Friday 15 / November / 2024
New Yoek: Warren Buffett has used his annual letter to Berkshire Hathaway shareholders to launch vigorous defences of an aggressive private equity partner and a maligned mobile home unit, as his conglomerate recorded robust profits.
The world's third-richest person and a revered investor, Buffett also injected himself into the contentious 2016 United States presidential campaign, lambasting candidates who talk down the nation's economic future as ‘dead wrong’ — an apparent jab at Republicans and frontrunner Donald Trump.
Buffett, who is backing Democratic candidate Hillary Clinton, also raised a political issue dear to Democrats in his widely-read letter by calling climate change a "major problem for the planet," although not one for Berkshire's future.
Buffett, 85, also made no mention of who might succeed him at Berkshire, which he has run for a half-century, and in passing said he expects to be around at age 100.
The Omaha, Nebraska-based company reported a record full-year profit of $24.08 billion, up 21 per cent, while operating profit rose 5 per cent to a record $17.36 billion. Fourth quarter profit was up 32 per cent, and operating profit rose a larger-than-expected 18 per cent.
Berkshire owns roughly 90 businesses in areas such as insurance, railroads, energy, food, apparel and real estate. Buffett himself is worth $62.1 billion, ‘Forbes’ magazine reported.
3G, Clayton
But he has critics, and spent about 10 per cent of his roughly 18,000-word letter defending 3G Capital, a Brazilian firm in which Berkshire owns 51 per cent of Kraft Heinz, and Berkshire's Clayton Homes mobile home unit.
Many shareholders questioned Buffett's compatibility with 3G, an aggressive cost cutter led by Brazilian billionaire Jorge Paulo Lemann.
Berkshire and 3G teamed up in 2013 to buy H.J. Heinz and last year merged it with Kraft Foods. Buffett also helped finance 3G's merger of Burger King with Canadian donut chain Tim Hortons, creating Restaurant Brands International Inc. Following these mergers, 3G slashed thousands of jobs.
Buffett acknowledged that while he and 3G "follow different paths" in running businesses, 3G has been "extraordinarily successful," and more ventures are possible. "Jorge Paulo and his associates could not be better partners," Buffett wrote.
Clayton has been faulted in articles in the Seattle Times for predatory lending and discrimination against blacks and Latinos, which the large mobile home builder denies.
But Buffett called Clayton a careful lender, and said it has escaped major regulatory fines despite 65 state and federal reviews in the last two years. Management delivers "industry-leading performance," Buffett said.
Politicians, climate change
Buffett praised Berkshire's earnings power, saying that only a catastrophic cyber, biological, nuclear or chemical attack on the United States posed a "clear, present and enduring danger" to the company.
Buffett also rejected the dour economic outlooks polluting the presidential campaign. Trump has repeatedly said the US economy is in a ‘bubble’ that he hopes will pop before he takes office. "I don't want to inherit all this stuff," he has said. Buffett said such concerns are overblown.
"For 240 years it's been a terrible mistake to bet against America, and now is no time to start," Buffett said. "The babies being born in America today are the luckiest crop in history." Buffett urged shareholders to reject a proxy proposal that would require greater disclosures about how climate change might affect Berkshire's insurance businesses.
"It seems highly likely to me that climate change poses a major problem for the planet," Buffett wrote. "But when you are thinking only as a shareholder of a major insurer, climate change should not be on your list of worries."
Not selling IBM
Buffett touted the BNSF railroad and its leaders Matt Rose and Carl Ice, calling their $5.8 billion of capital spending to improve customer service after a poor 2014 "money well spent." Though Buffett did not mention falling oil prices in his letter, Berkshire's annual report said low oil prices may reduce BNSF's profit in 2016 as industrial freight volumes decline.
The report also noted Buffett's $2.6 billion loss as of December 31 in his investment in IBM Corporation, but said Berkshire has no intention of selling the stock. Buffett also lauded the work of top insurance executives Ajit Jain and Tad Montross, and called the hiring of Todd Combs and Ted Weschler, who each handle $9 billion of investments, "one of my best moves."
Combs was a driver of Berkshire's $32 billion purchase last month of industrial parts maker Precision Castparts. As to succession, Buffett noted his advancing age and that of vice chairman Charlie Munger, 92. But Buffett also said he plans to be around on August 30, 2030, his 100th birthday, to announce that Berkshire's Geico unit has passed State Farm as the biggest US auto insurer. "Mark your calendar," he wrote.
