Pershing Square Capital Management’s conference call for the second quarter ended June 30, 2015 starts at 11AM EST on Monday August 10th 2015. ValueWalk will be live blogging the conference call with Bill Ackman. Additionally, readers can hear the full audio (both live and after the conference is over). Ackman is having a solid year with his Pershing Square returning 10.1% (net) in 2015, and 6.6% in July alone. The activist now has over $20 billion in assets under management.
We expect Bill Ackman to talk about Herbalife Ltd. recent earnings, Fannie Mae and Freddie Mac recent developments, Allergan, among other topics. High up on the list of interesting topics will be what William Ackman has to say about Warren Buffett’s comments on Kraft. This morning, Buffett seemed to nix the idea of a Kraft and Mondelez merger. Many (including us) have predicted that Bill Ackman planned to ‘re’ merger Kraft with Mondelez, after Ackman announced a massive stake in the food company last week. However, Buffett could prove to be a very big obstacle to those plans.
Listen and watch below to find out the latest.
11:02 AM EST Ackman talks about performance - big contributors - VRX- NMD, MDLZ, were the largest - HLF, CP, APD, HHC all detracted. Short position (Herbalife) 6-7%
[drizzle]11:05 MDLZ - many contracts we intend to exercise, some common stock and many deep ITM calls. MDLZ was born out of KRFT. Pershing has a long history when investing in Cadbury. We bought KRFT when they tried to purchase Cadbury. Then we owned KRFT after breakup with MDLZ. We have developed a constructive relationship with CEO. The business is a classic Pershing one - great moats, business, emerging market opportunity, Many opportunities for cost savings - we invested now because we watch great businesses and wanted to strike now
Margins are starting to improve with cost savings and investments in the supply chain. The whole industry is under change because of 3G. 3G is setting new benchmarks at Heinz and they are being watched by others in the food industry.
Using new benchmarks the opportunities are just "staggering".
11:12AM VRX completed largest acquisition - sales and earnings exceeded expectations - over 15% growth for four quarters in a row. Mgmt has raised guidance - Mgmt hired new CFO from McKinsey - we still believe in the stock and you can find more info in the Ira Sohn presentation.
11:16 PXD closing the gap with competitors and making a lot of products.
CP has been hit hard due to industry issues - however - CP was able to expand margins despite the slowdown in the economy. The CAD decline has been an issue, as well. In the U.S. with grain and crude down there has been an impact on CP business. Grain exports were hurt as the dollar got stronger and farmers have been stockpiling goods.
11:27 ZTS - former animal health business of Pfizer - two main segments - dominant in everything & everywhere - great Q overall - FX hurt some numbers
QSR - had fantastic Q - BKW and THI will achieve high rate of growth - of particular note 1. SSS 2. Tim Hortons operational improvements. Tim Hortons costs going down, and the division continues to keep adding stores across the US.
Back to VRX - they do not only make money via acquisitions - they make money organically - both BKW and VRX invest a huge amount of company internally - many people who criticize cost cutters miss this. Ackman likes businesses where you earn royalty without having to invest much in them.
HHC - no earnings and cannot comment much but we focus more on the assets than quarterly earnings.
PAH - just made acquisition so we cannot comment.
Nomad - we made investment at beginning of the quarter - the company is a shell and we did not invest initially - SPAC $500M cash shell - Bought Igloo which is the leading frozen food company in Europe - high EBITDA margins of 20%, a great base in Europe - Igloo is a leader in the UK and many other European countries - mostly protein foods which should have secular support from health concise customers
11:45 Treasury still taking every penny - conservator-ship is supposed to be temporary but in next month it will be seven years - shareholders are suing in two jurisdictions for net sweep - shareholders are taking discovery - we do not have access although we are getting access- it sounds like Fairholme found that the Govt knew Fannie and Freddie were becoming profitable before net sweep decision - in other case, we think its a strong case - eight parties are in the brief including us - many important parties including FDIC official who says net sweep overturns 80 years of prior precedent - also net worth sweep could dry up the markets - Tim Howard ex-CFO says the accounting decisions forced upon Fannie were the cause of the net sweep.
DC circuit dealing with Fairholme has suspended briefing - this should be good for shareholders - many positive developments during Q
Ackman - Herbalife Ltd. (HLF) back out China and business declined 19% - many mature markets are also declining - S Korea and UK are given as examples - China has strict MLM rules - MLMs are illegal in China and hope to make some progress in that regards.
July 25, video of Michael Johnson was reported in the news - Ackman says we will hopefully get a copy of that video but do not have it now - August 3rd disclosed but not by company that chief compliance officer left - one analyst speculated SEC investigation is over and FTC will be over soon- we have not seen basis for that (referring to Tim Ramey)
This Q was good example of why Herbalife is a ponzi scheme - the business is so volatile and ditto the numbers
Q&A
We think we will continue to report great numbers and will close if we feel we are getting too big
Ackman talks to best operators, Ackman does a Michael Porter 5 forces of business analysis
We bought as much MDLZ as we could
Short-selling is risky and tough and we do not want to do many shorts - would need to be a big position and would need to be a fraud or something likes that - but we do like CDS
Ackman is open to the idea of starting his own shell sometime in the future
Many lessons learned from financial crisis - too many to list
We are very open to another AGN and VRX type of deal
Ackman thinks BRK trades at discount, which is remarkable given Buffett's capabilities
Ackman does not understand question RE KRFT and MDLZ [ VW: wonder if he does not or cannot answer the question - hard to believe he did not understand it]
Not worried about CP and regulation - its much safer to use rail and the costs of maintenance is all done by private parties.
Ackman on Fannie Mae and Freddie Mac - WSJ wrote Ackman got it totally wrong - He offers to help correct the math. Its $6B vs $9B - but Fannie is charging new customers more. Plus WSJ had error between Q and Y math.
We may put a binder together for the math - WSJ is great but their Heard on the Street on Fannie has been a disaster and so inaccurate.
Fannie cannot re-list because they are in FHFA control - but could relist on NYSE when get permission - Ackman encourages everyone to read the Amicus from former FDIC official as he dealt a lot with conservatorship in S&L crisis. This is dangerous for country and this is more important than hedge funds. No chance of BOD seat at the company - considered setting up a "shadow board" and may do it in the future.
Asked about HLF behind the scene - Ackman says best evidence of behind the scenes is the increase in legal expenses this quarter
MDLZ is not necessarily a bad company - Oreos is a treat and healthy - however, Tobacco all products are bad.
MDLZ has big upside - already made $500 million profit or so
Ackman says BKW also not inherently unhealthy - everything in moderation is okay [ funny to hear Ackman offer nutrition tips to his investors]
Ackman still very focused on HLF despite new investments
Tiny % of capital but notionally large bet on HK
