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Holly LaFon
Holly LaFon
Articles (8613)  | Author's Website |

Warren Buffett's Portfolio Companies and Quarterly Earnings Guidance

A look at what his top holdings do with a practice Buffett recently railed against

Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett (Trades, Portfolio) and JPMorgan (NYSE:JPM) CEO Jamie Dimon joined forces Thursday to campaign against the use of short-term earnings guidance for public corporations.

"When companies get where they're sort of living by so-called making the numbers, they do a lot of things that really are counter to the long-term interests of the business," Buffett said in an interview with CNBC.

A check into Buffett’s portfolio showed that several of his top holdings engage in the practice, meaning it doesn’t necessarily rank has one of his firm investing criteria but may cause some friction for them. In the case of Kraft Heinz, the practice ended around the time he joined the board.

Apple (NASDAQ:AAPL)

Apple, Buffett’s top holding at more than 21% of the portfolio, has issued guidance on gross margin, revenue, operating expenses and other financial details for years. Whether it beats or issues strong guidance is often highlighted in earnings news and analyst reports.

Apple has met or exceeded its guidance for revenue in the past four quarters. But its first quarter saw the biggest slide in its stock price over that period after the report emerged. Despite record-breaking revenue, the company failed to sell more iPhones than the comparable quarter and issued mediocre guidance that sent the stock down. Apple projected revenue between $60 billion and $62 billion, when Reuters analysts proposed a $65.72 billion estimate. Its price dropped around 4% for the day, Feb. 1.

Despite the short term fluctuations as Wall Street and Apple made their forecasts, the stock rose nearly 30% over the past year.

Kraft Heinz (NASDAQ:KHC)

Once upon a time, Kraft Heinz issued quarterly guidance. That ended in August 2015 as it struggled to manage the merger between H.J. Heinz Holding Corp. and Kraft Foods Group.

“As a matter of practice, however, Kraft Heinz does not expect to issue or update earnings guidance going forward,” a press release from the company read.

The change took place around the time of Buffett’s investment in the company. Buffett partnered with 3G Capital to acquire H.J. Heinz in 2013. Then, in March 2015, Heinz acquired Kraft Food. In the end, Buffett had $9.5 billion invested in the newly minted company, the third-largest food and beverage maker in the world.

Buffett also joined the board of the company in July that year, roughly a month before it ceased giving earnings guidance. He left the board in February, though the company has not returned to issuing guidance.

As of the end of the first quarter, the stake represented about 10.7% of Buffett’s portfolio and he, together with 3G, own roughly 51% of the company.

Coca-Cola (NYSE:KO)

Coca-Cola does give its expectations, but only annually. The company makes a point of stating whether it is on track to meet or exceed its full-year outlook in each quarterly earnings announcement.

Buffett owned roughly 9.4% of the company as of first quarter-end. The company has fallen to the fifth-biggest slot in his portfolio from the second-biggest position in 2015.

For 2017, Coca-Cola trumpeted that it met or exceeded its previously announced guidance as it transitions from sugary beverages to a more diverse portfolio with healthier options.

In addition to increased revenue and other factors, its shares were also raised by what Wall Street perceived as strong guidance for 2018. Coke put forth an expected earnings per share range of $2.06 to $2.10, versus analysts’ estimates of $1.99. The day of the announcement, shares popped 2.5%.

"We have the right strategies in place and remain confident in our ability to achieve our full year guidance," Coca-Cola CEO Jame Quincey said on a conference call.

The short-term lift soon dissipated, however. Within weeks, the stock had declined again, and remained down 3.4% since Feb. 16, the date of its full-year 2017 announcement.

Over the past five years, Coca-Cola shares have increased 7% to $38.86 per share at close Friday.

Buffett's other two top holdings, the banks Wells Fargo (NYSE:WFC) and Bank of America (NYSE:BAC), do not issue guidance.

About the author:

Holly LaFon
I'm a financial journalist with a master of science in journalism from Medill at Northwestern University.

Visit Holly LaFon's Website


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