Berkshire Hathaway Hangs Onto Kraft-Heinz Valuation

By Glenn Dyer | More Articles by Glenn Dyer

Berkshire Hathaway has again declined to further impair the value of its multi-billion-dollar 26.6% investment in the struggling Kraft Heinz food company.

Berkshire said in its September quarterly report that its carrying value of the Kraft stake was $US3.4 billion more than the fair (market) value at the end of that month and quarter.

That was around 25% less and yet the company decided no write-down was needed.

Warren Buffett’s company wrote $US3 billion off the value of its Kraft investment in early 2019 after kraft revealed a $US15 billion impairment on the value of key brands and big losses.

“As of September 30, 2020, the carrying value of our investment in Kraft Heinz exceeded the fair value based on the quoted market price by $3.4 billion (26% of carrying value). In light of that fact, we evaluated our investment in Kraft Heinz for impairment. … Based on the available facts and information regarding the operating results of Kraft Heinz, our ability and intent to hold the investment until recovery, the relative amount of the decline, and the length of time that fair value was less than carrying value, we concluded that recognition of an impairment loss in earnings was not required.

“However, we will continue to monitor this investment and it is possible that an impairment loss will be recorded in earnings in future periods based on changes in facts and circumstances or intentions,’ Berkshire directors said in the report.

The quarterly report revealed that fair value of the 26.6% of Kraft Heinz was approximately $US9.7 billion at September 30, and $US10.5 billion at December 31, 2019 (and $US10.2 billion at November 6).

“The carrying value of our investment was approximately $US13.1 billion at September 30, and $US13.8 billion at December 31, 2019,” Berkshire said..

The refusal was revealed in the September quarter report from Warren Buffett’s company which revealed another three months of big share gains because of the rise in the stockmarket, as well as maintenance of its $US145 billion cash pile and a $245 billion share portfolio ($US248 billion at December, 2019).

The quarter also stepped sales of shares and other trading, as well as a surge in share buybacks to more than $9 billion, with another $2.3 billion estimated for the month of October alone (and 15.7 billion for the 9 months to September 30).

Even though the value if the portfolio was a huge $US245 billion at the end of September ($US248 billion at the end of 2019), Berkshire is facing greater concentration risk with its four big companies – Apple, Coca Cola, Amex and Bank of America now accounting for a high 70% of that $US245 Billion against 60% of the $248 billion 9 months earlier.

Apple shares rose 27% in the quarter and at $US111.7 billion is by far Berkshire’s biggest stock holding, comprising 46% of its portfolio, or just over 32% of the value of the entire portfolio.

Berkshire said it had received proceeds from sales of equity securities of approximately $US28.6 billion in the first nine months of 2020 four times the $US7.1 billion in the first nine months of 2019.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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