THE KRAFT HEINZ COMPANY

(KHC)
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Delayed Nasdaq  -  05/20 04:00:00 pm EDT
38.37 USD   -0.49%
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Warren Buffett's $10 billion mistake: Precision Castparts

02/27/2021 | 04:41pm EDT
FILE PHOTO: Warren Buffett talks with Mark Donegan CEO of Precision Castparts during the Berkshire Hathaway Annual Shareholders Meeting in Omaha Nebraska

(Reuters) - Warren Buffett makes mistakes too.

The 90-year-old billionaire on Saturday admitted he "paid too much" when his Berkshire Hathaway Inc spent $32.1 billion in 2016 to buy aircraft and industrial parts maker Precision Castparts Corp, its largest acquisition.

Berkshire wrote off $9.8 billion of Precision's value last August, as the coronavirus pandemic sapped demand for air travel and the Portland, Oregon-based unit's products.

In his annual letter to investors, Buffett said he bought "a fine company - the best in its business," and Berkshire was "lucky" to have Precision Chief Executive Mark Donegan still in charge.

But Buffett said he was "simply too optimistic about PCC's normalized profit potential."

Precision shed more than 13,400 jobs, or 40% of its workforce, in 2020, and only recently has begun to improve margins, Berkshire said.

"I was wrong ... in judging the average amount of future earnings and, consequently, wrong in my calculation of the proper price to pay for the business," Buffett wrote. "PCC is far from my first error of that sort. But it's a big one."

Two years ago, Buffett admitted he "overpaid" for Kraft Foods when Berkshire and private equity firm 3G Capital merged it in 2015 with their H.J. Heinz Co to form Kraft Heinz Co.

And in his 2008 annual letter, Buffett called his 1993 purchase of Dexter Shoe his "worst deal" ever, saying he had bought a "worthless business" and compounded his error by using Berkshire stock rather than cash to fund the acquisition.

"I'll make more mistakes in the future - you can bet on that," he wrote.

Tom Russo, a longtime Berkshire investor, welcomed Buffett's candor.

"I admire Warren for taking personal responsibility for Precision Castparts," he said. "Few managers are willing to admit their responsibility rather than pass on blame."

(Reporting by Jonathan Stempel in New York; Editing by Marguerita Choy)

By Jonathan Stempel


© Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
BERKSHIRE HATHAWAY INC. 0.10% 456500 Delayed Quote.1.19%
THE KRAFT HEINZ COMPANY -0.49% 38.37 Delayed Quote.6.88%
All news about THE KRAFT HEINZ COMPANY
05/18INSIDER SELL : Kraft Heinz
MT
05/17Consumer stocks diverge as Walmart disappoints, citing inflation
RE
05/16Buffett's Berkshire buys Citigroup and several other stocks, slashes Verizon
RE
05/13Judge OKs $16 million fine against Kraft, Mondelez to settle CFTC complaint, agency say..
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05/11KRAFT HEINZ CO : Submission of Matters to a Vote of Security Holders (form 8-K)
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05/11Declaration of Voting Results by The Kraft Heinz Company
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05/10Kraft Heinz Explores the Ketchup Bottle of Tomorrow
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05/06Berenberg Bank Adjusts Price Target on Kraft Heinz to $43 From $39, Maintains Hold Rati..
MT
04/28JPMorgan Raises Price Target The Kraft Heinz Company to $46 From $43, Maintains Neutral..
MT
04/28BMO Capital Adjusts Kraft Heinz' Price Target to $46 from $41, Keeps Market Perform Rat..
MT
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Financials (USD)
Sales 2022 25 561 M - -
Net income 2022 3 220 M - -
Net Debt 2022 17 483 M - -
P/E ratio 2022 14,5x
Yield 2022 4,19%
Capitalization 46 963 M 46 963 M -
EV / Sales 2022 2,52x
EV / Sales 2023 2,46x
Nbr of Employees 36 000
Free-Float 56,0%
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Mean consensus HOLD
Number of Analysts 20
Last Close Price 38,37 $
Average target price 43,84 $
Spread / Average Target 14,3%
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Managers and Directors
Miguel Patricio Chairman & Chief Executive Officer
Andre Maciel Global Chief Financial Officer & Executive VP
Roman Rariy Chief Operating Officer
Gregory Edward Abel Independent Director
John Charles Pope Lead Independent Director
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