With his enormous, hit-or-miss activist bets and bombastic style, owner of hedge fund Pershing Square Bill Ackman (Trades, Portfolio) stirs a great deal of controversy. In recent years several of his high-profile crusades failed to effect returns for his investors, such as at J.C. Penney (JCP) and Target (TGT), and his embattled short position in Herbalife (HLF). So far this year, he has begun to retreat from some of his other largest projects, such as Canadian Pacific Railway Ltd. (CP) and General Growth Properties (GGP), under better conditions. Below is an overview of the investor’s performance with the positions in his highly concentrated $8 billion portfolio, all of which are currently profitable.
Canadian Pacific Railway Ltd. (CP)
Ackman has 31.5% of his portfolio situated in Canadian Pacific Railway. The holding of 17,159,888 shares is worth $2.6 billion on Wednesday, and approximates 9.8% of the company’s shares outstanding.
Pershing started the CP position in third quarter 2011 with 4,040,235 shares, and added 20,114,173 shares the next quarter, and several thousand more in the quarter thereafter. For his largest two purchases, his average share prices were $57 and $59.
Canadian Pacific Railway is the second largest railroad in Canada with $5.6 billion in 2013 revenue, behind Canadian National Railway (CNI) which reported $9.67 billion in revenue.
Shortly after taking a position in the company, Ackman began to tussle with its board regarding leadership. His first move was to change leadership. To better implement his plans, Ackman supported the installment of Hunter Harrison, former CEO of larger competitor Canadian National, in place of the standing CEO Fred Green. From the start of Green’s tenure in 2006 through the end of third quarter 2011 when Ackman announced his stake, the company stock gained approximately 21%. Its top competitor’s stock meanwhile gained 66%.
Ackman eventually got his way, and Harrison took over as president and CEO of Canadian Pacific on June 29, 2012. Just before, on May 17, Ackman was named to the company’s board of directors, along with seven of his nominees.
Another month prior, in April, the company had announced a 318% increase in year-over-year net income, a $213 million increase in year-over-year revenue, driven by record operating metrics. The company had driven down its operating ratio by 1,050 basis points to 80.1%, an improvement of 1,050 basis points, with plans to reduce it further to between 70% and 72% by 2014, and 68.5% and 70.5% by 2016.
Ackman commented on the company and his board victory in his first quarter 2012 letter to investors:
“Because CP’s business issues are almost entirely operational in nature – the railroad’s operating margins are half that of its Canadian competitor due to its inefficient asset utilization and productivity – this turnaround is substantially less risky than one predicated on increasing revenue growth. CP’s business will, however, be somewhat impacted by global macro conditions. In assessing the profit potential of this investment, we have used conservative assumptions about the global economic environment. Even in a weak economic environment, we expect the potential for operating profit enhancements to greatly exceed the impact of macro headwinds on the value of the business.”
By the latter half of 2013, Canadian Pacific’s stock since Ackman initiated a position had soared 150%, and he sold more than 7 million shares at prices roughly double where he bought it. He told investors in his shareholder letter that year that the sell was only for portfolio management reasons. ““We expect to remain CP’s largest shareholder and for CP to remain one of our largest investments over the coming years as the turnaround story continues to play out,” Ackman wrote.
Canadian Pacific announced its most recent operating results on Jan. 29. The company’s revenue was up 7% year over year to $1.6 billion, with net income of $82 million, up from $15 million in the year-ago quarter. Full-year revenue increased 8% to a record $6.1 billion, with net income of $875 million, up from $484 million in 2012.
Canadian Pacific also reported an operating ratio of 69.9%, 710 basis points lower than the prior year and a record low for the company.
The railroad as of Wednesday is trading near a 10-year record price of $167 per share. This puts Ackman’s approximate gain on his average purchase price for all of his Canadian Pacific shares at 152%.
Air Products & Chemicals Inc. (APD)
Two years after Canadian Pacific, Ackman’s Pershing Square established its largest position ever, a $2.2 billion stake in Air Products & Chemicals. He acquired 20,549,076 shares of the company over the last three quarters of 2013 at average share prices of $91, $103 and $109. The position is his second largest at 27.9% of Pershing’s portfolio, and spans 9.8% of APD’s shares outstanding.
APD’s stock collapsed in 2008 after topping $100 a share. It had revived 73% from the beginning of 2009 through the end of second quarter 2013, around when Ackman started to invest in it.
Again, after establishing a position, Ackman launched his signature board shakeup. APD announced in September 2013 that its standing CEO, John E. McGlade, would retire in 2014, with a new CEO search beginning immediately. Ackman commented on his investment in the announcement release:
“We invested in Air Products because it is a great business in an industry with excellent long-term prospects. In recent weeks, we have been delighted to get to know John and the rest of the board working with them on their mission of continuous improvement and long-term shareholder value creation. We look forward to a successful long-term partnership.”
Again, Ackman compared the target of his activism to its closest and largest peer, Praxair (PX). Both are international industrial gas and chemical companies, with APD generating $10.2 billion in revenue last year, and Praxair reporting $11.9 billion. After a sharp downturn in 2008, Praxair’s stock price corrected roughly the same amount as APD’s, gaining 77% through the first half of 2013. According to CNBC, Ackman told an audience at a charity even in New York City in February that he believed APD’s stock would go to $200 per share in the next three years. Shares now trade around $117.39, up around 5% this year.
In fiscal first quarter 2014, APD reported year-over-year increases of 4% in net income to $287 million, and 3% in diluted earnings per share to $1.34. Sales were lower by 1% at $2.546 billion due to lower volumes with stable pricing. Each of its segments reported growth, except Tonnage Gases, where revenues fell 10% as demand in the U.S. Gulf Coast was more than offset by plant outages and lower volumes in Latin America. The company expects second-quarter EPS in the range of $1.32 and $1.37.
APD’s 10-year earnings and revenue history:
APD shares are currently trading near their 10-year high price, giving Ackman a 22% gain on his investment in the company from his average buy price.
Despite being underwater on his $1.2 billion Herbalife (HLF) short, each of Ackman’s remaining long positions in Pershing’s portfolio are currently profitable. The greatest gainer, Howard Hughes Corp. (HHC), has advanced 204% from the $48 average price of the stock when he started the position in fourth quarter 2010.
Ackman’s Howard Hughes stake started at 3,568,017 shares, or 9.01% of the company. Years later on Jan. 2, 2014, he increased the stake to 5,484,684 shares, or 13.2% ownership of the company, through converting warrants.
Howard Hughes is a developer and operator of master planned communities and mixed-use properties in 16 states. Ackman served as director of General Growth Properties (GGP) from 2009 to 2010, a shopping mall company of which he owned significant equity and debt, and with which he was involved through its bankruptcy. When GGP spun off Howard Hughes Corp. in 2010, Ackman became 9.5% owner and was named the company’s chairman.
Ackman said in a statement: “I also believe the Howard Hughes name -- which reflects the success and vision of one of our country’s greatest entrepreneurs -- is a fitting brand for this world-class portfolio of real estate assets. We look forward to working to create long-term value for our shareholders.”
The CEO of Howard Hughes, David Weinreb, in a March letter to shareholders said 2013 was “a pivotal year for the company as we transition from planning to building” its handful of core assets. That year its revenues totaled $475 million, increased from $376.9 million the previous year, and a net loss of $73.8 million, narrowed from $128.3 million in 2012, with $895 million in cash on hand and 28% net debt against the book value of its equity capital base.
Howard Hughes currently trades at $144.34, which is close to a five-year high price.
From his average buy price, Ackman’s gains on the remainder of his long stock positions are as follows:
Burger King Worldwide Inc. (BKW) – up 74%
Beam Inc. (BEAM) – up 68.5%
General Growth Properties (GGP) – up 54%
Procter & Gamble Co. (PG) – up 26%