Compounding Machines

Archive for August 2009

Black, Sivalls & Bryson, Inc. (circa 1962) = Cigar Butt

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Here is another holding from the 1962 year-end statement of the Buffett Partnership Ltd. Black, Sivalls & Bryson, Inc. (BS&B) was the 18th largest holding (18/54) accounting for 1.8% of the net assets. Buffett owned 13,353 shares @ $13.31 per share, totaling $177,762.

This company was a cigar butt! It manufactured bolted and welded steel and wood tanks, separators and dehydrators, heaters, valves, etc., for use in the oil and gas and chemical processing industry. It also manufactured grain and propane tanks, as well as moldings and trim for the auto, refrigeration and appliance industries. The company had 510,250 common shares outstanding for a market cap of $6.8 million. In 1961, it earned just over $0.9 million after-tax, or $1.39 per share, but it was most likely the balance sheet which drew Buffett to this company. At year-end 1961, it had $36 per share in net current assets (current assets less current liabilities) and $24.25 per share in net-net current assets (current assets less total liabilities). Even if you classify the preferred stock as debt, net-net current asset value is $17.26 per share. The company had $2.84 per share in cash and owned over 750,000 square feet of real estate in Missouri, Oklahoma and Texas. I have no idea when BPL purchased BS&B, but it would appear to me that at $13.31 per share, there was a significant margin of safety in the nearly 50% discount from net-net current asset value, exactly what Buffett was looking for in those days.

BS&B pg 1BS&B pg. 2


Written by sdinvest

August 16, 2009 at 7:05 pm

2009 Sears Holdings Annual Meeting Notes

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The Monday following the Berkshire meeting, I attended my second SHLD in as many years. Overall, I felt both the questions and answers were a step back from last year. You can find my (disorganized) notes below.

2009 Sears Holdings – Annual Meeting Notes

Monday May 4, 2009 – Hoffman Estates, IL

1.) Bruce Johnson, interim CEO, opened the meeting with a brief presentation.

– Disappointed with 2008 performance caused in part by excess poor economy

– Chart shows that relative to SHLD’s largest 12 competitors, SHLD’s comps exceeded 9/12 in   the Q4….in the past SHLD was one of the worst

-K-Mart improved profitability by 18% in Q4….among closest competitors; WMT was the only other one able to do this

-Layaway was a success in Q4, added 1.4 million new layaway customers, which has the ancillary benefit of getting them in the stores every two weeks to make payments

Market Shares:

–         Appliances: 34.6% (regained momentum in 08 with Blue Crew ad campaign…market share went from 30% in Q107  to 34.6% at end of 08)

–         Tools: 22.3% (working on invigorating Craftsmen brand)

–         Power lawn and garden: 21% (expanding Blue Crew to lawn & garden)

–         Home repair: 14%

-working on building home brands in 09 (Cannon, Jaclyn Smith)

-Sears apparel business has been and still is quite challenging….Land’s End does well as      reported in the shareholder’s letter, but they are focusing on these brands: Carter’s,          Arrow, LL Cool J, Oshkosh

-Bringing Protégé shoes (sponsored by NBA player Al Harrington) to Sears stores in July

Q&A w/ Lampert

-Question about prototype stores and what was learned from Sears Grand/Essentials stores (neither of which worked as well as planned):

  • Can we make the existing real estate footprint useful post Wal-Mart Supercenter world
    • Selling off real estate was never intention. Whether that was a good decision remains to be seen.
  • My Gofer – service as much as it is a store, a fulfillment warehouse
  • Want to make it easier for customers to shop
  • Question is whether it resonates with customers (Essentials did not)
  • “I want to get it right.”
  • Trying to encourage customer involvement/interaction

-Eddie comments on creating an internal system, P&L for each business unit to increase focus on profitability

  • Rights of each business unit
  • Real estate unit to be responsive to third parties for utilizing store space
  • Significant space dedicated to apparel
    • Unproductive productivity (?)
    • Giving each area a P&L, cap ex
    • Compared old system to socialist system
    • Allowing people to run at their own pace that way

-How much do you listen to people?

  • Encourage experiments
  • Encourage employee feedback
  • Proud of progress
  • Want to position the business to benefit on upside, operating leverage on upside
  • Don’t go in shell

-Biggest disappointment and discussion of retail operations:

  • Biggest disappointment was failure of Kmart prototype stores
  • Specialty retailers took advantage of one-stop shops
  • Home & auto service will be managed as brands going forward
  • People are changing the way they make decisions
  • Asking how do we communicate with customers if half of newspapers go away
  • Order online and pick-up in store is coming to Kmart
  • Where people chose to shop depends on what’s going on online with friends
  • Online appliance experience is the best
  • They have 200 million square feet of space they need to maximize

*NOTE: at about this time I took notes less frequently as the questions got worse and worse. Overall, the quality of the questions and answers left a lot to be desired this year.

-Book recommendations:

  • From Third World to First
  • Road to Serfdom

-Other comments/responses:

  • When you get incentives aligned properly, the odds are much greater for a good outcome. The biggest mistakes come from misaligned incentives.
  • Would like to have sales go up, but not at the expense of profit
  • Could “rent” market share (referring to worrying solely on increasing sales)
  • Problem with naked shorting
  • Lending SHLD treasury shares is not the right was for the co. to make money
  • Commented on status of credit line renewal (good news)
  • Availability of credit to make acquisitions
  • Sufficient access to credit for operations or acquisitions
  • Credit markets have improved
  • Types of funding, cost will change
  • On a relative basis, they would have been as good repurchasing stock at $160 (which they of course did) as almost anything else. (No regret to speak of from the Chairman here)
  • Store-in-store prototypes are not getting specialty retailing results
  • Lands’ End is a much more stable business
  • Competing for customers not against competitors

-Question about insiders selling SHLD stock (Perry Corp., Richard Perry’s firm had recently shed over half its position)

  • Insiders sell stock all the time
  • Will sell stock at some point (not something I was fond of hearing)
  • Know your goals, when you will need money
  • They have constructed a board of owners

Written by sdinvest

August 4, 2009 at 2:17 am

Posted in Sears Holdings