This year’s Berkshire Hathaway shareholder meeting gave shareholders the best chance to hear from the person who will someday take over as CEO after Warren Buffett leaves, but Buffett will be speaking for the first time on Saturday, as will Greg Abel. After Buffett’s death, he said he should take responsibility for the company’s investments. When he takes over, new questions arise regarding his succession plan.
Mr. Abel shared an encyclopedic knowledge of the utilities he has directly led over the years, and shared the stage with Mr. Buffett throughout the day as he delved into Berkshire’s pursuit of railroad projects and potential acquisitions. Meanwhile, the 93-year-old billionaire showed investors he’s still astute.
Abel told employees at PacifiCorp and other power companies, who have long devoted all their energy to keeping the lights on, to shut off power if there is a risk of damaging power lines. He pointed out that a major cultural shift was needed to make this a consideration. Spark wildfires are too big. He also said BNSF Railway is working to “get our cost structure right” after disappointing results.
After Vice Chairman Charlie Munger passed away last fall, many in the audience of several thousand who filled Omaha’s arena heard the pair speak, and it was clear that his successor’s top priorities were in mind. Mr. Buffett, Mr. Abel, and Ajit Jain, the other chief executive who oversees Berkshire’s insurance company, said Berkshire’s board of directors, in Mr. Jain’s words, “what would happen to the company if it got hit by a truck?” He reassured investors that he was spending a lot of time on Finding a suitable successor for any of the three will be important.
Buffett has previously said that once Abel becomes CEO, investment manager Ted Weschler and Todd Combs, who also serves as CEO of Geico, will handle Berkshire’s vast portfolio. But Buffett said Saturday that his thinking has evolved: “Knowing Greg, I would probably leave the capital allocation to him.”
And Buffett said Abel understands stocks because he understands business so well.
But Edward Jones analyst James Shanahan said there’s an art to it, and good companies don’t always make for good stocks unless you get the timing and position size right.
“I think stock picking is difficult. I don’t think it’s something you can just start doing and get good at,” Shanahan said.
Mr. Abel has a history of making multibillion-dollar deals, including the acquisitions of NV Energy and Altalink during his 10 years as head of Berkshire’s utilities division, but he has never been a stock picker. Never. Mr. Weschler and Mr. Combs may be able to help Mr. Abel get the timing right and find opportunities in the stock market, but Mr. Buffett did not confirm Saturday.
Abel just reassured shareholders that “the capital allocation principles currently adopted by the company will be maintained.”
“Have you felt more or less confident since Mr. Buffett took office? Not because the situation is getting worse, but because it is less transparent and clearly communicated, you should get less out of it. We have to start thinking, “What else is going to change?” said Cole Smead of Smead Capital Management.
Abel is certainly trusted by all of the CEOs of Berkshire’s various non-insurance businesses, who report to him and seek advice on the challenges they face.
“Greg sees a lot more on a day-to-day basis than I do, so his perspective is valued and his wisdom is a great luxury for all of us to use.” said Dan Sheridan, who just took over as CEO of Brooks Running this year after the retirement of his predecessor. He said Abel was always humble and even when he asked challenging questions, he was interested in the business.
Pat Egan, CEO of See’s Candies, said Abel will give Berkshire’s subsidiaries the freedom to operate independently while focusing on integrity, customer care and strengthening the Berkshire brand. It added that it reflects all of its core values.
“He really expects us to know our business, understand our parameters and run our business on a day-to-day basis,” said Tim Baucom, CEO of flooring giant Shaw Industries. “There is,” he said. “So I feel like I have all the freedom in the world, but with freedom comes responsibility.”
Shareholders who attended shareholder meetings and spent hours shopping at booths set up by Berkshire subsidiaries and talking with executives rather than listening to Mr. Buffett and Mr. Abel remain confident. There is. Some of them even got a chance to take selfies with Abel, but Mr. Buffett no longer visits the exhibition hall in public.
“I think they’ll be fine,” said Michael Grizzard, who was visiting Omaha for the second time from Richmond, Virginia. “I think they are well-managed and have a good culture.”
Smead said even Buffett, arguably one of the greatest investors in the history of the world, has struggled lately to find good investments big enough to make a difference at Berkshire. That’s still the biggest investment, aside from $135 billion in Apple stock. This year after trimming.
So no matter how good an investor Mr. Abel is, it will be difficult to find a deal big enough to significantly boost Berkshire’s earnings, which approached $13 billion in the first quarter. This challenge is a big part of why Buffett warned investors not to expect the kind of “spectacular performance” Berkshire has seen in the past.
But for now, Buffett has indicated that he may not need to take over right away because Abel is looking good, and even though he admitted on Saturday that he doesn’t have as much energy as he used to, he plans to retire. I have been saying for a long time that there is no such thing. CFRA research analyst Kathy Seifert came away impressed with his stamina.
“There was nothing concerning or troubling about that performance,” Seifert said.
