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POSTED: Sun, 01/31/2010 - 11:53
If I understand correctly, we're looking to analyse great businesses in this forum. I believe Warren Buffett has calledSee's Candies a great business many times so it seems a good place to start. Below is my analysis of See's plus someunanswered questions. Please add, amend, correct etc!Quantitative------------**1972**Purchase Price - $25m (16% off the asking price of $30m)
Sales - $30m on 16 million 1bs of candy = to
$1.88
/ lb of candy
Pre-tax Profits - $4.5m (56% on invested capital)
Post-tax Profits - $2.25m? (estimate) growing 12% a year
Invested Capital - $8m**2006**Sales - $383m on 33 million 1bs of candy = to
$11.61
/ lb of candyPre-tax Profits - $82mPost-tax Profits - £60m? (estimate)Invested Capital - $40m**2006 at 1972 prices**Sales - $80m on 33 million 1bs of candy =
to $2.42
/ lb of candyPre-tax Profits - $17mPost-tax Profits - £8.4m? (estimate)So Berkshire invested $32m since 1972 (approx $1m / year) whilst pre-tax earnings over the period total $1.35bn.Total investment $57m. ROI = >2300% over 34 years.Please see a public google spreadsheet posted as a web page for the above here:
http://spreadsheets.google.com/pub?key=t248xiVFFLXMMjEj3fwS91Q&output=html Qualitative-----------The product tasted great - used the highest quality ingredientsThe personality of the product -> nostalgia, share of mind, reputation for innovation, history (the inspiration forCharlie & the Chocolate Factory?)Reasonable price (too reasonable) - untapped pricing power. WEB believed another $0.15 was possible. This wouldincrease profits by $2.4m.Total control of distributionExceptional serviceMarket leaderMinimal funds needed to operate - cash eliminated accounts receivable & production & distribution cycles are shortminimizing inventories Virtually all of the post-tax profits are free cashTough to grow volume All these factors lead to an extremely wide moat. The loyalty of the customers can be seen by the 2 years they spentdefending See's when it was purchased by Blue Chip Stamps.
(Editor: See’s had a brand in its established region (Calif) but struggled to
grow outside that region.)
Unanswered questions:- why was so little capital investment needed? isn't chocolate making equipment expensive? or is it more labour
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intensive?- I'm confused regarding 'invested capital'. Is this book value? ie net asset value? Does anyone have any idea whatSee's balance sheet looks like? (I imagine there are few liabilities)- where can See's go now? can it continue to raise prices above the rate of inflation?
REPLIES 20
Redliner
POSTED: Tue, 09/13/2011 - 00:11
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Redliner
Would like to access the 19 replies to Nick's analysis of See's candies. Can't seem to figure out how to do so. Anyadvice?
nickwebb
POSTED: Wed, 11/03/2010 - 15:46
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nickwebb
Hello all!Sorry for the long period of quiet on this thread. If empty vessels make the most noise we must all be very full! I didintend to finish with a consolidation of everyone's input on See's and publish that analysis on a 'Backwards BRK' wiki.But I don't think that's necessary now given seekingwisdom's excellent analysis.The next company I'd like to look at is Coke. Has anyone seen any analysis that they think is of value?In the mean time, I'd like to share a side project I've been working on. It's a compilation and categorisation of all the
question & answer sessions I could find with Mr. Buffett. See what you think at buffettfaq.com.Nick
tim83030
POSTED: Sat, 02/27/2010 - 20:33
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tim83030
Alice, You've mentioned several times that the case method would be the best one to learn more about how WEBevaluates a great business -- Can you present a case? Say like, something recent like IDQ, McLane, XTRA, orsomething you would prefer?Cheers!
aliceschroeder
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POSTED: Fri, 02/26/2010 - 19:33
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aliceschroeder
P.S. I appreciate that you're seeking meaningful information that will add to your own store of knowledge. What isbest to help you folks understand more about the thought process is to eventually work through some specific caseswith the caveat that each is unique rather than writing narrative descriptions that try to generalize what Warrendoes. It's not as generalizable as you might think despite any offhand statements from either one of them that mightbe interpreted that way.Warren-watching has morphed into a sort of Kremlinology (literally Buffettology, but to say that would soundpejorative to Dave and Mary's book, which is not my intent) anyway Buffettology in which every little crumb of information is examined to see whether it means something more.It's better to think about it the other way around (invert). When Warren and Charlie make a statement like the
seven/eight hours it may merely mean one of them is trying to summarily counter a wrong impression using a quick
declarative. Here, I think that rather than being literal, Charlie is simply countering the impression that Warren riffles
the pages of an annual report for ten minutes and is done. The work of security analysis is always painstaking if done
right. But Warren can screen faster than he can analyze and much of what he does is screen. I would argue he does
both (screen and analyze) very fast compared to the rest of us. When he does analyze, it's largely the same process
as anyone would go through. What is interesting are the specific about any one company.Perhaps this is a better explanation. Ok?
aliceschroeder
POSTED: Fri, 02/26/2010 - 18:22
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aliceschroeder
Hi Lorax,Okay. Here goes.Sometimes, Warren spends five minutes thinking about a company and sometimes he spends many hours - seven,eight, twenty, or more. It depends on all the obvious reasons.The more time he spends the more likely he is to take notes of things he is interested.He may (or may not) take
notes about footnotes, balance sheet #s, cash flows, projections, income statement, ratios, capex, hundreds of other
items. His notes, when taken, are brief -- keywords not sentences.He writes notes in the margin of annual reports or on the cover of SEC filings or on a separate sheet of paper or onthe back of an envelope or on a burger joint takeout menu or in the margin of a letter from somebody else aboutsome other topic. Sometimes he files the notes and sometimes he throws them away after he's thought about them.The files are chronological to the extent they are organized at all.He works in his office and at home and while traveling. He works in between phone calls. He spends more time onthis kind of work when SEC filings and annual reports come out, as you would expect.He is content to update himself on information no more than quarterly except by reading the newspaper/Internet formajor breaking news. Except for this and the absence of a computer and an earnings model, the way he works is
very similar to the way every good analyst I've ever known works. He simply reads all the available material he canfind, and takes notes in an ad hoc manner. I think what's truly different about him goes on inside his head and
doesn't have a whole lot to do with his work method.This may not add materially to The Snowball, but hope it helps. Please understand, sometimes the way individualcompany files are organized has a bearing on the thought process in that specific situation. The point is that you
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