Warren Buffett's Berkshire Hathaway holding company owns firms that sell products, as noted in its 2013 annual report, "ranging from lollipops to jet airplanes." That statement only begins to hint at the fact that Berkshire Hathaway owns more than 100 manufacturing companies. They include the Marmon Group, itself a nearly $7 billion conglomerate containing 160 manufacturing and service companies.
For the most part, there is nothing flashy about Berkshire's manufacturing holdings. As Patrick Morris pointed out in a recent Motley Fool article, Buffett noted wryly in his 2001 letter to stockholders that "we have embraced the 21st century by entering such cutting-edge industries as brick, carpet, insulation and paint. Try to control your excitement." Yet Buffett's moves, Morris wrote, "underscore an important investing lesson: the dullest of businesses can make for the best investments."
For the first half of 2014, Berkshire Hathaway's manufacturing businesses had combined sales of $18.25 billion and pre-tax earnings of nearly $2.5 billion. Those numbers don't reflect earnings from H.J. Heinz, which Berkshire and 3G Capital acquired in June 2013 in a deal valued at $28 billion. Heinz had sales of more than $11.6 billion in 2012, its last full year as an independent company.
What attracts Buffett to manufacturing? As he once told reporters, "We look for a company with durable competitive advantage, run by able and honest people, and we're looking for businesses that we can acquire at a price that makes sense for Berkshire Hathaway." Buffett has traditionally acquired U.S. companies, though he departed from that pattern for the first time in 2011 when he acquired Iscar, an Israel-based manufacturer of cutting tools.
Once he cuts the check to buy a company, Buffett is a famously hands-off, long-view investor. He explained: "Regardless of price, we have no interest at all in selling any good businesses that Berkshire owns. We are also very reluctant to sell sub-par businesses as long as we expect them to generate at least some cash and as long as we feel good about their managers and labor relations."
In the manufacturing part of his portfolio, the "Oracle of Omaha" admits, performance has varied widely. "Some of these businesses, measured by earnings on unleveraged net tangible assets, enjoy terrific economics, producing profits that run from 25% after-tax to far more than 100%. Others generate good returns in the area of 12% to 20%. A few, however, have very poor returns, a result of some serious mistakes I made in my job of capital allocation." But viewed as a whole, Buffett concluded, his manufacturing companies "are an excellent business."
Have a look at some of the investments that Warren Buffett has made in manufacturing:
