This is How Billionaire Bill Ackman’s Pershing Square Lost Nearly 26% In Q1

Highly-scrutinized activist investor Bill Ackman is no longer on the list of the top 20 best-performing hedge fund managers, after Pershing Square Capital Management L.P. posted a net-of-fees loss of 20.5% in 2015 (the list measures the amount of money that hedge fund managers have made for their investors since the inception of their funds). Thinks have not improved any in 2016, as Mr. Ackman’s activist hedge fund has lost an additional 25.6% during the first quarter of the year, as revealed by a performance report posted on the fund’s website on Friday. This disappointing performance was the collective result from long positions in 11 companies as well as one short position. Data compiled by Insider Monkey shows that Pershing Square’s eight holdings on December 31 in companies with a market capitalization of at least $1.0 billion generated a weighted average loss of 10.9% for the quarter, based on the size of those positions at the beginning of the first quarter. Obviously, much of the activist hedge fund’s losses can be attributed to battered drugmaker Valeant Pharmaceuticals Intl Inc. (NYSE:VRX), so let’s take a look at the performance of tha stock during the first quarter, as well as four other stocks owned by Pershing Square.

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#5 Valeant Pharmaceuticals Intl Inc. (NYSE:VRX)

 – Shares Owned by Pershing Square (as of December 31): 16.59 Million

 – Value of Pershing Square’s Holding (as of December 31): $1.69 Billion

 – Q1 Return: -74.1%

Pershing Square owned a total of 16.59 million shares of Valeant Pharmaceuticals Intl Inc. (NYSE:VRX) at the end of December, which were valued at $1.69 billion. Fresh 13D filings with the SEC show that Mr. Ackman’s fund now owns 30.71 million shares of the drug company, which constitute 9.0% of its total outstanding shares. This stake includes 21.59 million shares of common stock, a 5.00 million share increase to its long position, as well as an additional 9.12 million shares underlying over-the-counter American-style call options. Valeant’s shares have lost 85% in the past 12 months, after politicians attacked the drugmaker for gouging customers with unfounded price increases for its drugs and short-sellers condemned the company’s relationship with Philidor and pinpointed accounting irregularities associated with that relationship. The shares of the Canadian drugmaker have been under even more pressure this year after the company issued disappointing guidance for the current year, which raised the prospect that Valeant may default on its enormous debt should the company fail to file its Form 10-K and Form 10-Q. The recent appointment of Mr. Ackman to the company’s Board of Directors and the departure of Chief Executive Mike Pearson have done very little to restore investors’ confidence in the battered company. Jeffrey Ubben’s ValueAct Holdings L.P. owns 14.99 million shares of Valeant Pharmaceuticals Intl Inc. (NYSE:VRX) as of the end of December.

The following two pages discuss the performance of Mr. Ackman’s top four stock picks during the first quarter.

#4 Canadian Pacific Railway Limited (USA) (NYSE:CP)

 – Shares Owned by Pershing Square (as of December 31): 13.94 Million

 – Value of Pershing Square’s Holding (as of December 31): $1.78 Billion

 – Q1 Return: 4.2%

In October 2011, Pershing Square disclosed a 12.2% stake in Canadian Pacific Railway Limited (USA) (NYSE:CP) comprised of 20.7 million shares, after which Mr. Ackman and his team launched a proxy fight with the company’s Board of Directors. The activist investor came out victorious, as CEO Fred Green and five members of the company’s Board stepped down in May 2012. The overhauled Board of the Calgary-based railroad company appointed Hunter Harrison as the new CEO, and he responded by implementing a series of operational changes aimed at driving up the company’s performance. Shares of Canadian Pacific Railway increased to as much as $220 at the end of September 2014 from only $62 at the end of October 2011. However, shares have stumbled somewhat since then, having declined by 27% in the past 52 weeks, which has led Pershing Square to acknowledge that it did not cash out at the right time. Shares did appreciate by 4.2% in the first quarter however.

The transcontinental railway company has been trying to take over Norfolk Southern Corp. (NYSE:NSC), but the target has fiercely opposed the takeover efforts so far. In December 2015, Canadian Pacific Railway stated that “the interests of the NS [Norfolk Southern] board are not aligned with the best interests of NS shareholders”, as “neither the executive leadership at NS nor its board of directors are willing to sit down in an open and constructive dialogue”. John Griffin’s Blue Ridge Capital acquired a stake of 1.17 million shares in Canadian Pacific Railway Limited (USA) (NYSE:CP) during the October-to-December quarter.

#3 Mondelez International Inc. (NASDAQ:MDLZ)

 – Shares Owned by Pershing Square (as of December 31): 43.37 Million

 – Value of Pershing Square’s Holding (as of December 31): $1.94 Billion

 – Q1 Return: -10.1%

According to its quarterly 13F for the December quarter, Pershing Square owned 43.37 million shares of Mondelez International Inc. (NASDAQ:MDLZ) on December 31, excluding shares underlying forward purchase contracts or shares underlying call options. However, the activist firm recently trimmed its stake in the maker of Oreo cookies, as revealed by a 13D submitted with the SEC in mid-March. The public filing disclosed an ownership stake of 88.20 million shares, which included only 22.94 million shares of common stock and 65.26 million shares underlying American-style call options. Mr. Ackman reported that the shares, which lost 10.1% in the first quarter, were sold for portfolio rebalancing purposes.

The global snack-food company generated net revenue of $29.64 billion in 2015, down from $34.24 billion in 2014 and $35.30 billion in 2013. The decrease in the company’s top-line figure was mainly driven by the appreciation of the U.S dollar against most global currencies during 2015. Meanwhile, Mondelez International’s organic net revenue grew by $1.13 billion in 2015 to $31.60 billion. The increase was mainly attributable to higher net pricing, which was partially offset by unfavorable volume/mix. The positive effect of net pricing was driven by input cost-driven pricing actions undertaken throughout 2015, whereas the unfavorable volume/mix was mainly due to price elasticity and strategic decisions to exit specific low-margin product lines. Shares of Mondelez are currently trading at around 20.5-times expected earnings, significantly above the forward P/E ratio of 17.5 for the companies included in the S&P 500 Index. Nelson Peltz’s Trian Partners reported ownership of 48.03 million shares of Mondelez International Inc. (NASDAQ:MDLZ) through its 13F filing for the December quarter (read more details).

#2 Zoetis Inc. (NYSE:ZTS)

 – Shares Owned by Pershing Square (as of December 31): 41.82 Million

 – Value of Pershing Square’s Holding (as of December 31): $2.00 Billion

 – Q1 Return: -7.3%

Pershing Square Capital Management L.P. had 41.82 million shares of Zoetis Inc. (NYSE:ZTS) in its portfolio at the end of 2015, which were worth approximately $2.00 billion. Mr. Ackman’s activist firm acquired a 5.54 million-share stake in the maker of animal drugs and vaccines during the third quarter of 2014, and greatly boosted it to to 41.57 million shares in the fourth quarter. Although Mr. Ackman and his team did not have any plans for Zoetis, it appears that the world’s largest producer of animal medicines and vaccinations may serve as a potential takeover target. In December, German-based chemical and pharmaceutical company Bayer AG revealed plans to acquire Zoetis, saying that the two parties held discussions about a possible acquisition. The company’s total revenue for 2015 decreased by roughly $20 million to $4.77 billion, with foreign exchange headwinds impacting Zoetis’ top-line figure by $393 million. The company’s operational revenue grew by $373 million or 8% year-over-year, as a result of volume increases and price increases. Steven Cohen’s Point72 Asset Management owns 4.41 million shares of Zoetis Inc. (NYSE:ZTS) as of the end of the fourth quarter.

#1 Air Products & Chemicals Inc. (NYSE:APD)

 – Shares Owned by Pershing Square (as of December 31): 20.55 Million

 – Value of Pershing Square’s Holding (as of December 31): $2.67 Billion

 – Q1 Return: 11.4%

Air Products & Chemicals Inc. (NYSE:APD) was Bill Ackman’s largest equity holding at the end of 2015, being comprised of 20.55 million shares valued at $2.67 billion. The company represents a leading Industrial Gases company whose core business involves the sale of atmospheric and process gases, and related equipment to manufacturing markets such as refining and petrochemical, metals, and electronics, among others. Shares of Air Products & Chemicals are down by 5% in the past 12 months despite having climbed by 10% since the beginning of 2016.

Yesterday, the company announced its plans to discontinue its struggling energy-from-waste (EfW) business, after the manufacturer of gases and chemicals experienced setbacks in resolving operational and design challenges. The company’s EfW business involved two projects in the United Kingdom designed to process solid waste to generate renewable power. However, the company suspended the construction of the second project in November due to certain design issues present in the first project. Air Products & Chemical anticipates registering a pre-tax charge in the range of $900 million-to-$1.00 billion in discontinued operations in the second quarter so as to write down assets related to the EfW business. In mid-March, the company’s Board of Directors increased its quarterly dividend payment to $0.86 per share from $0.81, which marks the 34^th consecutive year of the company’s dividend payments being increased. Andreas Halvorsen’s Viking Global disclosed owning 5.39 million shares of Air Products & Chemicals Inc. (NYSE:APD) through the round of 13F filings for the fourth quarter.

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