Personally, I don't like the extravagant annual meeting.
I feel as though a company should never lose focus of how it has achieved success -- and it was unlikely by partying hard for a weekend or a day and hamming it up with the media. Wal-Mart's (WMT) annual meetings, which have been emceed by Jamie Foxx and other celebs, are epic events that feature song and dance and happen to highlight some top-performing employees from around the globe. I get that Wal-Mart is an American success story, but the money spent on such a lavish affair could easily be reinvested in an employee bonus pool or a one-day blowout sale on food that would help economically challenged citizens.
Then there is the Berkshire Hathaway (BRK.A, BRK.B) annual meeting, which is a celebration of another American success story. The event attracts a ton of people and naturally, takes quite a bit of planning and money to throw. I hope the next generation of Berkshire leaders rethink the annual meeting and tone it way down. Those thoughts aside, listening to Warren Buffett and Vice Chairman Charlie Munger for six hours on a live stream does present its share of wisdom on how to invest as well as the economy at large.
Here are a few things I learned this year.
Buffett thinks Amazon is going to crush retail even further.
"We're not going to out-Bezos Bezos," said Buffett when asked about the impact that online retail is having on traditional retail. I read that and immediately thought Buffett is unlikely to make a play for a deeply discounted Macy's (M) or even a higher-end play in Nordstrom (JWN), whose stock is in the toilet due to mismanagement. Nor is he likely to build a stake in top apparel brands such as Nike (NKE) due to the margin pressure Amazon (AMZN) is bringing across the apparel space. And this statement makes me question why Buffett is still holding shares of Wal-Mart, whose dominance in retail is being eroded by Amazon's rise.
But there is one business Buffett could acquire in order to out-Bezos Bezos -- online jeweler Blue Nile (NILE). The company is an impressive online jewelry outfit that has started to carefully open unique retail stores to help drive brand awareness. In my view, Amazon is not hot on the heels of Blue Nile. And Buffett has knowledge of the jewelry industry via Berkshire's ownership of Borsheims, and must realize how Blue Nile is disrupting traditional bricks-and-mortar jewelers located in the mall.
Buffett really really loves 3G Capital.
The love-fest between Buffett and the cost-slashing executives at 3G Capital continues, as does Buffett's complete disregard on the global trend toward healthier eating. So, I think it's time for Buffett to put another fast-food company in the Berkshire stable besides Dairy Queen. How about Restaurant Brands (QSR), a 3G-run enterprise that owns Burger King and Tim Horton's and which Berkshire owns preferred stock (sweet 9% dividend)? Like it or not, fast food is not going away and will remain an important part of society, maybe forever. Burger King is performing very well, and has growth opportunities across the globe.
From my dealings with Restaurant Brands, the influence of 3G is very noticeable. The company is a virtual unknown, holding earnings calls with minimal details. Media is kept at bay -- oftentimes it's hard to get any comment or data point from the company. Most of the time requests are not even answered. The company is run lean and mean, a hallmark of 3G's management style. Now's the time for Buffett to step up and own this 3G creation, and drive the synergies between Action Alerts PLUS holding Kraft Heinz (KHC) and Coca-Cola (KO).
No, for real, Buffett really loves 3G.
Buffett fielded a question at the meeting on whether 3G's aggressive cost cuts at Kraft Heinz were hurting volume. In essence, Buffett said "heck no." The Oracle of Omaha believes being lean leads to better financial outcomes for giant packaged food companies, which through the years added layers of non-essential employees.
There are very few packaged food companies that are not in the midst of re-thinking their staff sizes, and many are employing 3G's popular zero-based budgeting method. The amount of money being saved is mind-boggling, but it's been a good thing as the savings are being reinvested in product development and marketing, which are the industry's lifeblood. Still, there is one company that doesn't seem to be employing the operational mindset of leading packaged goods names such as Action Alerts PLUS holding PepsiCo (PEP) and Coca-Cola. That name? Hain Celestial (HAIN).
I believe aggressive acquisitions by Hain in recent years have saddled it with fat, which is a concern given the greater competition in the organics space that has eroded the company's market share in many categories. The number of brands under Hain is startling and needs to be pared down. Berkshire could be a nice place for Hain's founder Irwin Simon to cash in on his baby -- and then Buffett could install 3G to extract the value that is being masked in the brand.
Hain stock is down about 32% in the past year...
