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发帖数: 11530 | 1 Buffett Said He Paid a Lot. $15 Billion Later, BNSF Is a Cash Machine. 'He
Stole It'
By Noah Buhayar Nov 10, 2014 8:48 AM CT
Nov. 7 (Bloomberg) -- Warren Buffett’s Berkshire Hathaway said third-
quarter profit dropped 8.6 percent on investment results, including an
impairment tied to a holding of U.K. retailer Tesco. Bloomberg's Noah
Buhayar takes a look at the numbers on "Taking Stock." (Source: Bloomberg)
Days after Warren Buffett announced his $26.5 billion buyout of railroad
BNSF, he insisted that he’d paid a steep price to own a business that would
benefit his company, Berkshire Hathaway Inc., over the next century.
“You don’t get bargains on things like that,” he said in a November 2009
interview with Charlie Rose that aired on PBS. “It’s not cheap.”
Five years later, that assessment rings a bit hollow. Buoyed by an onshore
oil boom, BNSF has become a cash machine for Buffett. The railroad had sent
more than $15 billion in dividends to Berkshire through Sept. 30, according
to quarterly regulatory filings, the latest of which was released last week.
More stunning: The business is on pace to return all the cash Buffett spent
taking it private by the end of this year.
Annual revenue at the railroad has risen 57 percent, and earnings more than
doubled to $3.8 billion since Buffett bought it. Sales have climbed even as
BNSF faced increased public scrutiny over service delays and safety.
“He stole it,” said Jeff Matthews, a Berkshire shareholder and author of
books about the company. “He’s got to feel really good that he bought it
when he did, because it’s a wonderful asset, and it’s done nothing but get
more valuable in the time that he’s owned it.”
Photographer: Jonathan Alcorn/Bloomberg
A Burlington Northern Santa Fe train moves through Cajon Pass near San
Bernardino, California.
The railroad’s profit continued its climb in the third quarter as revenue
from agricultural and industrial shipments, including oil, rose. The
business accounted for more than a fifth of Omaha, Nebraska-based Berkshire
’s net income in the period, according to a Nov. 7 regulatory filing.
Oil Glut
Berkshire’s third-quarter profit slipped 8.6 percent to $4.62 billion on
investment results, including the impairment of a holding in U.K. retailer
Tesco Plc. Buffett’s company climbed 0.7 percent to $216,525 at 9:33 a.m.
in New York trading after operating earnings beat analysts’ estimates on
gains at units including the railroad.
BNSF’s tracks sit on top of North Dakota’s Bakken formation, where energy
producers are using fracking and other extraction methods to pull crude from
the ground in unprecedented volumes. Because pipeline capacity is limited
in the area, oil companies have turned to BNSF to ship their product to
refineries.
The extra freight has exacerbated weather-related train tie-ups that the
railroad has spent months working to resolve. In June, the U.S. Surface
Transportation Board ordered BNSF and Canadian Pacific Railway Ltd. to
report plans for resolving the delays.
Below Standards
At a hearing in North Dakota in September, state officials urged the
railroad to improve service. BNSF has said it’s adding workers and rail
cars to improve operations. In the filing last week, Berkshire said that the
railroad’s service is still “well below” its standards.
The expansion of crude shipments has also created risks for the industry.
Derailments of oil tank cars in the U.S. and Canada have led to fires,
spills and the bankruptcy of smaller carrier Montreal, Maine & Atlantic
Railway Ltd. after a derailment in Quebec last year that killed 47 people.
BNSF has worked to allay concerns about oil shipments by agreeing to buy 5,
000 safer tank cars. It has also announced plans to apply a surcharge on an
older generation of cars that have been involved in some of the worst
accidents.
Investments like those have been common since Berkshire took over. The
railroad budgeted a record $5 billion this year to upgrade its network,
expand facilities and buy equipment. That’s about $1 billion more than it
spent in 2013.
Cash, Stock
Even with those increasing outlays, BNSF’s climbing earnings have helped
make the multiple that Buffett paid look small. Berkshire was already the
railroad’s largest shareholder when he agreed to buy out the remaining 77.5
percent of the company. The price included Berkshire stock and $15.9
billion in cash. Since the beginning of 2011, the railroad has paid
distributions to its parent of at least $750 million a quarter.
Union Pacific Corp., BNSF’s main competitor in the western U.S., currently
trades for about 12.6 times annual pretax, pre-interest income, according to
data compiled by Bloomberg. Were Buffett’s railroad to fetch that kind of
price now, 77.5 percent of it would be worth about $66.5 billion -- more
than double what Berkshire paid.
Part of Buffett’s success with BNSF comes down to luck, said James
Armstrong, who oversees Berkshire shares as president of Henry H. Armstrong
Associates. Very little crude was being shipped by rail when Buffett bought
the company and it wasn’t widely known that BNSF would play such a big role
in transporting oil from where it was produced.
Luck aside, there’s little upside for Buffett in bragging, said Armstrong.
Berkshire is always looking to buy other businesses and it needs to have a
reputation for paying fair prices, he said.
“It’s never in Buffett’s interest to indicate that he got a bargain, even
though that’s what he’s shooting for,” Armstrong said. “He has to
manage other people’s perception of him.”
To contact the reporter on this story: Noah Buhayar in Seattle at nbuhayar@
bloomberg.net | W***n
发帖数: 11530 | 2 It's "free" by end of the yr
Genius! |
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