Buf­fett's cel­e­bra­tion tem­pered by 50th an­niver­sary stock slump

The Pak Banker - - COMPANIES/BOSS -

Berk­shire Hath­away Inc. shares traded near record highs at the be­gin­ning of War­ren Buf­fett's 50th year run­ning the com­pany. More re­cently, the stock has be­gun to sag.

Shares have slumped 5.2 per­cent since Dec. 31 and are headed for their first an­nual de­cline since 2011, even as Buf­fett pulled off one of the big­gest coups of his ca­reer last month. By back­ing H.J. Heinz's merger with Kraft Foods Group Inc., he now holds a stake val­ued at about $26 bil­lion, more than twice what he paid.

There's less to celebrate about some other Berk­shire in­vest­ments and busi­nesses. Buf­fett's rail­road has had to spend heav­ily to come back from ser­vice de­lays in 2014. His rein­sur­ance busi­ness, a main source of fund­ing for the com­pany, is fac­ing in­creased com­pe­ti­tion. And some of his big­gest eq­uity in­vest­ments -- like In­ter­na­tional Busi­ness Ma­chines Corp. and Amer­i­can Ex­press Co. -have lagged the mar­ket.

"We're talk­ing about a large, diver­si­fied port­fo­lio of com­pa­nies," said Jim Shana­han, an an­a­lyst at Ed­ward Jones. "Some will un­der­per­form and some will out­per­form."

Over the past five decades, Buf­fett has built Berk­shire into a sprawl­ing op­er­a­tion and amassed one of the best in­vest­ing records in history. Through 2014, the com­pany's share price av­er­aged an­nual gains that were more than dou­ble the Stan­dard & Poor's 500 In­dex. The eq­uity bench­mark is up 1.7 per­cent this year.

Berk­shire's dozens of sub­sidiaries in­clude in­sur­ers, man­u­fac­tur­ers, re­tail­ers, elec­tric util­i­ties and the rail­road, BNSF. Buf­fett also over­sees a stock port­fo­lio val­ued at more than $100 bil­lion.

The di­ver­sity of those in­vest­ments could help the com­pany post op­er­at­ing earn­ings per share of $3,038 when re­sults are re­leased on Fri­day, ac­cord­ing to the es­ti­mates of three an­a­lysts sur­veyed by Bloomberg. That's a 15 per­cent in­crease from a year ear­lier.

Buf­fett's fa­vored yard­stick -- book value -- could have risen by about 2 per­cent to around $150,000 a share dur­ing the sec­ond quar­ter, ac­cord­ing to an es­ti­mate from Cliff Gallant, an an­a­lyst at No­mura Hold­ings Inc. The bil­lion­aire Berk­shire chair­man and chief ex­ec­u­tive of­fi­cer has said the met­ric is a good, though un­der­stated, proxy for the com­pany's true worth. Berk­shire's Class A shares closed at $214,150 on Tues­day. Book value per share will get a boost in the cur­rent quar­ter as Berk­shire records a gain on the bet on Kraft and Heinz, said Gallant. The food com­pa­nies com­pleted their merger in July to cre­ate Kraft Heinz Co.

"It seems like he's ex­e­cut­ing," Gallant said of Buf­fett. "The stock price doesn't al­ways fol­low that." Berk­shire faces chal­lenges. Car­loads at Buf­fett's rail­road slipped 0.1 per­cent in the sec­ond quar­ter from a year ear­lier. While that's a nar­rower de­cline than at its Western U.S. com­peti­tor Union Pa­cific Corp., some costs have been climb­ing at BNSF. Buf­fett pledged to spend $6 bil­lion on up­grades in 2015 fol­low­ing de­lays last year that were tied to a surge in oil ship­ments and harsh win­ter weather.

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