“They will have record per-share earnings this year,” Buffett, 83, said in an interview on the “Charlie Rose” show, which aired late yesterday on PBS. “That can be disappointing if you expected more. But it is not a bad record, believe me.”
IBM is seeking to expand in more profitable markets like software and services to make up for the deterioration of its older hardware business. The company reported its sixth straight quarter of declining sales last week, sending the stock to its lowest price in more than two years. It is the worst-performing of Buffett’s top investments at Berkshire Hathaway Inc. (BRK/A), where he is chairman and chief executive officer.
Berkshire began accumulating a stake in Armonk, New York-based IBM in early 2011 after the stock rallied 74 percent from the end of 2008 to the end of 2010. Buffett’s company had 68.1 million shares as of June 30, meaning it paid about $171 apiece to build its stake.
IBM was little changed at $175.01 at 9:38 a.m. in New York. The shares had dropped 8.7 percent this year through yesterday, compared with a 23 percent gain for the Standard & Poor’s 500 Index.
Buffett said he doesn’t focus on results of an individual quarter and that all businesses have struggles.
“Every company, including Berkshire,” faces tough periods, Buffett told Rose. “We’ve had a fair number of blips over time.”
Even as IBM’s revenue slips, earnings continue to climb. The company last week reiterated a forecast for profit of $20 a share in 2015, up from $11.52 in 2010. IBM has sold less profitable businesses, acquired high-margin software companies, lowered its tax rate and bought back shares to help meet the target.
Berkshire built a stock portfolio valued at more than $100 billion by investing in companies that Buffett believes have a durable competitive advantage and sticking with those picks for years. Wells Fargo & Co. (WFC), the largest holding, had surged 26 percent this year through yesterday.
Buffett wrote last year in a letter to shareholders that long-term investors like Omaha, Nebraska-based Berkshire should cheer for IBM shares to languish in the short term. A lower price means IBM can repurchase more of its stock, increasing Berkshire’s ownership stake in the company.
Investors comforted by short-term share increases “resemble a commuter who rejoices after the price of gas increases, simply because his tank contains a day’s supply,” Buffett wrote.
Buffett was joined by his son Howard, who is conducting media interviews after writing “40 Chances: Finding Hope in a Hungry World” about food security. Howard Buffett, a farmer and Berkshire director, told Rose that a “brown revolution” focusing on soil would aid agriculture.
“We’ve got to start protecting our natural resources,” he said. “And soil is the key.”