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Precision Castparts Corp
Origin of Relationship
Precision Castparts Corp (PCC) is the world's premier manufacturer of complex metal components for the aerospace, industrial, and energy markets. Brought to Warren Buffett's attention by Todd Combs, Berkshire Hathaway acquired PCC in 2016 for $32.1 billion—the largest acquisition in Berkshire's history.
Major Milestones
- 2015: Berkshire announces the acquisition of PCC for $32.1B, elevating Berkshire's top non-insurance group to the "Powerhouse Six."
- 2016: The acquisition officially closes. Buffett highlights CEO Mark Donegan as an extraordinary manager whose retention was a prerequisite for the deal.
- 2017: Makes a bolt-on acquisition by purchasing Wilhelm Schulz GmbH.
- 2018: Heavily praised at the Annual Meeting. Buffett and Munger cite PCC as a prime example of a business requiring significant capital expenditure but delivering exceptional long-term value, driven by Donegan's intense operational focus.
- 2020: Berkshire records an $11 billion non-cash impairment charge against PCC's carrying value, the single largest write-down in Berkshire's history. COVID-19 collapsed commercial aviation demand, cutting Boeing's production orders and therefore PCC's aerospace business. Buffett accepted personal responsibility for the overpayment, explicitly stating he paid too much in 2016 given the implicitly required earnings trajectory. PCC's defense business remained sound; the commercial aerospace and regional jet segments were severely impacted. Greg Abel confirmed PCC was having weekly calls with Boeing to track production adjustments. Recovery trajectory is tied directly to commercial aviation's return to pre-COVID passenger volumes.
Strategic Importance
PCC represents the culmination of Berkshire's transition from buying "businesses any idiot could run" to buying highly complex, capital-intensive industrial manufacturers that require extraordinary, specialized management. By acquiring PCC and leaving Donegan entirely alone to run it, Berkshire demonstrated the ultimate power of its "Buyer of Choice" model: offering a permanent home where elite industrial CEOs can focus 100% on operations without the distractions of public markets.
The 2020 write-down underscores Berkshire's intellectual honesty standard: impairments are taken when facts change, not deferred for the convenience of near-term earnings optics.
🔗 Connections
- People: Mark Donegan, Todd Combs, Greg Abel
- Concepts: Buyer of Choice, Bolt-on Acquisitions, Managerial Non-Intervention, Capital Allocation, Darwinian Record-keeping, Errors of Commission
- Peers: BNSF, Berkshire Hathaway Energy, Marmon Group, Lubrizol, ISCAR
- Sources: 2015 Letter, 2015 Meeting, 2016 Letter, 2016 Meeting, 2017 Letter, 2018 Meeting, 2020 Letter, 2020 Meeting
📚 Historical Mentions & Citations (6)
Click a reference document below to expand and read the exact paragraph(s) containing this concept in the archive.
📜2015 LetterExcerpt Available▼
2015 LetterExcerpt Available
Next year, I will be discussing the “Powerhouse Six.” The newcomer will be Precision Castparts Corp. (“PCC”), a business that we purchased a month ago for more than $32 billion of cash. PCC fits perfectly into the Berkshire model and will substantially increase our normalized per-share earning power.
Of course, a business with terrific economics can be a bad investment if it is bought at too high a price. We have paid substantial premiums to net tangible assets for most of our businesses, a cost that is reflected in the large figure we show for goodwill and other intangibles. Overall, however, we are getting a decent return on the capital we have deployed in this sector. Earnings from the group should grow substantially in 2016 as Duracell and Precision Castparts enter the fold.
📜2016 LetterExcerpt Available▼
2016 LetterExcerpt Available
Of course, a business with terrific economics can be a bad investment if it is bought at too high a price. We have paid substantial premiums to net tangible assets for most of our businesses, a cost that is reflected in the large figure we show on our balance sheet for goodwill and other intangibles. Overall, however, we are getting a decent return on the capital we have deployed in this sector. Absent a recession, earnings from the group will likely grow in 2017, in part because Duracell and Precision Castparts (both bought in 2016) will for the first time contribute a full year’s earnings to this group. Additionally, Duracell incurred significant transitional costs in 2016 that will not recur.
🎙️2016 MeetingExcerpt Available▼
2016 MeetingExcerpt Available
WARREN BUFFETT: Now we just have two slides to show you now. The first one is a preliminary… summary figures — for the first quarter. And you’ll notice that insurance underwriting — these are after-tax figures by category — are down somewhat. The basic underwriting at GEICO is actually improving, but we had some important hailstorms in Texas toward the end of the quarter. We’ve actually had some since the end of the quarter, too, so there were more cat losses in the first quarter than last year. Railroad earnings are down significantly, and railroad car loadings throughout the industry, all of the major railroads, were down significantly in the first quarter, and probably will continue to be down, almost certainly will continue to be down, the balance of the year. We have two companies which we added to the manufacturing, service, and retailing field: Precision Castparts and Duracell, but they were added during the quarter, so their full earnings aren’t shown in the figures.
JONATHAN BRANDT: My first question is about Precision Castparts. Besides your confidence in its talented CEO Mark Donegan, what in particular do you like about their business that gave you the confidence to pay historically high multiple? Are there ways Precision can be even more successful as, essentially, a private company? For instance, are there long-term investments to support client programs or acquisitions that Precision can make now that they couldn’t realistically have done as a publicly traded entity?
📜2020 LetterExcerpt Available▼
2020 LetterExcerpt Available
The final component in our GAAP figure — that ugly $11 billion write-down — is almost entirely the quantification of a mistake I made in 2016. That year, Berkshire purchased Precision Castparts (“PCC”), and I paid too much for the company.
🎙️2020 MeetingExcerpt Available▼
2020 MeetingExcerpt Available
He asks, “How is Precision Castparts handling the severe slowdown in the aerospace industry?”
The defense contract business remains very sound and strong within Precision Castparts. But if you look at the large-body aircraft, the aircraft that they use within the regional jets, that business will move directly with the demand there, and the jets that are ordered longer term.
📜2022 LetterReference Only▼
2022 LetterReference Only
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