Buffett buybacks: Could Berkshire tender stock?

[Dynamic]

It's quite possible, if what John noticed about Citibank is anything to go by, that Berkshire will change its practice regarding revealing the number of shares in issue shortly before the date the 10-K is released, particularly now that meaningful sums from the cash balance could have been spent on buybacks to reduce the share count, which would affect both the balance sheet and cash flow statement as well as the share count itself.

 

I guess the only significant purpose now in providing the share count is in allowing people and entities with SEC filing requirements of their own to determine their fractional stake in each class of share as of the most recent disclosure by Berkshire and report it appropriately to the SEC in Form 4 or 13 D/G filings etc. Beyond that it's an unnecessary early disclosure of the buyback rate, although in most time it wouldn't give too much away about their conservative appraisal of IV.

 

Last quarter the earnings release time of Saturday at about 8am was announced on the preceding Thursday, though that wasn't the case last November except for annual reports, but has been the case for every quarter since. I wonder if in the absence of such a News Release yesterday or so far today we might guess that Berkshire's 10-Q will be released next week - Fri 9th Nov or Sat 10th - rather than today after the closing bell or tomorrow as a few financial data providers had guessed based on previous filings such as Fri 3rd Nov 2017. If so, any share count info on the front page might be as of some point next week (unless they change to showing only quarter-end figures). Delaying a week while buyback prices are well below IV before revealing their hand could provide a modest but worthwhile boost to IV per share if the 10-Q happens to reveal that something close to 25% of recent volume had Berkshire Hathaway as the buyer and that news were to provide a significant boost to the stock price.

[IceCreamMan]

October 30, 2018

OMAHA, Neb. (AP) — Investor Warren Buffett’s company plans to release its third-quarter earnings report on Saturday morning.

 

https://www.apnews.com/10844de9ade74149912d3d6b46292aef

[Dynamic]

Ah, thanks, IceCreamMan. (I'll have a '99' with an extra Flake please  :P - a little quip for my fellow Brits)

 

I'm surprised AP News releases didn't show up last time I checked BRK.B on Google or Yahoo! Finance

[nickenumbers]

How does the SEC corporate buyback blackout period work relative to BRK in the situation.  Would BRK not be able to buyback it's own shares from 9/15/2018 thru 11/2/18 earning release date?

 

I like SwedishValue's math a couple posts back regarding how much of the monthly trading volume BRK could be buying back theoretically, but I am wondering if we need to modify it a bit for the buyback blackout.

 

PS- I don't know much about this particular nuance, and I am trying to learn.

[Dynamic]

I'm not sure if the Safe Harbor rules, when trading is conducted using predefined criteria through a single broker would exempt the company from having to cease buybacks during the blackout period. I've not read anything that make that very clear.

[The Investor]

My default position is to always agree with Buffett

 

Same here, although I like to understand why an investment makes sense. I don't really understand Teva for example, so I haven't invested. Other than indirectly through owning Berkshire that is  ;)

[SwedishValue]

It's out.

 

http://www.berkshirehathaway.com/qtrly/3rdqtr18.pdf

 

Buybacks have been less significant than I thought. If I read things correctly, 2 805 A-share equivalents have been bought back in August and September (around 840 Million USD). For October until the 25th, there has been an equivalent of 588.4 A-shares bought back. The neat total so far is that Berkshire bought back stock for approximately one billion USD.

[Guest longinvestor]

Earnings explosion continue

[gfp]

So the way I read it is that they were only active for 14 trading days during the quarter: August 7th - August 24th, from which you can estimate the cap price in their repurchase instructions.  During those 14 trading days they repurchased approximately $927.566 million worth of stock, for an average of about $66.25 million worth per trading day.

 

No further repurchase activity during the quarter.

 

Then, subsequent to quarter end, up until October 25th, they were back in the market, repurchasing approximately $181 million worth of stock in 8 trading days, for an average of about $22.625 million worth of stock per day.  This is consistent with the estimated cap price that can be divined by the August repurchase activity.

 

They did not repurchase anything the first day the were allowed to, August 6th, probably because they had a one day delay starting trading on the 10b5-1 plan I assume they are using.

 

 

It's out.

 

http://www.berkshirehathaway.com/qtrly/3rdqtr18.pdf

 

Buybacks have been less significant than I thought. If I read things correctly, 2 805 A-share equivalents have been bought back in August and September (around 840 Million USD). For October until the 25th, there has been an equivalent of 588.4 A-shares bought back. The neat total so far is that Berkshire bought back stock for approximately one billion USD.

[AdjustedEarnings]

It's out.

 

http://www.berkshirehathaway.com/qtrly/3rdqtr18.pdf

 

Buybacks have been less significant than I thought. If I read things correctly, 2 805 A-share equivalents have been bought back in August and September (around 840 Million USD). For October until the 25th, there has been an equivalent of 588.4 A-shares bought back. The neat total so far is that Berkshire bought back stock for approximately one billion USD.

 

I have a slightly different number, but similar conclusion to you. Total B-equivalents of 4,476,692 repurchased for $928 million during the quarter, for an average price of $207.2. I'm not sure where you are seeing the October numbers. It seems you are drawing conclusions from the reported share-count at Oct 25? I think that's reasonable, but there could easily be other factors that affect share counts aside from repurchases, as there were this quarter as well. Buyback was a little underwhelming. The rest of the earnings are rather good though. So good report overall, IMO.

[gfp]

The october repurchase activity can be estimated by using the 10/25 share counts, accounting for A to B conversions, and estimating the "missing" shares.  It won't be spot on, because like you mention there are other factors that effect share count, but when there is a reduction in the number of outstanding shares we can safely assume that is from net share repurchases.  All the other factors that effect share count would generally lead to small increases in share count.

 

It's out.

 

http://www.berkshirehathaway.com/qtrly/3rdqtr18.pdf

 

Buybacks have been less significant than I thought. If I read things correctly, 2 805 A-share equivalents have been bought back in August and September (around 840 Million USD). For October until the 25th, there has been an equivalent of 588.4 A-shares bought back. The neat total so far is that Berkshire bought back stock for approximately one billion USD.

 

I have a slightly different number, but similar conclusion to you. Total B-equivalents of 4,476,692 repurchased for $928 million during the quarter, for an average price of $207.3. I'm not sure where you are seeing the October numbers. It seems you are drawing conclusions from the reported share-count at Oct 25? I think that's reasonable, but there could easily be other factors that affect share counts aside from repurchases, as there were this quarter as well. Buyback was a little underwhelming. The rest of the earnings are rather good though. So good report overall, IMO.

[Guest longinvestor]

"This is absolutely one of the biggest quarterly earnings reports that has ever come out of a United States corporation," said Bill Smead, chief executive of Smead Capital Management in Seattle, a Berkshire shareholder.

 

I believe he is talking about the headline number, but is his statement correct?

[StubbleJumper]

The exact level of buybacks might not be clear, but what is clear is that it amounts to bugger-all in the context of BRK's cash balances.  The finished the quarter with, what, $95 billion in cash and short term investments?  So dropping a bil on buybacks hardly constitutes an aggressive, high conviction move.

 

I say either get serious about deploying some of that cash on buybacks, or institute a considerable cash dividend.  Buying Apple sharss soaked up some cash, but it really doesnt inspire confidence in management given previous observations about circle of competence.

 

 

SJ

[ander]

I think it’s pretty clear (based on his actions), he thinks the stock is attractively priced relative to other alternatives but not substantially attractive. Seems to me that the change in buyback policy probably made because of the accounting change re: investment treatment as opposed to the stock being significantly undervalued currently.

[alwaysinvert]

If he doesn't make a sudden surprise tender like I originally speculated (and that's a low probability), it's hard to draw any other conclusions from this than that dividends are way closer than previously suspected. Barring an -08 type drawdown the idle cash will keep growing at a rapid clip. A luxurious problem to have, but these puny buybacks don't even offer a partial solution.

[Guest longinvestor]

I think it’s pretty clear (based on his actions), he thinks the stock is attractively priced relative to other alternatives but not substantially attractive. Seems to me that the change in buyback policy probably made because of the accounting change re: investment treatment as opposed to the stock being significantly undervalued currently.

 

 

May that opinion dominate in the market (reflected in the stock price) for quite a bit longer while ignoring the earnings growth as an anomaly due to accounting treatment. It has allowed me (& others around here) to buy more shares thinking that the shares are indeed significantly undervalued.

[John Hjorth]

So the way I read it is that they were only active for 14 trading days during the quarter: August 7th - August 24th, from which you can estimate the cap price in their repurchase instructions.  During those 14 trading days they repurchased approximately $927.566 million worth of stock, for an average of about $66.25 million worth per trading day.

 

No further repurchase activity during the quarter.

 

Then, subsequent to quarter end, up until October 25th, they were back in the market, repurchasing approximately $181 million worth of stock in 8 trading days, for an average of about $22.625 million worth of stock per day.  This is consistent with the estimated cap price that can be divined by the August repurchase activity.

 

They did not repurchase anything the first day the were allowed to, August 6th, probably because they had a one day delay starting trading on the 10b5-1 plan I assume they are using.

 

globalfinancepartners,

 

From you numbers etc, it appears clear to me, the basis for your post is the 2018Q3 10-Q, p. 45, lower part, where we have the facts, right?

 

1. Why 8 days in October, ref. my emphasis in the quote of your post? [i suppose you perhaps mean 18 trading days instead?]

2. Why is August 6^th first day in your opinion for the new buyback regime? The public announcement was July 17^th.

 

I just want to be sure to understand correctly your line of thinking here.

 

[Guest longinvestor]

So the way I read it is that they were only active for 14 trading days during the quarter: August 7th - August 24th, from which you can estimate the cap price in their repurchase instructions.  During those 14 trading days they repurchased approximately $927.566 million worth of stock, for an average of about $66.25 million worth per trading day.

 

No further repurchase activity during the quarter.

 

Then, subsequent to quarter end, up until October 25th, they were back in the market, repurchasing approximately $181 million worth of stock in 8 trading days, for an average of about $22.625 million worth of stock per day.  This is consistent with the estimated cap price that can be divined by the August repurchase activity.

 

They did not repurchase anything the first day the were allowed to, August 6th, probably because they had a one day delay starting trading on the 10b5-1 plan I assume they are using.

 

globalfinancepartners,

 

From you numbers etc, it appears clear to me, the basis for your post is the 2018Q3 10-Q, p. 45, lower part, where we have the facts, right?

 

1. Why 8 days in October, ref. my emphasis in the quote of your post? [i suppose you perhaps mean 18 trading days instead?]

2. Why is August 6^th first day in your opinion for the new buyback regime? The public announcement was July 17^th.

I just want to be sure to understand correctly your line of thinking here.

 

 

Know the answer to #2: Buffett explicitly stated that no buybacks would happen before earnings release for the quarter.

 

[John Hjorth]

Thank you, longinvestor!

 

I missed that, got it now! [ : -) ]

 

If one look at a price chart for the B share for 2018Q3, it really looks like a "208 threshold" for the period [2018Q3].

[gfp]

I'm not sure where I got 8 days from, I've been out all day.  Perhaps it was an error in reading my notes.  More likely, with the price cap that appears to have been in place, it was 11 trading days.  If I remember what the hell I was thinking about when I wrote that I'll let you know..

 

But, yeah, as mentioned earlier - the 10Q on page 45 says, "Period"  "August 7 through August 24:"

 

And he had mentioned in the original announcement that he would wait until everyone had the same information (after earnings were publicly released).  Then he apparently waited one additional day, potentially for the reason I speculated in my previous post.

 

The gist is that Berkshire isn't buying back anywhere close to 25% of the average daily volume.  And there appears to be a price cap, likely based on a multiple of book value so it may change quarter to quarter.  Did the 'soft floor' just become a 'soft ceiling' ?  LOL

[gfp]

I mean, yeah, "one of the biggest quarters" is correct if you use an almost meaningless headline number under these new accounting rules.  Even lowly Apple Inc just reported a pitiful $14 Billion net income quarter (must be embarrassing I know).  Apple has made over $18 billion in a quarter (Q1) before, hence the "one of" language.  [*edit - Apple made $20 Billion in the quarter ending December 2017]

 

But if you're going to focus on a meaningless headline number, why not use Berkshire's 2017 Q4, where the tax related gain added $29 Billion to Berkshire's actual earnings for the quarter.

 

 

"This is absolutely one of the biggest quarterly earnings reports that has ever come out of a United States corporation," said Bill Smead, chief executive of Smead Capital Management in Seattle, a Berkshire shareholder.

 

I believe he is talking about the headline number, but is his statement correct?

[Gregmal]

So in summary what I get, is that just like most value investors, Berkshire is sitting on too much cash and being way too frugal and nitpicky about buying stock.... Like most value investors I'd gander they underperform going forward.

 

A good example of the cure here would be AAPL. When did they really turn a corner? When Einhorn and Icahn forced them to start deploying excess capital.

[John Hjorth]

... Even lowly Apple Inc just reported a pitiful $14 Billion net income quarter (must be embarrassing I know).  ...

 

lol. Good humor upon Red October.

[Swedish_Compounder]

What I take with me regarding the buybacks is that Warren and Charlie consider that BRK is undervalued at 207 USD.

 

We do not know the reasons for why they did not buy back more. Perhaps they still prefer to buy other companies and only want to consider buybacks when the cash level gets too high. They appear to have bought other equity securities for 18 BUSD or so during the quarter, which is a lot...

 

 

 

[gfp]

Yeah - that's what I'm getting at in the other thread.  They purchased $17.657 Billion of equities in the quarter, and around $15 Billion of that is Banks, Insurance, Finance.  And I think 200 million BAC shares is definitely part of it.