Tweedy, Browne's Q3 Sells Highlight: Philip Morris International, Heineken and Canon

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Nov 12, 2012
Among the 10 third quarter transactions that mutual fund company Tweedy, Browne reported recently, 7 of them were shareholding reductions.


Founded in 1920, Tweedy, Browne is under the management of William H. Browne, Thomas H. Shrager, John D. Spears and Robert Q. Wyckoff Jr., who are all practitioners of the investment management principles of the late Benjamin Graham, principles that embody the firm’s philosophy, investing in stocks priced lower than their intrinsic value, and within their margin of safety.


The firm’s website lists some characteristics that are found in most Tweedy, Browne investments: low stock price in relation to book value, low price-to-earnings ratio, low price-to-cash-flow ratio, above-average dividend yield, low price-to-sales ratio as compared to other companies in the same industry, low corporate leverage, low share price, purchases of a company’s own stock by the company’s officers and directors, company share repurchases, and lastly, a stock price that has declined significantly from its previous high price and/or small market capitalization.


In Tweedy, Browne’s third quarter letter, the company expressed that its tobacco and Japanese holdings produced “disappointing returns for the quarter,” which include the companies Philip Morris International Inc. (PM, Financial) and Canon Inc. (CAJ, Financial), both highlighted below. The letter also noted that its holdings in the beverage, pharmaceutical, financials and oil and gas sectors produced the strongest returns.


Besides seven transactions, Tweedy Browne also had two new buys in its portfolio updates, as well as one shareholding addition.


Philip Morris International Inc. (PM)


Tweedy, Browne’s 27.62 percent reduction of international tobacco company Philip Morris International Inc. (PM) made the largest impact to the firm’s portfolio out of all of its third quarter updates.


After the transaction, Tweedy, Browne ended with about 2.3 million shares of Philip Morris, compared to about 3.2 million shares reported in the second quarter.


Pertaining to several companies that included Philip Morris, Tweedy, Browne expressed the following comment in its third quarter letter: “With stocks on the move, new buys have been scarce as of lately, and several of our existing holdings are trading at or near intrinsic value. Consequently we have trimmed or eliminated a number of positions in our Fund portfolios…”


The firm has had Philip Morris in its stock lineup since the fourth quarter of 2008. In 2010’s fourth quarter, Tweedy, Browne started its streak of stake reductions of the company, decreasing shares for the next eight consecutive quarters leading up to its most recent transaction.


Philip Morris reported decreases in net revenue, diluted earnings per share and operating income by 5.3 percent, 2.2 percent and 1.5 percent, respectively, comparing year-over-year data in its the third quarter fiscal report; the company also reported a 10.4 percent increase in its regular quarterly dividend, to an annualized rate of $3.40 per common share, as well the repurchasing of 16.7 million shares of its common stock for $1.5 billion, and the beginning of a new three-year share repurchase program for $18 billion.


Currently trading near its five-year high, Philip Morris has a market price of $85.12 per share and a market cap of $143.99 billion. It also has an increasing P/E ratio of 17.3 and a P/S ratio close to its three-year high at 1.9.


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PM data by GuruFocus.com


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PM data by GuruFocus.com


Canon Inc. (CAJ)


Tweedy, Browne’s stake in Japanese electronics company Canon Inc. (CAJ) decreased 47.19 percent in the third quarter, shedding more than 7,300 shares, and ending with a mere 8,230 current shares.


Tweedy, Browne has addressed Canon’s negative performance in the firm’s portfolio since the second quarter letter of this year.


Japan’s weakened domestic demand, a more inferior yen currency to the US dollar as well as an overall global economic slowdown, were all factors listed in Canon’s third quarter fiscal results that may have played a part in Canon’s frail performance in the third quarter.


The company’s third quarter fiscal results listed a slew of decreases in Canon’s various financial segments: net sales decreased by 12.8 percent based on year-over-year data, the gross profit ratio declined by 1.1 points, operating profit decreased by 13.2 percent, net income decreased by 35.6 percent and cash accumulated during the first nine months decreased more than $3.4 million.




Canon’s forward-looking statement in its third quarter report said: “As for the outlook in the fourth quarter of 2012, the global economy is expected to realize low growth due to the sluggish economies in Europe and slowdown in emerging economies, and also faces further downward risk caused by the delay in taking action in response to the eurozone sovereign debt crisis. The Japanese and U.S. economies are expected to continue recovering modestly owing to growing domestic demand.”


Canon is trading for $30.83 per share and has a Business Predictability rank of 1 out of 5 stars, a Financial Strength of 9 out of 10 and a Profitability and Growth rank of 5 out of 10.


Heineken N.V. (HINKY, Financial)


As a relatively new stock in Tweedy, Browne’s portfolio, the firm has already sold more than 75,000 of its shares of international brewing group Heineken N. V. (HINKY) since it was first introduced to Tweedy, Browne’s portfolio in the second quarter of this year. After the transaction, Tweedy, Browne has a current shareholding of 283,802.


Heineken reported impressive third quarter fiscal data, with a four-percent rise in revenue across multiple regions, driven by a movement in currency and improved sales mix, according to its third quarter fiscal release. These results reflected Tweedy, Browne’s mention of beverage companies positively performing in its portfolio in the third quarter.


“The favorable currency movement primarily reflects appreciation of the Nigerian naira, British pound and Mexican peso versus the euro reporting currency,” stated the release.




In addition to growths in revenue, the company pinpointed the following acquisitions affecting its numbers: the Harar and Bedele breweries in Ethiopia, the Galaxy Pub Estate in the United Kingdom and a controlling stake in Brasserie Nationale d’Haitai S.A. in Haiti.


Heineken is currently trading at $31.55 per share, with a market cap of $35.83 billion and one Good Sign indicating an expanding operating margin.


View the rest of Tweedy, Browne’s third quarter portfolio updates here. Also view the firm’s current portfolio details as well as other Tweedy, Browne articles on GuruFocus.