Pershing Square fund manager Bill Ackman (Trades, Portfolio) disclosed on Tuesday that he established a position in Lowe’s Companies Inc. (LOW, Financial) and increased his holdings in United Technologies Corp. (UTX, Financial) and Mondelez International Inc. (MDLZ, Financial) during the second quarter.
Ackman said in an Aug. 9 shareholder letter that his portfolio consists of large-cap companies “with catalysts for shareholder value creation.” The investor reiterated his strategy of effectuating necessary company changes through the fund’s influential position as a large shareholder “often with representation on the board of directors.” Strong results in the fund’s portfolio companies led to an net asset value increase of 6.7% during the first half. Pershing Square’s year-to-date performance of 12.7% outperformed that of the Standard & Poor’s 500 index by approximately 4.6%.
New buy: Lowe’s
Ackman invested in 7,715,501 shares of Lowe's for an average price of $90.44 per share, dedicating 12.7% of his equity portfolio to the position.
Ackman said in his letter that while Pershing Square avoided investing in retail for over five years, the home improvement category is “well insulated from the threat of online competitors” due to several competitive advantages, including physical store presence of customers and shipping constraints of the company’s products. The investor also said although Lowe’s same-store sales growth outpaced rival company The Home Depot Inc. (HD, Financial) prior to the 2009 financial crisis, the Mooresville, North Carolina-based retailer has “materially lagged” the Atlanta-based competitor since the crisis: Lowe’s profit margins are underperforming by approximately 5% despite increasing approximately 5.80% per year over the past five years.
Ackman closed his comments on Lowe’s with discussions about management changes, which include former Home Depot board member David Batchedler leading the CEO search committee. Lowe’s announced on May 22 that Marvin Ellison, former CEO of JC Penney Co. Inc. (JCP, Financial), will succeed Robert Niblock.
Investor boosts positions in “strong-performing” United Technologies and Mondelez
Ackman added 2,596,195 shares of United Technologies for an average price of $124.42 per share, expanding the equity portfolio 5.59%.
The investor said while United Technologies’ organic sales increased 6% during the quarter, the Farmington, Connecticut-based aerospace company still reported flat operating profit compared to the prior year on declining earnings from Otis and Climate, Controls and Security. Ackman reinforced the logic of a business separation as the share price does not reflect the “strength of [United Technologies’] aerospace business.” CEO Greg Hayes said on the call that all options, including the three-way split of the company, were “on the table.”
Third Point LLC manager Daniel Loeb (Trades, Portfolio) added 500,000 shares of United Technologies during the quarter.
Ackman also increased his position in Mondelez during the quarter, adding 215,122 shares for an average price of $40.20 per share. The investor expanded his equity portfolio 0.15% with this transaction.
The investor said Mondelez reported underlying organic sales growth of 2% during the quarter, with global sales growth in snacks improving to 3% for the first half of the year. Operating margins increased 1.3% on a 0.6% tailwind in gross margins and a 0.7% tailwind in overhead costs. Management raised its full-year organic sales guidance to the high end of the previous guidance of 1% to 2% on initiatives to "address share losses in Brazil and the U.S.” and accelerate share gains in other markets.
Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) CEO Warren Buffett (Trades, Portfolio) owns 578,000 shares of Mondelez as of the second quarter.
Disclosure: No positions.
