which positively impacted service while providing additional capacity for our intermodal network include: completion of the Tower 55 project. Located near downtown Fort Worth, Texas, Tower 55 is one of the busiest and most congested railroad intersections in the U.S. As many as 100 freight and passenger trains move through the area every day. With the completion of this project, network fluidity has benefitted traffic moving through this key area.

We have kicked off double track, line-capacity expansion projects to address the remaining Transcon bottlenecks. In all, we have invested more than 3 billion dollars over the last 10 years double tracking nearly all of this route and making this the fastest intermodal route connecting Southern California to the Midwest. When complete in 2015, nearly all of the Transcon will be double tracked and even triple tracked in some areas. In addition, we have completed several terminal expansions in the Chicago area and added 800 new container and trailer parking spots at three Chicago hub facilities. We also expanded our Houston Intermodal Hub facility in Pearland, TX to allow us to handle growing business in and out of this market.

In our Auto network, we moved into our new Big Lift automotive facility, serving Denver and the state of Colorado. This 57-acre facility has more than three times the acreage of our previous facility and offers more capacity and greater highway access. We also increased track capacity for loading operations at our San Diego, Albuquerque and Pearland Hubs and we increased automotive parking capacity at our Portland, Logistics Park Chicago (LPC) and Albuquerque facilities.

We were able to double our auto facility capacity in Kansas City, as a result of transition of all intermodal business to Logistics Park Kansas (LPKC), which opened in late 2013. LPKC is another example of our growth initiatives with current capacity of 550,000 annual lifts and future growth capacity that can scale to 1.5 million lifts. The more than 440 acres of developable property at LPKC offers opportunities for current and future customers to grow.

BNSF Railway, in joint service with Ferromex (FXE), initiated a new 6th morning intermodal service between Chicago, Illinois and Silao, Guanajuato, Mexico. The new service offering is the first and only direct Intermodal service to connect the Midwest to the Heart of the Bajio Region.”

2015 Capital Expenditure Plans

In a separate release on November 20, 2014, BNSF detailed its priorities for 2015:

“The largest component of the 2015 capital plan will be for the renewal of assets and maintenance, which is expected to cost $2.9 billion. These projects will go toward replacing and upgrading rails, ties and ballast that are due for updating. Track replacement projects typically make up the largest percentage of BNSF’s annual capital projects and are important for ensuring BNSF can optimize its rail network for ideal speeds for trains that carry a wide range of commodities.

BNSF also plans to spend almost $1.5 billion on expansion projects. Nearly $500 million of that expansion work will occur in the Northern Region, which is where BNSF is experiencing the fastest growth. That region primarily serves agriculture, coal, crude oil and materials related crude oil exploration and production.

BNSF will also increase the size of its locomotive fleet through the addition of new, energy and fuel efficient locomotives. BNSF will acquire 330 new locomotives to add to its fleet of 7,500 and replace others that will soon reach the end of their useful life.”

Carl Ice, BNSF’s president and chief executive officer, framed the capital expenditures as a vote for the continued strong growth of the U.S. economy.

“BNSF’s capital investment program since the beginning of 2013 through the end of 2015 is unprecedented and is clear evidence of our confidence in a growing economy and our intention to meet the demand for service that comes from all our customers,” Ice said.

Upping the Ante

In 2009, Warren Buffett described the acquisition of BNSF as “an all-in wager on the economic future of the United States.” Clearly, Berkshire Hathaway and BNSF continue to make that wager year after year.

© 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.

Categories
Dairy Queen

Dairy Queen Brings Its Sweet Business Model to Kuwait and UAE

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While food fads come and go, tried-and-true Dairy Queen continues to prosper and expand its global footprint.

Berkshire Hathaway’s wholly owned Dairy Queen System has announced a 20+ store franchise agreement with Durra Khaled For Foodstuffs Co., a subsidiary of KMGC, for a 5-year roll out of DQ Grill & Chill restaurants and DQ Treat stores in Kuwait.

A separate franchise deal for the United Arab Emirates was recently inked with U.S.-based International franchise company Bajco Group.

After a ten year absence, the agreements mark Dairy Queen’s return to the Kuwait and UAE markets at a time when its brand has a growing presence throughout the Middle East. Dairy Queen already has established stores in Bahrain, Brunei, Egypt, Oman, Qatar, and Saudi Arabia. The first Kuwait and UAE stores will open in 2015.

“As we prepare to celebrate the 75th anniversary of the DQ brand next year, we are building on our global brand equity as well as looking forward to developing future growth opportunities in the region,” said Brad Houser, Executive Vice President of International Development “We are thrilled to be re-entering the Kuwait market and partnering with Durra Khaled For Foodstuffs Co., a group that brings a wealth of business experience through its diverse portfolio.”

Continued International Expansion

Dairy Queen currently has 6,400 Dairy Queen stores in the United States, Canada and 26 other countries. The international business has been particularly robust, with some 1,394 locations, and over 600 stores in China alone. Its Middle East expansion have been particularly aggressive, with Saudi Arabia on track to open 32 locations by 2015 through franchisee Al Safwa Food Group. The largest DQ Grill & Chill restaurant in the world is in Riyadh, Saudi Arabia.

Dairy Queen doesn’t want to do its international expansion piece meal, and is looking for franchisees with the strength to take on whole countries.

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

© 2014 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.