Warren Buffett clearly stated on Saturday what had been obvious some time ago – he paid too much, too much, for Precision Castparts Corp.
“The CCP is far from my first such mistake,” Buffett told investors in his annual letter to shareholders. “But it is a big problem.”
Buffett’s investment firm Berkshire Hathaway paid $ 37 billion for the Portland company in 2016. It is the largest amount ever paid by an Oregon company and remains the largest outright acquisition of Buffett to date.
But Precision Castparts’ revenues stagnated in the years following the deal, dropping 29% last year. The Boeing 737 MAX pandemic and crisis have profoundly affected aerospace manufacturing, one of Precision Castparts’ main markets.
The Portland company reported $ 7.3 billion in sales for 2020, according to financial results that Berkshire Hathaway reported on Saturday, Precision Castparts’ lowest revenue since 2011.
Last year, Berkshire Hathaway reduced the value of the 2016 deal by $ 10 billion and Precision Castparts eliminated 13,000 jobs worldwide, an astonishing 40% of its total workforce. The company laid off 717 Oregon workers last spring. It remains among the largest industrial employers in the state.
“Nobody fooled me in any way – I was too optimistic about the CCP’s normalized profit potential,” wrote Buffett. “Last year, my miscalculation was revealed by adverse developments across the aerospace industry, the PCC’s most important customer source.”
Precision Castparts manufactures large metal components for aircraft, electric generators and other heavy industries.
There are reasons for optimism in the coming months. Boeing’s 737 MAX, stopped for 19 months after two tragic accidents, is flying again and the company is delivering new jets. And with the pandemic in sharp decline in the United States, air travel is expected to increase this year.
In Saturday’s mea culpa, Buffett took full blame for the disappointing performance of Precision Castparts and supported CEO Mark Donegan, who has been leading the Portland business since 2002. Buffett called Donegan “a passionate manager who always puts the same energy into the business that he did before buying it. “
“We are lucky to have him running things,” said Buffett.
– Mike Rogoway | [email protected] | Twitter: @rogoway | 503-294-7699