Buffett Talks About Buybacks, Kraft Heinz, Amazon at Shareholders’ Meeting

Katherine Chiglinsky

05 May 2019, 2:30 AM IST

(Bloomberg) -- Warren Buffett’s Berkshire Hathaway Inc. held its annual shareholders’ meeting in Omaha, Nebraska, today. Below are the key takeaways from the live blog covering the event, followed by a complete transcript of blog entries in the order they were originally posted.

05/04 16:50 ET

Thanks for joining us today! It’s been a packed day of questions for Warren Buffett and business partner Charles Munger. Here’s what we learned:

The pair faced lots of questions about share buybacks. For most companies, that might be old news. But Berkshire tweaked its policy last year, opening up that avenue for more potential capital deployment. It’s key for Berkshire because of the swelling cash pile that reached $114 billion at the end of the quarter. Buffett was clear on his point that he doesn’t want to do buybacks just for the sake of it: He wants to make sure he repurchases stock when its below intrinsic value.
Shareholders got to hear Ajit Jain and Greg Abel, who were named last year as vice chairmen, answer a range of questions. That could assuage concerns about succession at Berkshire as Buffett, 88, and Munger, 95, gave the pair more speaking room.
Kraft Heinz came up frequently during the meeting. Berkshire was stung by the writedown earlier this year. Buffett emphasized that the problems with the business largely lie with the fact that 3G and Berkshire overpaid for Kraft, even while admitting that brands’s pricing power has changed.
One of Buffett’s investing deputies, Todd Combs or Ted Weschler, bought up Amazon stock, venturing more into the technology realm. While Buffett’s praised Amazon and Jeff Bezos, the move by the deputy shows the growing influence. Buffett said that the Amazon investment fits within a value investing framework, which is interesting given that investing style’s conflicted opinions about valuing technology firms. And on an interesting insider note: Buffett revealed that one of the investing deputies is slightly ahead of the S&P, while one is slightly behind.
Buffett tried to address the future of Berkshire more at the meeting. When questioned about the possibility of an activist coming into the stock, he noted it could happen but it might not occur for a while. Berkshire will have to prove itself over time, he says.

Katherine Chiglinsky Finance Reporter

05/04 09:22 ET

Warren Buffett’s Berkshire Hathaway is holding its annual shareholders’ meeting in Omaha, Nebraska, today. The event doubles as a showcase for Berkshire’s dozens of businesses and a platform for its billionaire chairman and CEO to share his investing philosophy with thousands of fans. Join TOPLive as we provide news and live analysis.

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Buffett Talks About Buybacks, Kraft Heinz, Amazon at Shareholders’ Meeting

Anny Kuo TOPLive Editor

05/04 09:50 ET

Greetings from Omaha! I’m Katherine Chiglinsky, a finance reporter at Bloomberg News, covering Berkshire Hathaway. Together with my colleagues, we’ll take you through today’s events.

I’m all set up here at the Berkshire annual meeting where we’re getting ready to kick off the extravaganza. The event normally draws thousands of shareholders from all over the globe. Omaha has been preparing for the event, with hotels packed full and See’s Candies stands greeting visitors at the airport.

Katherine Chiglinsky Finance Reporter

05/04 09:51 ET

We kicked off this morning with earnings. Both operating earnings and net income climbed, reflecting broad-based gains.

But perhaps more interesting is that Berkshire snapped up $1.7 billion of its own stock in the quarter. Buffett’s been struggling to find ways to put his $114 billion cash pile to work, but the company’s board loosened its buyback policy last year and created another avenue for capital deployment.

This topic will probably come up today --- has Buffett been seeing opportunities to put more money to work (and therefore generate some higher returns)?

More from Buffett on earnings:

“The bottom line figures are going to be totally capricious, and what I worry about is that not everybody studied accounting in school,” he said.

The bottom line figures are potentially harmful to shareholders, Buffett said, encouraging the audience to focus on operating earnings. Capital gains are “enormously important” over time, but not on a quarterly or annual basis, he said.

Hannah Levitt Finance Reporter

05/04 10:25 ET

He points out that Kraft Heinz hasn’t yet filed its 10-K yet, so they have not yet released first quarter earning. That means Berkshire isn’t including them in its results.

It’s an "unusual" item, he said.

Katherine Chiglinsky Finance Reporter

05/04 10:28 ET

The last time Berkshire reported results, the contribution from its stake in Kraft Heinz was a $2.7 billion charge. This time, it was a blank space.

Read more on the Kraft Heinz situation here:

Berkshire Gets a New Headache From Its Kraft Heinz Investment

Katherine Chiglinsky Finance Reporter

05/04 10:28 ET

Buffett’s now talking about Kiewit Corp., which owns the building that Berkshire Hathaway’s headquarters is in. That company is moving its headquarters, but Buffett just signed a new lease on that.

Katherine Chiglinsky Finance Reporter

05/04 10:31 ET

Buffett says he signed a 20-year lease for two floors in the building that houses Berkshire’s headquarters. The company only currently uses one floor as it tries to keep a lean management staff.

Michael Moore Finance Team Leader

05/04 10:31 ET

Buffett’s talking about the amount of business that Nebraska Furniture Mart, which he owns, has done this week.

I always find it so interesting that Berkshire ends up turning their annual meeting into a sales opportunity. The booths outside contain a variety of trinkets for sale (rubber ducks that look like Buffett and Munger, a Warhol-esque version of the pair) and some, like Geico, even help you with your insurance.

I can’t think of many other companies that make an annual business meeting into this heavy of a sales pitch.

Katherine Chiglinsky Finance Reporter

05/04 10:32 ET

And now we’re about to kick off with some Q&A. The questions come from shareholders, as well as select journalists and analysts. (Crossing my fingers that we’ll kick off with an Amazon question).

Katherine Chiglinsky Finance Reporter

05/04 10:35 ET

First question comes from journalist Carol Loomis, who has long been close to Buffett. She’s giving shareholders some tips about questions to ask.

Now she’s asking about repurchases of Berkshire stock. Remember: the board tweaked the policy last year and Buffett snapped up $1.7 billion in the first quarter.

Katherine Chiglinsky Finance Reporter

05/04 10:37 ET

“Charlie for Chairman” watch:

Munger is having a Diet Coke in a wine glass and See’s peanut brittle while Buffett answers the stock buybacks question.

Hannah Levitt Finance Reporter

05/04 10:37 ET

Buffett is saying whether we had $100 billion or $200 billion would not make a difference in the approach to repurchasing shares. "We used to have a policy of tying it to book value, but that became, really became obsolete," he said.

The idea is to do it at a price where remaining shareholders have stock worth more the moment after you purchase the stock, he said.

Sonali Basak Finance Reporter

05/04 10:38 ET

Buffett is using an example of a three-person partnership in determining how the company would choose to buy back stock. That’s significant in that Buffett has long thought of many shareholders as partners, really harkening back to his days running a smaller shop with money from friends and family.

He says most companies have repurchase programs and just say that they’re going to spend that much. Berkshire will buy stock when it thinks it’s selling below a conservative estimate of its intrinsic value.

Katherine Chiglinsky Finance Reporter

05/04 10:42 ET

Now we’re getting a question about precision scheduled railroading, essentially a play on boosting efficiency at railroads. Berkshire’s BNSF has long spurned that while its competitors have been jumping on that train essentially.

Buffett is talking about the history of the system which is tied to industry legend Hunter Harrison. He says that they watch very carefully and they’re not above copying anything that’s very successful. They’ve learned a lot by watching it. Buffett says they don’t have to do it today or tomorrow, but they do have to find something that gets equal or better customer satisfaction.

Read Tom Black’s story on this debate here: Buffett’s Railroad Spurns Efficiency ‘Cult’ Boosting Rivals

Katherine Chiglinsky Finance Reporter

05/04 10:47 ET

Munger’s voice is a little quieter here in the arena (granted the press box is in the nosebleeds), but my colleagues caught one of his one-liners about precision scheduled railroading that’s got a good Munger vibe: "I doubt that anybody is very interested in unprecision in railroading."

Katherine Chiglinsky Finance Reporter

05/04 10:49 ET

CNBC’s Becky Quick is now asking about Wells Fargo. Good thing we have our Wells Fargo reporter helping us live blog today.

Quick’s asking about why Berkshire’s been so quiet on this misbehavior at the bank.

Katherine Chiglinsky Finance Reporter

05/04 10:56 ET

Buffett says that Wells Fargo has made some big mistakes and that they incentivized the wrong behavior. He’s comparing the Wells Fargo issue to Salomon Brothers and his work trying to clean that up. Buffett’s point? When you see something wrong, you need to take care of it right away instead of letting it continue.

So far, these frankly aren’t fresh comments about his views on Wells Fargo. He has criticized the mistakes and the system of incentives that fueled it. Buffett told CNBC earlier this week that Wells Fargo CEOs would be "pinatas" for politicians.

Munger says he doesn’t think people should go to jail for honest errors of judgement --- it’s bad enough to lose your job, he said. He says he doesn’t think Tim Sloan was an "accidental casualty."

Katherine Chiglinsky Finance Reporter

05/04 10:56 ET

The Munger comments are a bit more interesting --- he’s said publicly that he supported Tim Sloan, but I don’t think I can recall a time when he said that he doesn’t think people should go to jail for honest errors of judgement.

Katherine Chiglinsky Finance Reporter

05/04 10:56 ET

The Wells Fargo question is the first to get wide applause.

Tara Lachapelle Bloomberg Opinion

05/04 10:56 ET

"Essentially he heard about a pyromaniac and let him keep the box of matches," Buffett says about Salomon’s ex-CEO John Gutfreund.

He said a similar thing happened at Wells Fargo because there was a Los Angeles Times article that pointed out the issues years earlier, and clearly it was ignored, he said.

Sonali Basak Finance Reporter

05/04 10:57 ET

“When you find a problem, you have to do something about it. I think that’s where they probably made a mistake at Wells Fargo,” Buffett said.

Munger said he wishes Tim Sloan, who stepped down as Wells Fargo’s CEO just over a month ago, was still there.

Hannah Levitt Finance Reporter

05/04 10:59 ET

Buffett cites the proxy contest at Barclays when its analysts Jay Gelb looks to ask a question.

Sonali Basak Finance Reporter

05/04 11:01 ET

Gelb is asking about Buffett’s reference to the fact that Berkshire could eventually buy back $100 billion in stock. He asks how he got that number.

Buffett just said he arrived at that number quickly in the interview. He’s more concerned about the fact that the shareholders should get all the disclosure they need if they’re going to sell their stock and Berkshire could buy it back.

Katherine Chiglinsky Finance Reporter

05/04 11:03 ET

The next question is from a shareholder and his young daughter, Brooke. He’s thanking Buffett for the memories of his times coming to the annual meeting.

Again, a weird quirk of the Berkshire meeting --- the desire to have young kids join in and ask Buffett and Munger questions.

Katherine Chiglinsky Finance Reporter

05/04 11:04 ET

The question was about their favorite personal stocks.

Buffett says they’re always fun when you make money off of it.

Katherine Chiglinsky Finance Reporter

05/04 11:06 ET

Oohhh, now we’re getting a question about politics.

Katherine Chiglinsky Finance Reporter

05/04 11:08 ET

The question is about the potential for Democrats if they win. How does Buffett think that would affect the business? And what does Buffett think? His personal political views and its effect on Berkshire?

Katherine Chiglinsky Finance Reporter

05/04 11:08 ET

Buffett says that Berkshire certainly has never, and will never, make a contribution to a presidential candidate.

Katherine Chiglinsky Finance Reporter

05/04 11:10 ET

On lobbying, Buffett says “as a practical matter,” Berkshire’s railroad and utility companies have to have a presence in Washington, and in legislatures where the companies operate.

Hannah Levitt Finance Reporter

05/04 11:11 ET

Overhead in the rafters: a baby crying. Guess it’s never too early to start learning about value investing?

Tara Lachapelle Bloomberg Opinion

05/04 11:11 ET

Buffett says people do not pursue their own political interests with your money here. He’s drawing the distinction that he doesn’t think Berkshire dives into political views, but he does note that personally, he has been known to share his own.

Remember: He supported Hillary Clinton in the past election, which is why this is drawing some interest ahead of what’s likely to be a heated 2020 election.

Katherine Chiglinsky Finance Reporter

05/04 11:12 ET

“I’m a card-carrying capitalist,” Buffett said, to applause in the audience.

He said he also thinks capitalism involves regulation and taking care of those left behind.

Hannah Levitt Finance Reporter

05/04 11:14 ET

Buffett says that part of the reason they’re doing this partnership with JPMorgan and Amazon on this health-care venture is that there’s so much money that’s being thrown toward medical care.

He hopes that there’s some major improvements from the private sector (he thinks the private sector tends to do a better job than the public sector).

Katherine Chiglinsky Finance Reporter

05/04 11:14 ET

Political questions can be an intriguing draw for the pair --- Buffett has been down to lean more toward the left, while Munger sometimes tends to be a bit more on the right politically. A sign of bipartisanship that the pair can get along?

Katherine Chiglinsky Finance Reporter

05/04 11:15 ET

Now Greggory Warren from Morningstar is asking about buybacks.

Buffett says when they’re repurchasing shares, they’re going to spend more on Class B because the trading volumes are quite higher (Class A can sometimes be pretty illiquid).

Katherine Chiglinsky Finance Reporter

05/04 11:16 ET

Buffett also said:

"I don’t think the country will go into socialism in 2020 or 2040 or 2060."

Michael Moore Finance Team Leader

05/04 11:16 ET

Munger’s answer is pretty simple. He doesn’t think they care much about which class of stock they buy.

Katherine Chiglinsky Finance Reporter

05/04 11:19 ET

A sidenote on politics: Munger, in a recent WSJ interview, said he was "fascinated" by South Bend, Indiana, Mayor Pete Buttigieg.

Katherine Chiglinsky Finance Reporter

05/04 11:21 ET

Buffett’s talking now about how Berkshire has a bunch of experts running the different businesses, and not too many people in the central office trying to do that.

That’s kind of a key feature of Berkshire --- the decentralized setup, where headquarters has just about two dozen staff members and the rest of the businesses are run largely on their own.

Katherine Chiglinsky Finance Reporter

05/04 11:22 ET

Buffett points out that the world’s changed dramatically in years and that’s affected a lot of Berkshire’s businesses (take the namesake textile mill for example).

Katherine Chiglinsky Finance Reporter

05/04 11:23 ET

Buffett says they welcome change and they want to stay ahead. But sometimes they’ll be wrong.

It’s kind of a blunt response on how change infiltrates all of Berkshire’s empire.

Katherine Chiglinsky Finance Reporter

05/04 11:23 ET

Buffett is answering a question regarding 5G and how it might change the competitive moat of Berkshire’s business.

"The world is going to change in dramatic ways... And some of those changes hurt us," he said. Including shoes and trading stamps. "But we do adjust and we’ve got a group, overall, of very good businesses."

He says some businesses may be "destroyed" but competition in capitalism is a good thing.

Sonali Basak Finance Reporter

05/04 11:25 ET

Perfect. A question now from Carol Loomis on Kraft Heinz. The question touches on consumer brands --- will those have any moat in the future?

Katherine Chiglinsky Finance Reporter

05/04 11:27 ET

Buffett points out that they paid too much for Kraft (he made that point in February, soon after Kraft Heinz’s writedown).

To some extent, he says their own actions had driven up the prices. Kraft Heinz is a wonderful business, but you can pay too much for a wonderful business, he says. The business does not know how much you paid for it --- it’s going to earn based on its fundamentals, he said.

The profitability has been improved, he says. But now Amazon itself has become a brand. And Costco has Kirkland. He’s pointing out just how competitive it is for those consumer product brands.

Katherine Chiglinsky Finance Reporter

05/04 11:27 ET

“To some extent our own actions had driven up the prices,” Buffett said of Kraft.

This statement begs an interesting question of how often Berkshire -- a $739 billion behemoth -- runs into this kind of problem.

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Buffett Talks About Buybacks, Kraft Heinz, Amazon at Shareholders’ Meeting

Buffett Talks About Buybacks, Kraft Heinz, Amazon at Shareholders’ Meeting