Berkshire After Buffett: Earnings, Outlook & Monumental Cash Flow

0:00We're watching Berkshire Hathaway. It's lower today. It did report its fourth quarter results. The first results out without Warren Buffett at the helm. He stepped aside. He obviously retired at the peak. And now McRae Sykes is with me. Portfolio Manager of Cabelli Funds, Mac, taking a look at what we saw from Berkshire and Greg Able who's now on board. And since he's going to be on board, maybe for 20 years. Yeah, thanks for having me, Nicole. Great day for Berkshire Hathaway. In terms of getting the feedback and for investors as well. So always delighted to kind of think about this stuff on the Monday after the Saturday. I thought Greg did a terrific job laying out. The annual letter this year is certainly big shoes to fill in terms of following Warren. But I thought he did a terrific job. I think he went through all the businesses. So you got a sense of his understanding about them. And he was critical and accountable in terms of what his expectations are going forward. So a little softer quarter, softer year,

1:01just giving some headwinds and insurance due to competition, lower rates, et cetera. But this company's well positioned to go forward. And certainly, as Greg outlined, in place for another 20 years plus. And a lot of folks actually really loved that letter, at least in part, because it didn't really go off the blueprint of what the way that Warren Buffett used to do it. So I mean, people like that he didn't go rogue and try and reinvent the letter, you know? But do you think there'll be some differences in the company with the leadership of Greg Able as CEO? Yeah, I think investors have come to believe in the consistency, transparency, and clarity with the conglomerate. You know, the culture has been well ingrained. So I think that was signature with this annual letter as well. You know, he threw in a few pieces of humor so trying to emulate his mentor. But, you know, not obviously trying to reach that level. So I think it was a pleasant mix and great feedback. You know, in terms of management changes, we've already started to see that.

2:02You just look at the disclosure around the annual meeting this year in terms of adding an extra panel or a Q&A with Katie Farmer and Adam Johnson. So we're starting to see the emergence of some of these leaders. They were announced at the end of the year. And so I think you'll see more of that as they help with Q&A and the leadership roles. And life after Buffett. What do we think about what's in Berkshire Hathaway's portfolio? Let's go over that a bit. Yeah. So they continue to have a pretty concentrated base of those core investments, whether it's Apple, AMX, et cetera. You know, a firm like America Express, I expect that to be a core holding for some time. You know, they have been moving some of the bank of America's stake, Apple's stake. You know, and they have some motivations for that. I'm sure, but, you know, I think they'll continue to like those businesses going forward and we'll have to see. But there are a number of core businesses in there which, you know, I think we'll be around for decades for them.

3:03And we think about some of the other things, whether it was insurance and rails. Those were also a big part of the portfolio too now. Coca-Cola. Sure. You know, absolutely the chub stake that's increased there. They've done pretty well. Coca-Cola, et cetera. I mean, look, who knows insurance better than Berkshire? You know, it's 44% of their operating earnings. You know, again, it's a little softer this year. You know, we're going to see some headwinds due to rates. You know, every 50 basis points on the $370 billion cash is almost $2 billion headwind. But still, that's very cash generative businesses and, you know, leadership positions. So we feel pretty comfortable about the insurance business as well as they're investing that they do outside of those insurance businesses. And what do you think when you look at just the big picture of the market and the opportunities for investors? I mean, Berkshire Hathaway will always find opportunities and ways to spend money. They have so much money on the sidelines to invest. But your thoughts to an investor here? Well, we saw two deals last year,

4:03one closed in January. So the acquisition of the road and company. So that was kind of interesting in August. You know, kind of fit the mold and it was talked about in the letter. And then you had the Oxygen Transaction, which closed just after January 1st. And that brought over, you know, about a billion of contribution to operating earnings. They paid about 9.5 billion for that. So a nice owner's earnings yield on that. And, you know, look, it's such a big pool of operating earnings that we calculated going forward about 850 million per week that they're generating there. And so certainly a lot of good opportunity to put that cash flow to work, whether it's on the private side, whether it's on the public side, you know, they continue to be moving in and out of companies there. Obviously, you know, we would like to see a bigger decline more stress in the market where they could really put some capital work, you know, one during the financial crisis. You know, they really were pretty quick to put a lot of money

5:05to work in different companies and we saw the results there. So these events don't come along a lot, but they will be well prepared when we do have more volatility in the market. All right. Max, Sykes, great to see you at Portfolio Manager Cabelli Funds. Thank you so much for being with us.