Buffett/Berkshire - general news

[Xerxes]

57 minutes ago, Spekulatius said:

WEB made it clear that he won’t buy OXY outright.

 

Only insurance is thriving. BNSF seems to trail peers and BHE energy has hit a pothole. The remainder (manufacturing etc) is flat.

I don’t even know why people ever thought he would buy the whole thing (OXY). When he bought 30% of the company at no premium. 
 

He has been clear in 2020 letter that broadly speaking he won’t pay control premium. And he is happy to be a large minority shareholder when it suits him. 
 

The question would be, what he would gain from being a full owner of Occidental (that he does not get by being just a major shareholder). And is that aspect worth the control premium. 

[Spooky]

Excellent letter this year. Was interesting to see him say that the five Japanese trading houses have more shareholder friendly policies than American companies like buying back shares as a discount and management not being so aggressive with their compensation. There were a few subtle and not so subtle digs at the direction the US is going such as the regulatory aspect mentioned above but also the casino mentality and Wall St.

 

Also that part at the end about going to Omaha to meet Bertie and her attractive daughters was hilarious!

Edited February 24, 2024 by Spooky

[rogermunibond]

Anyone have research on the utility rate/ROE issues that WEB mentions.  I found one involving Minnesota and Xcel. 
 

https://sahanjournal.com/climate-environment/xcel-rate-case-minnesota/

[sleepydragon]

5 minutes ago, Spooky said:

Excellent letter this year. Was interesting to see him say that the five Japanese trading houses have more shareholder friendly policies than American companies like buying back shares as a discount and management not being so aggressive with their compensation. There were a few subtle and not so subtle digs at the direction the US is going such as the regulatory aspect mentioned above but also the casino mentality and Wall St.

 

Also that part at the end about going to Omaha to meet Bertie and her attractive daughters was hilarious!

Her attractive daughters should be around 50-60 years old..

[Spooky]

2 minutes ago, sleepydragon said:

Her attractive daughters should be around 50-60 years old..

 

Maybe they have some attractive daughters too . Something in the water in Omaha...

[Hektor]

It looks like they took a non cash charge for probable wildfire related losses. This amount will be paid out in the (probably distant) future, and might not be the same as the charge they took. Is this the right understanding of the wildfire related losses?

[Hektor]

2 hours ago, newtovalue said:

stock will hit ATH monday 

I hope the stock swoons Monday on the fear of "social inflation impacting BHE" and "the railroad not being as solid as it was thought to be" 

[gfp]

Berkshire paid the Haslams $2.6 Billion for the final 20% of Pilot Flying J in January - that was the result of the settlement that we didn't know previously.

 

Maybe now that PTC is a wholly owned subsidiary they can see about refinancing or eliminating that $5.8 Billion in bank loans costing 7.2% currently.  Sticks out like a sore thumb in Berkshire's schedules of borrowings (which are otherwise a thing of beauty, a masterclass really).

Edited February 24, 2024 by gfp

[rogermunibond]

HomeServices has $5.4B contingent liability for various broker commission cases. Odd that there was no mention of this. 

[John Hjorth]

I personally like this shareholder letter very much. Reading it made me think and gave the feeling : 'This is the Mr. Buffett I know and can recognize from earlier shareholder Letters!'. [

 

Honestly, to me personally, some of the last ones have given me a feeling of a man running out of steam, but that's just me. And that would actually and certainly be all okay with me after this performance in more than a half century, based on actual age by now.]

 

Candid and honest expressions based on factual and critical thinking  about the 'social contracts' between non-public owned regulated businesses and the US society as a whole.

 

Personally I hope for the best for all my US fellow CoBF board members in that regard, because it's important for economic future development of USA.

 

- - - o 0 o - - -

 

A bit like asking a farmer i Western Jutland, Denmark at the end of October in a given record year for the harvest : 'How was the harvest this year?' Answer <With no excitement> : 'Not shabby, not shappy ...'

 

- - - o 0 o - - -

 

USD 96 Billon after tax and minorities. I just say : 'Not shabby.' But unlike the West Jutland farmer, I can't move the pipe from one corner of my mouth to the other while I say it.

 

Isen't this the worlds second largest profit for any company on the planet, only surpassed by Saudi Aramco?

Edited February 24, 2024 by John Hjorth

[gfp]

An additional $2.376 Billion increase in the reported cost basis for equity holdings in the "Banks, insurance and finance" category since end of Q3 - for those handicapping what the confidential security (or securities) could be.

[keegomaster]

I just read the letter, and still have to go through the report, but I noticed two interesting non-financial things:
- the color of the report cover is black, which I interpret as mourning or grief for Charlie's passing

- seeing Warren refer to Charlie as a father figure: "In a way his relationship with me was part older brother, part loving father" 

 

I just found it interesting. Great year. The weakness in Energy and Utilities was more than compensated by the good Insurance and Investment results, which is a statement to the strength and diversity of the businesses it holds. 

 

[rogermunibond]

Exelon, ComEd, Ameren outlooks lowered by financial firms after regulator rejects grid plans

Ethan Howland

December 21, 2023·3 min read

 

 

 

 

 

Moody's Investors Service on Wednesday lowered its outlook on Exelon’s Commonwealth Edison utility subsidiary to negative from stable, citing an “unfavorable” rate case ruling by state regulators.

"The outcome of the rate case, which ComEd will likely appeal, indicates that the utility is facing a more contentious and restrictive regulatory environment in Illinois, which has significant negative credit implications," said Toby Shea, Moody’s vice president - senior credit officer, global project and infrastructure finance.

Earlier this week, Morgan Stanley analysts said the “surprisingly negative outcomes” in the Illinois Commerce Commission’s decisions in the multi-year rate cases for ComEd and Ameren Illinois will result in lower earnings per share for the utilities’ parent companies, slower rate base growth and further regulatory overhang in 2024.

The decisions could lower Exelon’s EPS for 2025 by about 5% and Ameren’s by 2.5%, the analysts estimated.

In the decisions, the ICC set return on equity levels at 8.72% and 8.91% for Ameren Illinois and ComEd, respectively, and denied their multi-year capital expenditure plans, according to the analysts. The ROEs are among the lowest in the electric utility industry, they said.

“The [Illinois] Commission is proving to be less predictable and much less supportive than expected,” the analysts said.

The approved ROE for ComEd is among the lowest 5% of all authorized ROEs for U.S. electric utilities in the last three years, according to Moody’s.

“This ROE level stands out as particularly low given the company exhibits high reliability and has reasonable rates compared to many peers,” Moody’s said. “Moreover, there has been some upward movement in allowed ROEs in other jurisdictions as the industry's cost of capital increases in a rising interest rate environment, making the Illinois ruling stand out as particularly unsupportive of credit quality.”

The ICC authorized a $506 million revenue increase over four years for ComEd, down from its $1.5 billion request, and a $58 million hike for Ameren Illinois, which asked for $448 million over four years, according to the Morgan Stanley analysts.

In Securities and Exchange Commission filings, ComEd and Ameren Illinois said they plan to appeal the decisions.

Ameren Illinois said it intends to take “prudent steps” to align its 2024 operations with the decision, while ensuring safe and adequate service. Options include significant reductions to its capital expenditure and operations and maintenance expense plans, Ameren said.

In its decisions, the ICC said the utilities’ grid plans failed to adequately incorporate customer affordability into their proposals or outline how 40% of plan benefits would go to low-income and environmental justice communities, as required by the Climate and Equitable Jobs Act. The commission gave the utilities three months to propose revised plans.

The Citizens Utility Board, which advocates for residential ratepayers in Illinois, supported the ICC decision.

“After a decade in which electric utilities exploited lax oversight, scandal, and rampant rate hikes to reap excessive profits, the ICC made it clear that ComEd and Ameren must be held accountable to their customers and provide more affordable electric service,” Sarah Moskowitz, CUB executive director, said in a Dec. 14 statement. “Today’s ICC ruling delivered an important message: Utilities need to prove that their grid plans will actually benefit consumers.”

This story was originally published on Utility Dive. To receive daily news and insights, subscribe to our free daily Utility Dive newsletter.

[Viking]

1 hour ago, Libs said:

The comments about railroad and energy are quite jarring, and a complete departure from the past. Kudos to Warren for facing these issues head-first. As a shareholder it's forcing me to re-examine some of my assumptions, though. I had thought these two pillars were iron-clad.

Buffett is a master communicator. He just lowered the expectations bar significantly for the future returns for two of Berkshire’s largest businesses - railroad and energy. This will be a big, big benefit to Abel when he takes over. 
 

Just imagine the outcry if Abel has said this post Buffett?

Edited February 24, 2024 by Viking

[Blugolds]

15 minutes ago, Viking said:

Buffett is a master communicator. He just lowered the expectations bar significantly for the future returns for two of Berkshire’s largest businesses - railroad and energy. This will be a big, big benefit to Abel when he takes over. 
 

Just imagine the outcry if Abel has said this post Buffett?

 

Was thinking the same thing, also how he italicized that Abel is ready to take over as CEO "now". Taking an opportunity  to again instill confidence in the future and eventual handoff.  

 

Other things from the letter, yes BNSF issues, but he reiterated that it will still be vital to the country and BRK will still own it. "A century from now, BNSF will continue to be a major asset of the country and of Berkshire. You can count on that."

 

BHE is concerning and legislation disappointing. I have always viewed that as the "perpetual Elephant" a place to park nearly as much cash as they want for as long as they want with tremendous market share and guaranteed "satisfactory" returns, nothing sexy, but with BRK size, and reasonable stable returns, I have always thought of BHE as cruise control and the future crown jewel. That has now come into question and it confuses me because it seems that "going green" is the new mantra, all these things require significant investment in infrastructure, generation, distribution and reliability, either politicians are going to get on board with this and make it attractive to investors or take away all incentive and its just not going to happen. Doesnt give me warm fuzzys and triggers trauma from my local gov actions regarding affordable housing. Attempting to attract investors to build/provide affordable housing and invest, then pulling the rug out from under them by capping rents, taking all the tools away from investors to screen tenants, evict losers etc. The incentives for investors have COMPLETLEY disappeared and the result is obvious, the provision for affordable housing is probably worse now than when they attempted to "fix" it. Never underestimate the gov ability to F something up.  

 

I liked his comments regarding Japanese investments. These companies and their management sound very honorable, everything from CEO compensation, cash balances held, hesitation to issue shares and discretion regarding buybacks etc. I think this is a great relationship and I think/hope that the Japanese feel the same. There was a hint of admiration there compared to the way most companies do things here in the States (at least that is how I interpreted it) sounds like they run a tight ship. 

 

I was curious how he would mention or pay homage to Charlie, could just be my own emotions around the loss, but I thought it was touching.

 

Ajit continues to prove his worth.  

 

Overall tone of the letter I felt was better than years past, at least I enjoyed it more. I also agree that he is setting Greg up, under promise and over deliver, but thats always been his style. 

[DooDiligence]

"All in all, we have no possibility of eye-popping performance."

 

[RadMan24]

On the BHE thread, we were discussing the wildfire mitigation and impact, but I have to be honest, this letter was a sobering point of view, and one that really makes sense if this is how the regulatory bodies in certain states are going to proceed. Underground electrical wires are extensively expensive, forest management is also expensive, more and more people and property are in fire prone areas, and if "convective storms" do arise more often in the future, forest fires will simply be more intense given the growing biomass from more c02 in the atomosphere (the amount of plant biomass in most of the US is up 30% over the last 3-4 decades). It is refreshing to see however, Buffett state that he will not throw good money into bad. 

[MCR]

2 hours ago, John Hjorth said:

I personally like this shareholder letter very much. Reading it made me think and gave the feeling : 'This is the Mr. Buffett I know and can recognize from earlier shareholder Letters!'. [

 

Honestly, to me personally, some of the last ones have given me a feeling of a man running out of steam, but that's just me. And that would actually and cetainly be all okay with me after this performance in more than a half century, based on actual age by now.]

 

Candid and honest expressions based on factual and critical thinking  about the 'social contracts' between non-public owned regulated businesses and the US society as a whole.

 

Personally I hope for the best for all my US fellow CoBF board members in that regard, because it's important for economic future development of USA.

 

- - - o 0 o - - -

 

A bit like asking a farmer i Western Jutland, Denmark at the end of October in a given record year for the harvest : 'How was the harvest this year?' Answer <With no excitement> : 'Not shabby, not shappy ...'

 

- - - o 0 o - - -

 

USD 96 Billon after tax and minorities. I just say : 'Not shabby.' But unlike the West Jutland farmer, I can't move the pipe from one corner of my mouth to the other while I say it.

 

Isen't this the worlds second largest profit for any company on the planet, only surpassed by Saudi Aramco?

I felt exactly the same about this year's letter. It feels like a return to form. There are a few years' letters (or portions of letters) that I've shared with my kids and others. This one merits sharing in its entirety.

 

[RadMan24]

5 minutes ago, MCR said:

I felt exactly the same about this year's letter. It feels like a return to form. There are a few years' letters (or portions of letters) that I've shared with my kids and others. This one merits sharing in its entirety.

 

Agreed. 

[thowed]

46 minutes ago, RadMan24 said:

Agreed. 

 

Yes - this one was good.  I can't really say why, but the past few were a little underwhelming.  Maybe expecting the long brilliance of the earlier letters?  And now a reset in expectations?

 

Some of it reminded me of that old Jason Zweig line that it's so hard being a financial journalist, as there's only one sensible thing to say, and he has to find a different way of saying it once a week.

 

But I certainly need constant reminders about filtering out the 'casino noise', remembering the importance of incentivisation, and also how distorted accounting can be (lies, damned lies, and accounting...).

[anony208]

Looks like a divestiture of energy assets is coming up.

[MarioP]

3 hours ago, DooDiligence said:

"All in all, we have no possibility of eye-popping performance."

 

He said that a year where operational earnings are up 20%…Bring me more boring performance like that

[schin]

6 hours ago, Xerxes said:

I don’t even know why people ever thought he would buy the whole thing (OXY). When he bought 30% of the company at no premium. 
 

He has been clear in 2020 letter that broadly speaking he won’t pay control premium. And he is happy to be a large minority shareholder when it suits him. 
 

The question would be, what he would gain from being a full owner of Occidental (that he does not get by being just a major shareholder). And is that aspect worth the control premium. 

@Spekulatius @Xerxes - If he is wiling to invest 20%+ percent, why wouldn't he buy the whole thing? He did that for BNSF, See's, etc. I mean.... if he is buying on the open market, why not open up the possibility of buying it? I know he didn't want to buy all of Washington Post and be seen as aggressive to Katherine Graham... But, other than SEC reporting requirements... if OXY being the same company it is today, but trades at a P/E of 1-2.... and he can take it private at that price... he should do it....

 

I don't know why he has to be so vocal about it.... 

[schin]

6 hours ago, sleepydragon said:

Her attractive daughters should be around 50-60 years old..

@sleepydragon - I'm going to do the reverse Leonard DiCarpo and date 50-60 year olds that have bad hearts, but a lot of money...

[LearningMachine]

On 2/24/2024 at 2:43 PM, schin said:

@Spekulatius @Xerxes - If he is wiling to invest 20%+ percent, why wouldn't he buy the whole thing? He did that for BNSF, See's, etc. I mean.... if he is buying on the open market, why not open up the possibility of buying it? I know he didn't want to buy all of Washington Post and be seen as aggressive to Katherine Graham... But, other than SEC reporting requirements... if OXY being the same company it is today, but trades at a P/E of 1-2.... and he can take it private at that price... he should do it....

 

I don't know why he has to be so vocal about it.... 

 

Because owning it fully exposes to potentially severe liability risk, e.g. a spill in the deep water operations of Gulf of Mexico.  I've mentioned this a few times before. 

 

Remember the BP oil spill.  Buffett wouldn't want to expose the mothership to that type of liability risk even if it is low probability. 

Edited March 13, 2024 by LearningMachine