Mason Hawkins

Mason Hawkins

Last Update: 07-11-2016

Number of Stocks: 28
Number of New Stocks: 2

Total Value: $10,361 Mil
Q/Q Turnover: 4%

Countries: USA
Details: Top Buys | Top Sales | Top Holdings  Embed:

Mason Hawkins Watch

  • Southeastern Asset Management Comments on SoftBank

    SoftBank (TSE:9984) (+18%; 0.7%), the Tokyo based company that owns Japan’s third largest mobile network, significant stakes in Alibaba, Sprint, and Yahoo! Japan, plus a portfolio of internet investments, also contributed to results. The company announced plans to sell some of its Alibaba shares and exit its GungHo ownership as well as its stake in mobile game company Supercell, generating almost $20 billion to repurchase discounted SoftBank shares. CEO Masayoshi Son, the founder and largest individual shareholder of SoftBank, announced late in the quarter his intention to remain CEO for the next 10 years. This decision prompted Nikesh Arora, his intended successor, to resign on friendly terms. Son


    From Southeastern Asset Management's second quarter 2016 Global Fund Commentary.

      


  • Southeastern Asset Management Comments on DreamWorks

    As noted above, DreamWorks (NASDAQ:DWA) (+60%; +5.0%), the film studio and multimedia company, was the Fund’s largest holding and drove much of the return in the quarter, when Comcast announced an all cash acquisition for $41 per share. As our discipline dictates, we sold our stake when the price rose to our appraisal. DreamWorks was the kind of opportunity Southeastern hopes to find— a company with high quality, stable assets but volatile earnings being mispriced in a period when the market is rewarding companies with more predictable earnings and high dividend yields. We started buying DreamWorks in the third quarter of 2014 at $19 following disappointing new movie releases. Our appraisal hinged on the valuable film library and DreamWorks’ growing success in TV and web content as well as licensing. We partnered with a strong board and owner-operator CEO, who built the company’s brands, developed a presence in China, managed costs, and ultimately monetized the company at full value.


    From Southeastern Asset Management's Small-Cap Fund Commentary.

      


  • Southeastern Asset Management Comments on DreamWorks

    As noted above, DreamWorks (NASDAQ:DWA) (+60%; +5.0%), the film studio and multimedia company, was the Fund’s largest holding and drove much of the return in the quarter, when Comcast announced an all cash acquisition for $41 per share. As our discipline dictates, we sold our stake when the price rose to our appraisal. DreamWorks was the kind of opportunity Southeastern hopes to find— a company with high quality, stable assets but volatile earnings being mispriced in a period when the market is rewarding companies with more predictable earnings and high dividend yields. We started buying DreamWorks in the third quarter of 2014 at $19 following disappointing new movie releases. Our appraisal hinged on the valuable film library and DreamWorks’ growing success in TV and web content as well as licensing. We partnered with a strong board and owner-operator CEO, who built the company’s brands, developed a presence in China, managed costs, and ultimately monetized the company at full value.


    From Southeastern Asset Management's Small-Cap Fund second quarter 2016 commentary.

      


  • Southeastern Asset Management Comments on Mineral Resources

    We also sold Mineral Resources (ASX:MIN), the Australian-based mining services company, on the strength of a surprisingly strong upward move in iron ore prices. Although the company’s iron ore crushing revenues are driven primarily by the volume of the ore crushed rather than the price of the commodity, the stock’s high correlation with iron ore price hurt our results over the time we owned the stock.


    From Southeastern Asset Management's International Fund second quarter 2016 commentary.

      


  • Southeastern Asset Management Comments on BR Properties

    We sold BR Properties (BSP:BRP3), Brazil’s largest commercial office real estate landlord, following the stock’s rise after GP Investments raised its bid for the company. In spite of high quality properties and a solid partner in Claudio Bruni, the highly challenged Brazilian environment and concurrent currency depreciation resulted in a dollar loss over our full holding period.


    From Southeastern Asset Management's International Fund second quarter 2016 commentary.

      


  • Southeastern Asset Management Comments on OCI

    OCI (XAMS:OCI) (-31%; -1.4%), a global fertilizer and chemical producer, also detracted from second quarter results. The two main pressures over the last three months were weakness in urea commodity prices (a key nitrogen fertilizer) and uncertainty around the CF Industries merger. Despite attractive strategic rationale for the combination of CF and OCI, the increased crackdown on tax inversions in the U.S. made the deal untenable. OCI’s European domicile further pressured the stock in the last week of the quarter, even though the Brexit vote should not impact fertilizer demand and could create some currency translation benefits to OCI. Globally, nitrogen fertilizer demand increased, helping to deplete excess supply. OCI’s plants have an advantage by being located near low-cost natural gas, a primary feedstock in fertilizer. Our investment case incorporates demand for nitrogen fertilizer continuing to grow at a couple of percent annually and supply tightening. Beyond 2016, no major additional plant capacity will be added for at least five years. Despite the current decline in nitrogen fertilizer prices, the company is generating significant free cash flow. CEO Nassef Sawiris and his team are working to grow value per share and are exhibiting a disciplined approach to monetizing assets at prices that reflect longer term intrinsic values.


    From Southeastern Asset Management's International Fund second quarter 2016 commentary.

      


  • Southeastern Asset Management Comments on Melco International

    Ending the quarter as the Fund’s largest detractor was Melco International (HKSE:00200) (-33%; -2.7%), the Macau casino and hotel operator. Although the company’s $3.2 billion Studio City project (relative to Melco’s market cap of $9 billion) opened in late 2015 and is now generating positive cash flow, construction activity near the property has adversely affected customer traffic flow in the short term. As the construction ends later this year, we anticipate that Studio City’s location and non-gaming attractions will draw more highly profitable mass visitors. Shuttle service to Studio City from other Macau casinos began in June and should boost revenue. In May, Melco Crown Entertainement, the joint venture that owns Melco International’s Macau properties, purchased $800 million of its shares from James Packer at a steep discount, increasing Melco International’s ownership of Melco Crown to 38% and placing Melco International CEO Lawrence Ho firmly in control of the Macau properties. The stock market value of Melco International’s stake in Melco Crown is worth more than 150% of Melco International’s market cap. Ho again increased his personal stake in Melco International.


    From Southeastern Asset Management's International Fund second quarter 2016 commentary.

      


  • Southeastern Asset Management Comments on Great Eagle

    Also a positive contributor for the quarter was Great Eagle (HKSE:00041) (20%; 1.0%), a Hong Kong real estate company that invests in and manages high quality office, retail, residential and hotel properties around the world. In addition to an over 60% stake in publicly listed Champion REIT, Great Eagle also owns hotels branded under the Langham name, the Eaton hotels in Hong Kong and Shanghai, and Chelsea Hotel in Toronto and trades at a significant discount to intrinsic value. With a strong net cash position, the company announced a 2 Hong Kong Dollar per share special dividend which, combined with the regular dividend, equated to an almost 10% dividend yield. In June, the company announced the sale of its 28 story office building in San Francisco at a 3% net operating income (NOI) cap rate. Our partners, the Lo family, own 60% of the company and bought more stock during the quarter.


    From Southeastern Asset Management's International Fund second quarter 2016 commentary.

      


  • Southeastern Asset Management Comments on adidas

    adidas (XTER:ADS) (+23%;+1.2%), the German-based global sportswear and equipment brand, remained the Fund’s largest contributor as the company reported stronger-than-expected results. Overall revenues rose 22%, operating profits gained 35%, and net income was up 38%. Earnings per share (EPS) grew 50%, helped by buyback activity during the quarter. The company increased its 2016 organic revenue growth outlook to 15% from the previous 10-12% range. During the quarter the company announced it was actively seeking a buyer for its golf segment, including the TaylorMade, Ashworth, and Adams brands. Additionally, two highly qualified investors, one of whom we proposed, joined the company’s board.


    From Southeastern Asset Management's second quarter 2016 commentary.

      


  • Mason Hawkins' Southeastern Management Largest Trades of the 2nd Quarter

    Mason Hawkins (Trades, Portfolio) and his partners are value investors. He has been Chairman and CEO of Southeastern Asset Management since 1975. These are the firm's recent trades during the second quarter, according to GuruFocus data.


    Southeastern bought 8,304,492 shares in Liberty Media Corp Class C (LMCK) with an impact of 1.5% on the portfolio.

      


  • Southeastern Asset Management's Longleaf Partners 2nd Quarter International Fund Commentary

    Longleaf Partners International Fund outperformed the MSCI EAFE Index in the first half of 2016, with a 0.00% return compared to the index’s loss of -4.42%. In the recent quarter, the Fund fell -2.76% while the index lost -1.46%.

      


  • Southeastern Asset Management Comments on CK Hutchison

    CK Hutchison (HKSE:00001) (-14%; -1.2%), a global conglomerate comprised of five core businesses (retail, telecommunications, infrastructure, ports, and energy), was the primary performance detractor for the quarter. Referenced earlier, CK Hutchison’s plan for its Three mobile phone network to acquire U.K. telecom company O2 was denied by the European regulator. While CK Hutchison is Hong Kong-based, the stock also fell with the Brexit vote because of fears of the impact on its European and U.K. operations which generated over half of its pre-tax earnings last year. However, Chairman Li Ka-shing and his son, Victor, have demonstrated a compelling long-term record of building businesses, compounding net asset value at double-digit rates, and buying and selling assets at attractive prices, and their history includes intelligent capital allocation during previous market dislocations. We are confident our management partners will continue to grow and unlock value.


    From Longleaf Partners' second quarter 2016 fund commentary.

      


  • Southeastern Asset Management Comments on CONSOL

    Also a top contributor, CONSOL (NYSE:CNX) (+43%; +1.7%), the natural gas and Appalachian coal company, continued its positive momentum from the first quarter which saw the addition of new directors, the elevation of Will Thorndike to Chairman, and the sale of the metallurgical coal assets at a price accretive to our value. In 2Q, CONSOL reduced its coal and gas operating costs greater than expected, delivered free cash flow and guided for positive free cash flow, the remainder of the year. The company also had its borrowing base reaffirmed at $2 billion. Recent transactions confirmed the value of CONSOL’s high quality natural gas reserves and acreage. Our capablemanagement partners continue to focus the company on its core natural gas assets while pursuing the monetization of non-core assets, with the goal of separating its coal company from its exploration and production business.


    From Longleaf Partners' second quarter 2016 fund commentary.

      


  • Southeastern Asset Management Comments on Chesapeake

    As stated earlier, Chesapeake (NYSE:CHK) (+73%;+3.6%), one of the largest U.S. producers of natural gas, oil, and natural gas liquids, was the Fund’s largest contributor during the quarter. Earlier in the year, we swapped our equity for preferred stock and also added to our Chesapeake position via very discounted bonds and convertible bonds. This repositioning paid off in the quarter; the bonds appreciated more quickly than the stock as the company continued to lower its overall debt through purchases below par and debt for equity swaps. Additionally, in April, Chesapeake had its $4 billion revolving credit facility reaffirmed (90%+ untapped), with the next scheduled redetermination pushed out until June 2017. The company increased liquidity with the sale of about half of its mid-continent STACK (Sooner Trend Anadarko Basin Canadian and Kingfisher Counties) acreage to Newfield at a fair price of over $400 million. In total, net debt has declined by over 10% or $1 billion in 2016. Management projects additional asset sales this year and continues to renegotiate pipeline commitments toward better rates. The company has put on hedges that help mitigate its downside. We remain confident that CEO Doug Lawler and Chesapeake’s board will successfully navigate the company through this particularly challenging commodity price environment.


    From Longleaf Partners' second quarter 2016 fund commentary.

      


  • Longleaf Partners 2nd Quarter Fund Commentary

    Longleaf Partners Fund meaningfully outperformed the S&P 500 Index in the first half of 2016, rising 6.53% versus the index’s gain of 3.84%. In the second quarter, the Fund returned 2.10% versus 2.46% for the index. Our energy investments were again the largest contributors following similar strength in the first quarter. Both Chesapeake Energy and CONSOL Energy benefitted from managements monetizing assets and succeeding in reaffirming credit lines, as well as from improving commodity prices. CK Hutchison detracted most from performance in the quarter; European regulators denied approval of the company’s acquisition of U.K. mobile company O2, and weeks later, the Brexit vote weighed on CK Hutchison’s stock given its large footprint in European retail, ports, infrastructure, and telecom. Since the S&P is comprised of U.S. stocks which held up better than European shares following Brexit, the Fund’s three European-domiciled businesses weighed on relative returns, due in part to the dollar’s quick rise. However, the Fund’s relative performance benefitted from our limited investment in information technology, which was the index’s biggest detractor as its largest and worst performing sector.

      


  • Mason Hawkins Slashes Stake in DreamWorks Animation

    Mason Hawkins (Trades, Portfolio) slashed his stake in DreamWorks Animation (NASDAQ:DWA) by 89.20% on April 30.


    DreamWorks Animation was originally founded in 1994 by Jeffrey Katzenberg, Steven Spielberg and David Geffen. Over the past 22 years DreamWorks Animation has created a few world-renowned movies such as "Shrek," "Kung Fu Panda" and "Madagascar." DreamWorks Animation creates and innovates 3D animated feature films, original TV series, interactive media, live entertainment, themed experiences, consumer products, publishing and trailblazing technology.

      


  • Mason Hawkins Sells More Than 93% of Aon Holdings

    Mason Hawkins (Trades, Portfolio) of Southeastern Asset Management made his biggest transaction of the first quarter not with an acquisition but with the near divestiture of a stake.

    Hawkins’ top transaction in the first quarter was the sale of more than 93% of his stake in Aon PLC (NYSE:AON), a London-based professional services company. Hawkins sold 6,772,289 shares for an average price of $93.56 per share. The deal had a -5.65% impact on Hawkins’ portfolio.  


  • Longleaf Partners Small-Cap Fund 1st Quarter Commentary

    First quarter commentary:


    Longleaf Partners Small-Cap Fund advanced a robust 4.60% in the first quarter, far exceeding the Russell 2000 Index’s -1.52% decline. For the one-year and longer periods, the Fund’s performance also surpassed the index. A number of our stocks had double-digit gains, including several of our most undervalued businesses coming out of 2015. Most of our companies generated solid operating results, and management activity helped drive higher appraisals. Not only were our absolute returns well beyond our goal of inflation plus 10%, but our relative results also benefitted from our lack of exposure to health care, which was among the top performing index sectors in 2015 but was the Russell 2000’s worst performing sector in the quarter.

      


  • Longleaf Partners Comments on Rolls-Royce

    We exited our small position in British power systems company Rolls-Royce (LSE:RR.) after its price rallied in the first half of the quarter. The business has long-term upside, but the thesis will take longer to play out than we originally expected. We invested our proceeds in higher return opportunities.


    From Longleaf Partners' International Fund first quarter 2016 letter.

      


  • Longleaf Partners Comments on ALS Limited

    We sold Australian-based testing, inspection, and certification company ALS Limited (ASX:ALQ) at a loss after owning it for just over a year. The company announced a rights issue, which we thought was unnecessary, at a steep discount to market price. This decreased both our appraisal and confidence in management’s capital allocation skill.


    From Longleaf Partners' International Fund first quarter 2016 letter.

      


  • Longleaf Partners Comments on CF Industries

    We sold three companies in the quarter and initiated a small position in nitrogen fertilizer manufacturer and distributor CF Industries (NYSE:CF), which offered a more discounted way to increase our stake in OCI post deal. CF CEO Tony Will is buying back discounted shares, and OCI CEO Nassef Sawiris will be the largest CF shareholder and join the board when the deal closes.


    From Longleaf Partners' International Fund first quarter 2016 letter.

      


  • Longleaf Partners Comments on EXOR

    EXOR (MIL:EXO) (-21%; -2.3%), the Italian holding company, detracted from the Fund’s results as its share price closely correlated with underlying holding Fiat Chrysler Auto (FCA) despite FCA comprising less than half of our total EXOR appraisal. Most auto stocks declined with concerns about peak demand, easy credit, and the longer term implications of driverless cars. Additionally, the Volkswagen emission test scandal weighed on European car makers. These current industry challenges are likely to delay CEO Sergio Marchionne’s pursuit of a merger for FCA. Additionally, the broader Italian market had the worst performance in Europe, which impacted EXOR’s share price despite the value overwhelmingly coming from outside of Italy. EXOR completed its acquisition of Bermuda reinsurer PartnerRe in the quarter, providing another outlet for Chairman and CEO John Elkann to build value. We believe there are ample strategic and value building levers still to be pulled at EXOR and see the current price weakness as unjustified.


    From Longleaf Partners' International Fund first quarter 2016 letter.

      


  • Longleaf Partners Comments on Mineral Resources

    Mineral Resources (ASX:MIN) (+61%; +1.2%), the Australian-based mining services company, surprised the investment community with stable operating results in its crushing business and lower mining costs. Additionally, higher iron ore prices and a stronger Australian dollar were favorable for the stock. Although ore prices did not benefit Mineral Resources’ crushing and processing business since the company is paid a fixed fee per ton, they did help the mining operation produce higher earnings before interest, taxes, depreciation and amortization (EBITDA) per ton. Management indicated the company is unlikely to move forward with the ambitious elevated transport system without a more attractive long-term iron ore pricing environment. The company began to buy back shares, and founder and managing director, Chris Ellison, purchased more shares personally. We trimmed our position.


    From Longleaf Partners' International Fund first quarter 2016 letter.

      


  • Longleaf Partners Comments on Genting Berhad

    Genting Berhad (XKLS:3182) (+97%; +1.3%), the Malaysian holding company with gaming, property, plantation, pharmaceutical, and oil and gas assets, benefited from progress at several businesses and a rebound of the Malaysian ringgit. There was news of a potential initial public offering of Alzheimer’s drug maker TauRx Pharmaceuticals, which is 20.7% owned by Genting. The Singapore casino business steadied, with the core mass gaming and non-gaming business revenues expected to grow. The duopoly position in the stable Singapore jurisdiction represents a significant competitive advantage. Genting Singapore also began construction on its Jeju project in Korea, which offers potential upside for our appraisal and the stock. Despite the strong quarter, Genting trades at a significant discount to the sum of its parts, but we did trim our stake to reduce the overweight.


    From Longleaf Partners' International Fund first quarter 2016 letter.

      


  • Longleaf Partners Q1 2016 International Fund Commentary

    Longleaf Partners International Fund advanced a notable 2.83% in the first quarter, far surpassing the MSCI EAFE Index’s -3.01% decline. A number of our stocks had double-digit gains, including several of our most undervalued businesses coming out of 2015. Most of our companies generated solid operating results, and management activity helped drive higher appraisals. Not only were our absolute returns in line with our absolute goal of inflation plus 10%, but our relative results also benefitted from our lack of exposure to health care, which was among the top performing index sectors in 2015 but was among the MSCI EAFE’s worst performing sectors in the quarter.

      


  • Southeastern Asset Management Comments on OCI

    OCI (XAMS:OCI) (-21%; -0.9%), a global fertilizer and chemical producer, was the primary detractor from the Fund’s strong return. The stock fell early in the quarter, in line with a decline in the underlying urea commodity price which recovered somewhat by quarter-end. Global excess supply should diminish as nitrogen fertilizer demand grows approximately 2% per year while no additional plant capacity is scheduled for at least five years out. Uncertainty around OCI’s planned sale of its U.S. and European assets to CF Industries also weighed on the stock. A major hurdle to the deal was removed in mid-March, when OCI announced that Consolidated Energy Limited would jointly invest in the methanol plant, Natgasoline, which would fall outside of the scope of the assets going to CF. OCI is trading at a steep discount to our appraisal and even more cheaply assuming the CF deal closes in the second quarter of 2016 as planned.


    From Southeastern Asset Management's Q1 letter for Longleaf Partners Small-Cap Fund.

      


  • Southeastern Asset Management Comments on Scripps Networks

    Scripps Networks (NASDAQ:SNI) (+19%; +1.0%), the media company that owns cable channels, including HGTV, The Food Network, DIY Network, Cooking Channel, Travel Channel, and Great American Country, reported a strong quarter with all six networks adding new viewers as millennial growth continued. Advertising revenue grew at a mid-single digit rate. The company’s advertising is better than most competitors, with more exposure to stable categories than others have. Affiliate fee revenue growth is expected to grow at a mid-to-high-single digit rate, and programming cost growth should continue to decelerate. Part of the stock’s discount is related to its international expansion opportunity which has not produced profits yet but has created startup costs and noncash amortization. The company simplified its asset mix, purchasing the remaining 35% of The Travel Channel that it did not own and selling its 7.25% stake in Fox Sports South & Southeast.


    From Southeastern Asset Management's Q1 letter for Longleaf Partners Small-Cap Fund.

      


  • Southeastern Asset Management Comments on CONSOL Energy

    CONSOL Energy (NYSE:CNX) (+43%; +1.1%), the Appalachian natural gas and coal company that was our top detractor in 2015, added meaningfully to first quarter results. Management adjusted to lower commodity prices by adopting significant cost controls and expects positive free cash flow (FCF) in 2016. Early in the quarter, CONSOL announced it was lowering capex by more than 50% from previous guidance. The company also reduced operating expenses, effectively decreasing its Debt/OCF ratio from 3.8 to 3.6. As we continued our constructive dialogue with management regarding asset monetization, CONSOL announced the addition of three new board members, two of whom we suggested. Additionally, Will Thorndike, whom we previously recommended as a board member, replaced Brett Harvey as Chairman. Shortly thereafter, CONSOL sold its Buchanan mine and other met coal assets for $420 million to a private equity-backed firm. The sale was accretive to the value of CONSOL, and management is pursuing additional asset sales.


    From Southeastern Asset Management's Q1 letter for Longleaf Partners Small-Cap Fund.

      


  • Southeastern Asset Management Comments on ViaSat

    ViaSat (NASDAQ:VSAT) (+20%; +1.1%), an integrated satellite company, reported a substantial 7% increase in average revenue per user (ARPU) year-over-year. Customer churn declined with the company’s focus on higher value, stable subscribers. Additionally, news reports that American Airlines would reexamine its in-flight Wi-Fi contract with ViaSat’s competitor, Gogo, implied that ViaSat could win the new contract given its superior service quality. CEO Mark Dankberg is a large owner who has invested wisely in expanding ViaSat’s capacity and product lines. The company plans to launch a revolutionary new satellite broadband constellation (ViaSat-3) in 2019 that has the potential to further ViaSat’s lead in the industry. Although ViaSat-3 is not fully reflected in our appraisal, it offers significant longer-term upside to our value and the share price.


    From Southeastern Asset Management's Q1 letter for Longleaf Partners Small-Cap Fund.

      


  • Southeastern Asset Management Comments on Wynn Resorts

    Wynn Resorts (NASDAQ:WYNN) (+36%; +2.0%), the luxury gaming and hotel operator with prime real estate in Las Vegas, Macau, and Boston, was the largest contributor in the quarter. Wynn preannounced positive results to enable management to buy more stock. CEO Steve Wynn demonstrated his confidence in the business by purchasing nearly one million shares, bringing his total stake in the company to 12%. Wynn Las Vegas reported better-than-expected 4Q results. Although pressure continued in Macau’s lower margin VIP segment, mass gaming revenues in Macau stabilized, and year-over-year gross gaming revenue comps in February were the strongest in almost two years. Wynn remains well below our appraisal and offers a compelling long-term opportunity for significant growth with a proven owner-operator at the helm. The value of properties in the development pipeline is not yet reflected in the stock price. The opening of Wynn Palace in Macau later in 2016 could spark additional stock appreciation as capital expenditures (capex) ends and revenues begin.


    From Southeastern Asset Management's Q1 letter for Longleaf Partners Small-Cap Fund.

      


  • Southeastern Asset Management's Q1 Letter for Longleaf Partners Small-Cap Fund

    Longleaf Partners Small-Cap Fund advanced a robust 4.60% in the first quarter, far exceeding the Russell 2000 Index’s -1.52% decline. For the one-year and longer periods, the Fund’s performance also surpassed the index. A number of our stocks had double-digit gains, including several of our most undervalued businesses coming out of 2015. Most of our companies generated solid operating results, and management activity helped drive higher appraisals. Not only were our absolute returns well beyond our goal of inflation plus 10%, but our relative results also benefitted from our lack of exposure to health care, which was among the top performing index sectors in 2015 but was the Russell 2000’s worst performing sector in the quarter.


    Stock prices in the first quarter embodied Ben Graham’s description of “Mr. Market,” whose manic short-term swings are driven by investor emotions. The market fell -15.9% at its February 11 low point but then rallied over 17% by the end of March, a 3300 basis point swing. While economic and political uncertainties fostered the volatility, our appraisals proved much more stable, highlighting the importance of anchoring investment decisions to the long-term cash flows and underlying asset values of each company.

      


  • Southeastern Asset Management Comments on McDonald’s

    As discussed in our year-end report, we sold our small remaining position in global quick service restaurant operator McDonald’s (NYSE:MCD) as 2016 began. During the year plus that we owned the stock, it gained almost 30% and was among the strongest contributors to performance. We appreciate the board’s and management’s solid execution.


    From Southeastern Asset Management's Q1 2016 shareholder letter.

      


  • Southeastern Asset Management Comments on National Oilwell Varco

    We sold National Oilwell Varco (NYSE:NOV), a global provider of equipment and components used in offshore and land drilling, negatively impacted performance before we sold it in March. When we initiated the position in the third quarter of 2015, we believed that NOV’s higher margin rig aftermarket business would grow, even as new oil rig purchases were canceled or delayed in the lower oil price environment. Our thesis did not hold up as rig operators cannibalized used parts from idled rigs, pressuring prices and ultimately lowering NOV’s aftermarket margins. We exited at a loss when the stock price partially recovered after oil moved from below $30 toward $40.


    From Southeastern Asset Management's Q1 2016 shareholder letter.

      


  • Southeastern Asset Management Comments on Aon

    We exited three holdings during the quarter, including our successful long-term investment in Aon (NYSE:AON). We first purchased the stock in the second half of 2002, when the low point fell to near $14 per share. We bought again in 2009 and 2010 between the mid $30s and low $40s. Over time, the company went from being the second largest insurance broker in the world to the largest and also built its benefits and consulting business into a leading global competitor. Under the leadership of Greg Case, Aon grew revenues, expanded margins, reduced corporate taxes, and repurchased substantial shares at discounted prices. Value per share grew, and ultimately we exited in March at more than $100 per share. We are grateful for Greg’s superior stewardship, and we hope to have an opportunity to partner with him in the future.


    From Southeastern Asset Management's Q1 2016 shareholder letter.

      


  • Southeastern Asset Management Comments on CK Hutchison

    CK Hutchison (HKSE:00001) (-4%; -0.6%), a Hong Kong-based global conglomerate comprised of four primary businesses (retail, telecommunications, infrastructure and ports), is our second largest position and was the main performance detractor in the quarter. China economic fears and weakness in the Hong Kong dollar (HKD) weighed on the stock. Conversely, the businesses’ values remained stable with less than 15% of its economic exposure in China and Hong Kong. Chairman Li Ka-shing and his son, Victor Li, have demonstrated a compelling track record of building companies, compounding net asset value at double-digit rates, and buying and selling assets at attractive prices. Last year, CK Hutchison announced plans for its Three U.K. telecom business to acquire U.K. telecom company O2. Although still pending regulatory approval, the deal would allow the company to recognize significant synergies, estimated at £3 billion


    From Southeastern Asset Management's Q1 2016 shareholder letter.

      


  • Southeastern Asset Management Comments on CONSOL Energy

    CONSOL Energy (NYSE:CNX) (+43%; +1.3%), the Appalachian coal and natural gas company that was among top detractors in 2015, added meaningfully to first quarter results. Management adjusted to lower commodity prices by adopting significant cost controls and expects positive free cash flow (FCF) in 2016. Early in the quarter, CONSOL announced it was lowering capex by more than 50% from previous guidance. The company also reduced operating expenses, effectively decreasing its Debt/ Operating Cash Flow ratio from 3.8 to 3.6. As we continued our constructive dialogue with management regarding asset monetization, CONSOL announced the addition of three new board members, two of whom we suggested. Additionally, Will Thorndike, whom we previously recommended as a board member, replaced Brett Harvey as Chairman. Shortly thereafter, CONSOL sold its Buchanan mine and other met coal assets for $420 million to a private equity-backed firm. The sale was accretive to the value of CONSOL, and management is pursuing additional asset sales.


    From Southeastern Asset Management's Q1 2016 shareholder letter.

      


  • Southeastern Asset Management Comments on Scripps Networks

    Scripps Networks (NASDAQ:SNI) (+19%; +1.4%), the media company that owns cable channels, including HGTV, The Food Network, DIY Network, Cooking Channel, Travel Channel, and Great American Country, reported a strong quarter with all six networks adding new viewers as millennial growth continued. Advertising revenue grew at a mid-single digit rate. The company’s advertising is better than most competitors, with more exposure to stable categories than others have. Affiliate fee revenue growth is expected to grow at a mid-to-high-single digit rate, and programming cost growth should continue to decelerate. Part of the stock’s discount is related to its international expansion opportunity which has not produced profits yet but has created startup costs and noncash amortization. The company purchased the remaining 35% of The Travel Channel that it did not own and sold its 7.25% stake in Fox Sports South & Southeast.


    From Southeastern Asset Management's Q1 2016 shareholder letter.

      


  • Southeastern Asset Management Comments on Wynn Resorts

    Wynn Resorts (NASDAQ:WYNN) (+36%; +2.7%), the luxury gaming and hotel operator with prime real estate in Las Vegas, Macau, and Boston, was the largest contributor in the quarter. Wynn preannounced positive results to enable management to buy more stock. CEO Steve Wynn demonstrated his confidence in the business by purchasing nearly one million shares, bringing his total stake in the company to 12%. Wynn Las Vegas reported better-than-expected 4Q results. Although pressure continued in Macau’s lower margin VIP segment, mass gaming revenues in Macau stabilized, and year-over-year gross gaming revenue comps in February were the strongest in almost two years. Wynn remains well below our appraisal and offers a compelling long-term opportunity for significant growth with a proven owner-operator at the helm. The value of properties in the development pipeline is not yet reflected in the stock price. The opening of Wynn Palace in Macau later in 2016 could spark additional stock appreciation as capital expenditures (capex) ends and revenues begin.


    From Southeastern Asset Management's Q1 2016 shareholder letter.

      


  • Southeastern Asset Management's Longleaf Partners Fund 1st Quarter Letter

    Longleaf Partners Fund posted a formidable 4.34% return in the first quarter, exceeding the S&P 500 Index’s 1.35%. A number of our stocks had double-digit gains, including several of our most undervalued businesses coming out of 2015. Most of our companies generated solid operating results, and management activity helped drive higher appraisals. Our two biggest positions declined slightly, and their portfolio weights made them among the notable detractors to our strong gains. Our investment cases and our high conviction for these companies remain unchanged. Not only were our absolute returns well beyond our goal of inflation plus 10%, but our relative results also benefitted from our lack of exposure to health care, which was among the top performing index sectors in 2015 but was the S&P 500’s worst performing sector in the quarter.


    Stock prices in the first quarter embodied Ben Graham’s description of “Mr. Market,” whose manic short-term swings are driven by investor emotions. The market fell -10.3% at its February 11 low point but then rallied over 13% by the end of March, a 2300 basis point swing. While economic and political uncertainties fostered the volatility, our appraisals proved much more stable, highlighting the importance of anchoring investment decisions to the long-term cash flows and underlying asset values of each company.

      


  • The Art of Piggybacking

    Piggybacking has been a topic that has been discussed frequently these days. Fellow writer the Science of Hitting’s recent article is quite illuminating and definitely worth reading. Inspired by him, I wrote this article to share my observations and thoughts on this subject.


    When I first started investing, I piggybacked many gurus and very frequently. I remember the days when I saw David Einhorn (Trades, Portfolio) or Mason Hawkins (Trades, Portfolio) initiating a position in a stock, and within a few hours I became an owner that the same stock. When I saw Exco (NYSE:XCO) was bought by Prem Watsa (Trades, Portfolio), Howard Marks (Trades, Portfolio) and Wilbur Ross (Trades, Portfolio), I put a good amount of money in it without even finishing up reading the 10-K.

      


  • Mason Hawkins Boosts Stake in Consol Energy

    Guru Mason Hawkins (Trades, Portfolio) boosted his stake in Consol Energy Inc. (NYSE:CNX) by nearly 15% with the purchase of 6,827,800 shares on Jan. 4.


    Hawkins now owns 52,835,737 shares of Consol Energy. It is the largest holding in his portfolio.

      


  • Mason Hawkins Trims Position in Everest Re Group

    Guru Mason Hawkins (Trades, Portfolio) has over 40 years of experience in the investment industry. Hawkins has similar investment philosophies to Benjamin Graham and Philip Fisher. Hawkins looks for businesses with good management, good people and companies that sell for deep discounts significantly less than their intrinsic value that provide a margin of safety.


    Hawkins founded Southeastern Asset Management in 1975 and is the chairman and CEO for the company. Prior to founding Southeastern Asset Management, Hawkins graduated from the University of Florida in 1970 and later went on to attend the University of Georgia where he received his MBA in finance.

      


  • Mason Hawkins Sells 3 Stakes in Portfolio

    Mason Hawkins (Trades, Portfolio), chairman and CEO of Southeastern Asset Management since 1975, made his largest fourth-quarter transactions in the form of divestitures. The guru sold three existing stakes in his portfolio in the quarter.


    Hawkins sold his 19,933,835-share stake in Loews Corp. (NYSE:L), a New York-based conglomerate involved in insurance, hotels, oil drilling and pipeline transport, for an average price of $37.29 per share. The deal had a -6.08% impact on Hawkins’ portfolio.

      


  • Longleaf Partners Comments on Mineral Resources

    Mineral Resources (ASX:MIN) returned -51% during 2015 driven largely by the collapse of iron ore prices. The crushing services business maintained steady volumes and strong margins but was not enough to appease market concerns of continued iron ore price declines. The company surprised the market with its ability to reduce costs in the iron ore mining business at a pace that maintained positive cash flow margins. During the fourth quarter, the company announced a A$30million stock buyback, (4% of outstanding shares), higher EBITDA guidance, and a new EPC (engineering, procurement, and construction) contract for a crushing plant for Rio Tinto’s Nammuldi mine. The company continued to take costs out of its mining operations to ensure that every ton of iron ore produced is sold at positive cash flow margins.

      


  • Longleaf Partners Comments on Genting Berhad

    Genting Berhad (XKLX:3182) was one of the largest detractors for the year, declining 53%. Malaysia macro/FX was a big headwind, and the company’s development of its sizable oil and gas assets is likely to be delayed given the weakness in energy prices. The company’s Singapore duopoly casino, publicly listed Genting Singapore, is led by CEO Hee Teck Tan and was down after reporting four quarters of unusually poor hold (2.0%–2.5%) in its gaming business, as well as some equity investment write-downs. Since opening the casino, the cumulative win rate at Genting Singapore has been close to the theoretical average of 2.85%, and we believe win rates should normalize over time. In the quarter we added Genting Singapore in addition to our Genting Berhad position. The stock’s deep discount was largely due to a slowdown in Chinese VIP visitors as a result of the Chinese anti-corruption campaign. Genting’s core mass market business has been steady and more than justifies our appraisal. The duopoly position in the stable Singapore jurisdiction represents a significant sustainable competitive advantage. The simple P/E multiple misses the sizable cash and investment portfolio on the balance sheet and minimal maintenance capex requirement (capex is much lower than depreciation). The company engaged in a value-accretive share buyback in recent months.

      


  • Longleaf Partners Comments on LafargeHolcim

    Global cement, aggregates, and ready-mix concrete producer LafargeHolcim (XSWX:LHN) declined 2% in the quarter and over the year. During the quarter, CEO Eric Olsen presented his three year operating plan with an intense focus on free cash flow generation, internal growth, and returning cash to shareholders. The plan should enable debt to return to investment grade and a dividend payout ratio near 50%. With only modest volume and pricing assumptions, combined with realizing synergies from the LafargeHolcim merger, we believe the plan is achievable. We are excited to own a company with a collection of geographically advantaged assets at less than approximately 8x normalized FCF earnings power and strong cash generation that should be allocated to maximize value per share.

      


  • Longleaf Partners Comments on CEMEX

    Our position in the convertible bonds of CEMEX (NYSE:CX) declined 12% in the quarter and 21% since we bought the position in the third quarter. The price declined due to weak Latin American currencies, challenged trends in some emerging markets, and a general sell-off across the entire non-investment grade bond sector. We believe CEMEX’s assets are worth roughly twice the debt, which provides generous asset coverage. In addition, we receive a yield component and the opportunity of longer-term upside over par value through the convertible feature as EBITDA growth and debt reduction drive the underlying equity value higher.

      


  • Longleaf Partners Comments on EXOR

    Also contributing to performance, Italian holding company EXOR (OTCPK:EXORF) appreciated 5% in the quarter, taking full year returns to 12%. Over the course of the year, Chairman and CEO John Elkann, together with Fiat Chrysler Auto (FCA) CEO Sergio Marchionne, took numerous steps to drive value growth. The company sold or spun assets at a strong price, including an $893 million initial public offering (IPO) of Ferrari—well above expected value, the sale of Cushman and Wakefield to DTX for $2 billion—a more than 30% premium to our carrying value for the business, and the recently announced sale of its 17% stake in Banijay for €60.1 million—a €25 million premium to book value. Management reinvested proceeds into high quality assets at a fair price. In the second half, EXOR announced the acquisition of Bermuda reinsurer PartnerRe to be completed in the first quarter of 2016 and increased its long-held stake in The Economist. At FCA, Sergio Marchionne publicly called for auto industry consolidation, potentially positioning EXOR for discussions to merge FCA with another key player.

      


  • Longleaf Partners Comments on CK Hutchison

    Another top performer, CK Hutchison (HKSE:00001), a conglomerate comprised of the non-real estate businesses from the June merger between Cheung Kong and its subsidiary, Hutchison Whampoa, returned 22% during 2015 when combined with Cheung Kong Property. The corporate transaction helped remove holding company discounts and clarify business line exposures by splitting the property business (Cheung Kong Property Holdings) from the non-property business (CK Hutchison Holdings). The transaction is likely to be viewed as a seminal event leading to improved governance and structure for other complex conglomerates in Asia. In the fourth quarter, Cheung Kong Property was a modest detractor, down 10%, as poor sentiment towards real estate and China lowered real estate prices in Hong Kong. Hong Kong property stocks remained sharply discounted versus the physical property market. Cheung Kong, among the largest property companies in China and Hong Kong, has a large, low cost land bank in China and a strong balance sheet, positioning the company to exploit short-term market disruptions for the benefit of long-term investors. Chairman Li Ka-shing and his son, Victor Li, have demonstrated a track record of building businesses, compounding NAV at double-digit rates, and buying and selling assets at compelling values.

      


  • Longleaf Partners Comments on Colt Group

    Colt Group (COLT), the British- based provider of business communications and information technology solutions to companies primarily in Europe, was up 40% for the year, making it among the Fund’s largest contributors. We sold the position when the company was acquired by Fidelity Investments in the third quarter. Our investment in Colt, beginning in the second quarter of 2014, produced a 27% annualized return for the International Fund.

      


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