Improving Performance of Billionaire Bill Ackman’s Pershing Square in Q2; Comments on Herbalife Short and Other Updates

New York-based hedge fund Pershing Square Capital Management L.P. and his founder, billionaire William A. Ackman, have been making headlines over the past year or so due to an uncharacteristic rough patch experienced since the summer of 2015. Bill Ackman’s well-known investment firm has incurred huge losses from the massive bet on embattled pharmaceutical company Valeant Pharmaceuticals Intl Inc. (NYSE:VRX).

According to a first-quarter letter to investors, Pershing Square Capital Management was down a whopping 25.6% net-of-fees in the first quarter of the year. In a recent quarterly investor conference call hosted by Mr. Ackman, the investor said his Pershing Square was down by 21.1% through the end of June, with his firm posting a profit for the second quarter. Although some retail investors may be wary of Mr. Ackman’s moves and commentaries due to his firm’s terrible performance over the past year, one should still pay close attention to the billionaire investor’s thoughts and investment ideas. Hence, the following article will discuss Pershing Square’s fresh thoughts on some of its most prominent positions that were discussed in the recently-held quarterly update call.

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Restaurant Brands International Inc. (NYSE:QSR)

– Shares owned by Pershing Square Capital Management as of March 31: 39.15 Million

– Value of Pershing Square Capital Management’s Holding as of March 31: $1.52 Billion

Restaurant Brands International Inc. (NYSE:QSR) was the third-largest equity holding in Pershing Square’s pool of holdings at the end of the March quarter, accounting for 17.2% of the hedge fund’s long-only portfolio. The New York-based asset manager upped its position in Restaurant Brands by 1.15 million shares during the first quarter to 39.15 million shares, which were valued at $1.52 billion on March 31. The quick service restaurant company owing Tim Hortons and Burger King brands was a positive contributor to Pershing Square’s performance in the second quarter, with the fast-food chain gaining 7% during the quarter. The Canadian company has seen the value of its shares gain 19% since the beginning of the year. The company’s TH global system comparable sales grew 5.6% year-over-year in the first three months of 2016, reflecting continued strength in beverages and grilled wraps. Meanwhile, BK global system comparable sales increased 4.6% year-on-year, mainly due to successful product launches and promotions. Christopher R. Hansen’s Valiant Capital owns 1.44 million shares of Restaurant Brands International Inc. (NYSE:QSR) as of June 30.

Bill Ackman Continues to Hold onto Herbalife Ltd. (NYSE:HLF) Short

– Shares owned by Pershing Square Capital Management as of March 31: Short Shares and Put Options

– Value of Pershing Square Capital Management’s Holding as of March 31: Roughly 10% of the firm’s capital

Herbalife Ltd. (NYSE:HLF) was the only short position of the 12 positions comprising Pershing Square’s portfolio at the end of March. Billionaire Bill Ackman’s asset manager is short the stock of Herbalife and owns put options on the company. Just recently, the dietary supplement company agreed to pay $200 million in consumer relief and restructure its business practices in a settlement with the Federal Trade Commission, allowing the company to avoid being charged with operating a pyramid scheme. Although the company and other stock market participants considered the recent settlement with the FTC as a positive development, Mr. Ackman, who previously alleged in public statements and video presentations that Herbalife operates as a pyramid scheme, views the settlement as very bad news for the company. In a fresh statement regarding Herbalife, Pershing Square said “we expect that once Herbalife’s business restructuring is fully implemented, these fundamental structural changes will cause the pyramid to collapse as top distributors and others take their downlines elsewhere or otherwise quit the business”. “…this is a massively overvalued company. A fraudulent business won’t survive”, said Mr. Ackman in the recently-held quarterly updated call. Meanwhile, Herbalife shares are up 26% year-to-date. Carl Icahn’s Icahn Capital LP was the owner of 17.00 million shares of Herbalife Ltd. (NYSE:HLF) at the end of March.

Let’s head to the next page of this article, where we will discuss three other major positions in Pershing Square’s portfolio.

Mondelez International Inc. (NASDAQ:MDLZ)

– Shares owned by Pershing Square Capital Management as of March 31: 22.94 Million

– Value of Pershing Square Capital Management’s Holding as of March 31: $920.44 Million

The multi-billion-dollar asset manager cut its stake in Mondelez International Inc. (NASDAQ:MDLZ) by 20.42 million shares during the first quarter of 2016, ending the three-month period with 22.94 million shares valued at $920.44 million. Bill Ackman and his team reduced the stake for “portfolio management reasons”, as the Mondelez stake became an outsized position. Mondelez was the biggest positive contributor to Pershing Square’s performance in the second quarter, as Mondelez shares gained an impressive 13% during the quarter. In late June, the maker of Oreo cookies made a $23 billion cash-and-stock offer to buy chocolate maker Hershey Co (NYSE:HSY), an offer Hershey’s board unanimously rejected. Bill Ackman and his team are worried that a possible agreement to buy Hershey would disrupt the cost cutting efforts currently implemented by Mondelez. “In short, as shareholders we would find it unacceptable for an acquisition of Hershey by Mondelez to delay or derail the productivity and cost-saving transformation that’s under way”, said a member of Pershing Square’s investment team on the recent conference call. Stephen J. Errico’s Locust Wood Capital Advisers acquired a new stake of 283,031 shares of Mondelez International Inc. (NASDAQ:MDLZ) during the June quarter.

Valeant Pharmaceuticals Intl Inc. (NYSE:VRX)

– Shares owned by Pershing Square Capital Management as of March 31: 21.59 Million

– Value of Pershing Square Capital Management’s Holding as of March 31: $567.85 Million

Billionaire Bill Ackman’s firm increased its exposure to Valeant Pharmaceuticals Intl Inc. (NYSE:VRX) by 30% during the first quarter to 21.59 million shares. The upped stake was valued at $567.85 million on March 31 and made up 6.4% of the hedge fund’s concentrated portfolio. Mr. Ackman continues to bullish on the embattled Canadian drugmaker despite a 91% decline the value of Valeant shares in the past 12 months. During the aforementioned quarterly update call, the billionaire money manager defended the company’s research and development program, saying that “this company has one of the most productive R&D programs of any pharmaceutical company in the country”. However, the Food and Drug Administration recently delayed the approval of Valeant’s experimental glaucoma treatment, latanoprostene bunod, due to manufacturing deficiencies at a Bausch and Lomb facility. Phil Frohlich’s Prescott Group Capital Management added a 65,000-share position in Valeant Pharmaceuticals Intl Inc. (NYSE:VRX) to its pool of holdings during the second quarter.

Zoetis Inc. (NYSE:ZTS)

– Shares owned by Pershing Square Capital Management as of March 31: 41.82 Million

– Value of Pershing Square Capital Management’s Holding as of March 31: $1.85 Billion

Zoetis Inc. (NYSE:ZTS) was the largest long position in Pershing Square’s portfolio at the end of the first quarter, constituting 20.9% of the entire value of the long-only portfolio. The 41.82 million-share stake was worth $1.85 billion on March 31. According to freshly-amended filings, Bill Ackman’s Pershing Square trimmed its Zoetis position to 18.89 million shares in early July from 24.97 million shares owned in mid-May and 41.82 million shares in late April. The 18.89 million-share stake accounts for 3.8% of the company’s total number of outstanding shares. The animal health company’s total revenue for the three months ending April 3 increased by $60 million year-on-year to $1.16 billion, reflecting operational revenue growth of 12%. Operational revenue growth represents revenue growth excluding the impact of foreign exchange headwinds. The acquisition of privately held Norwegian aquaculture company called Pharmaq in November 2015 also contributed to the company’s top line growth. Steve Cohen’s Point72 Asset Management had 3.94 million shares of Zoetis Inc. (NYSE:ZTS) in its portfolio on March 31.

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