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This year’s Berkshire Hathaway meeting offered shareholders the best chance yet to hear from the man who will one day take over as CEO when Warren Buffett is gone, but Buffett said Saturday for the first time that Greg Abel should then also take responsibility for the company’s investments. He takes over the office and raises new questions about succession planning.
Abel showcased his encyclopedic knowledge of the utilities business he directly ran for years and delved into the railroad operations and potential acquisitions Berkshire was pursuing while sharing the stage with Buffett all day. For his part, the 93-year-old billionaire showed investors that he is still sharp.
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Abel pointed out that it will take a deep cultural shift to get workers at PacifiCorp and the other utilities that have long focused all their energy on keeping the lights on to consider turning off the power at times The risk that their power lines could cause forest fires is too great. He also said the BNSF railroad is working to “get our cost structure in order” after delivering disappointing results.
For many of the thousands of people who packed an Omaha arena to hear the two men speak following the death of Vice Chairman Charlie Munger last fall, succession was clearly top of mind. Buffett, Abel and Ajit Jain, the other top Berkshire executive who oversees the company’s insurers, assured investors that Berkshire’s board spends a lot of time considering “what would happen to operations if.” “I would be hit by a truck,” as Jain put it. It will be important to find the right replacement for each of these three.
Previously, Buffett had said that if Abel becomes CEO, investment managers Ted Weschler and Todd Combs, who also took over as CEO of Geico, would manage Berkshire’s massive portfolio. But Buffett said Saturday that his thinking has evolved and that “knowing Greg, I would probably leave the capital allocation to Greg.”
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And Buffett said that because Abel understands companies so well, he also understands stocks.
However, Edward Jones analyst James Shanahan said a good deal doesn’t always make a good stock unless you have the right timing and position size, and that’s an art.
“I think stock picking is difficult. I don’t think you can just start doing it and be good at it,” Shanahan said.
While he led Berkshire’s utilities division for 10 years, Abel handled billions of dollars, including the acquisitions of NV Energy and AltaLink, but he was never a stock picker. Weschler and Combs might be able to help Abel get the timing right and find opportunities in the stock market, but Buffett didn’t say that on Saturday.
Abel simply assured shareholders that “the capital allocation principles we apply today will be maintained.”
“After Buffett, does that give you more or less confidence? I would say it must be of lesser value to you – not because it’s a worse circumstance, but because it wasn’t very transparent and wasn’t communicated as clearly. You have to ask yourself, “What else is going to change?” said Cole Smead of Smead Capital Management.
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Abel definitely has the trust of the CEOs of all of Berkshire’s various non-insurance companies, who report to him and seek his advice on any challenges they face.
“Greg sees so much more than I do every day. “So his perspective is valued and it is a great luxury for all of us to have access to his wisdom,” said Dan Sheridan, who became CEO of Brooks Running this year following the retirement of his predecessor. He said Abel was always humble and curious about the business, even when asking challenging questions.
Pat Egan, CEO of See’s Candies, added that Abel reflects all of Berkshire’s core values, with the company’s focus on integrity, serving customers and strengthening brands, while still giving Berkshire’s subsidiaries the freedom to operate independently act.
“He really expects us to know our business, understand the parameters and run our business day to day,” said Tim Baucom, CEO of flooring giant Shaw Industries. “I feel like I have all the freedom in the world, but with freedom comes responsibility.”
Shareholders who attended the meeting and spent hours shopping and chatting with executives at the booths of Berkshire’s subsidiaries when they weren’t listening to Buffett and Abel remain confident. Some of them even had the opportunity to take selfies with Abel, even though Buffett no longer tours the exhibition hall publicly.
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“I think they’ll be fine,” said Michael Grizzard, traveling to Omaha from Richmond, Virginia, for the second time. “They’re in good hands and I think they have a good culture.”
Smead said even Buffett, who is by far one of the greatest investors the world has ever seen, has recently had a hard time finding good investments big enough to make a difference at Berkshire, apart from Apple’s $135 billion stake, which remains the largest investment ever after some cuts this year.
No matter how good an investor Abel is, he will have a hard time finding deals big enough to significantly boost Berkshire’s profits, which totaled nearly $13 billion in a down first quarter . That challenge is one reason Buffett has warned investors not to expect Berkshire’s “stunning performance” of the past.
But for now, Buffett has shown that Abel may not need to take over anytime soon because he looked good and has long said he has no plans to retire, even though he admitted Saturday that he is no longer the one has the same energy as before. Cathy Seifert, an analyst at CFRA Research, was impressed by his persistence.
“There was nothing about this performance that I found worrisome or troubling,” Seifert said.
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Find more AP coverage of Warren Buffett here: https://apnews.com/hub/warren-buffett. Find Berkshire Hathaway news here: https://apnews.com/hub/berkshire-hathaway-inc. Follow Josh Funk online at https://apnews.com/author/josh-funk, https://www.twitter.com/funkwrit h and https://www.linkedin.com/in/funkwrite.
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