A Close Look at Biglari's Latest Earnings: Part 1

Buffett-inspired Biglari Holdings (NYSE: BH  ) is not nearly as followed as its model business, Berkshire Hathaway (NYSE: BRK-B  ) , but investors in the latter would be wise to keep an eye on the moves of this restaurant-focused holdings company.

Led by 35-year-old "combative" investor Sardar Biglari, the company may be most widely known for its acquisition and turnaround of fast-food chain Steak n Shake. Since going public in 2008 (shortly before the financial crisis), the company's stock has returned more than 200% for shareholders, with 23% of shares still held by inside owners. Though management releases limited commentary and analysis with its quarterly reports, we can take a closer look at the recent SEC filing to see whether Biglari Holdings is headed higher still.

Quarterly results
Biglari derives the bulk of its revenue from restaurant operations, with the investment management arm of the company, The Lion Fund, contributing a much smaller amount. Year over year, earnings are almost identical, with restaurant earnings bringing in $218.74 million, compared with $218.36 million in the year-ago period. The increase was mainly due to a 0.3% increase in same-store sales for Steak n Shake, even with a 0.2% decrease in customer traffic. Franchise and royalty fees were up an impressive 26%, while investment income performed very strongly, growing from $1.84 million in 2012 to $2.29 million in this year's first 16 weeks. Overall, net revenues grew to $225.2 million from $223.68 million -- a forgettable gain.

Moving down the income statement, though, showed less favorable numbers, including an intangible asset impairment of $1.2 million and an overall cost and expense increase of more than $10 million. On the bottom line, the company earned $1.63 per share, compared with $3.39 in the year-ago period. While those numbers may appear drastic at first glance, investors need not worry too much. Core operations are performing just fine; it's a matter of various one-time or short-term line items that kept this period's bottom line so far under the previous year's.

Year to date, the company has generated more than $18.8 million in cash flows, compared with $13.8 million in the year-ago period.

The thing is, these relatively confusing results don't paint as clear a picture of Biglari's individual holdings and actual operating performance as an asset-heavy holding company. Investors need to look at the state of the company's assets and how they are growing over the long term. This company is not to be analyzed the way one would analyze Cracker Barrel, even though Biglari's nearly $400 million position in the company represents the majority of the holding company's entire market cap.

Coming up next ...
In Part 2 of the article, we'll take a closer look at the assets and compare valuations to a much better-known, Omaha-based peer. There's more here than meets the eye.

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