Investment Pitches

Pitch Summary:
Jollibee - The largest quick-service restaurant (QSR) player in the Philippines, Jollibee, was a detractor for the quarter. The company reported disappointing results for Q4, missing its earnings expectations. While its domestic business in the Philippines continues to perform well, with same-store sales growth (SSSG) increasing from 6.4% in the previous quarter to 7.4% in the most recent one, the Group's overall performance was negatively impacted by its international operations, particularly in the China region and with Smashburger. In China, EBITDA fell 57% YoY due to a challenging competitive environment and a weak consumer market. Meanwhile, in the US, Smashburger's EBITDA returned to negative territory as the revamp of the menu and increased marketing spending did not yield the desired results. Jollibee is actively implementing changes in these underperforming markets and brands. The company plans to limit losses in China by focusing on an asset-light approach. Additionally, Jollibee has changed the management of Smashburger and is pursuing a more cost-conscious strategy under the new President, Jim Sullivan, who is working to eliminate unnecessary overhead. Jollibee Group remains focused on return on invested capital (ROIC), intending to raise it to 20% by fiscal year 2028. Encouragingly, they are seeing positive signs with the launch of Jollibee's US Franchising Program, set for early March 2025. The Jollibee brand in North America reported an 8% increase in same-store sales last year and has average daily sales (ADS) of $13,300, nearly triple the ADS of KFC and double that of Popeyes in the US. Additionally, Jollibee Group is ready to begin franchising Coffee Bean & Tea Leaf beyond its core markets of Malaysia and Singapore.

BSD Analysis:
Despite Q4 disappointments, Longleaf maintains a constructive view on Jollibee based on strong domestic performance and promising US expansion metrics. The Philippine domestic business remains robust with same-store sales growth accelerating from 6.4% to 7.4%, demonstrating the core brand's resilience. While international operations face challenges, particularly in China where EBITDA fell 57% year-over-year, management is implementing corrective measures including an asset-light approach and new leadership at underperforming Smashburger. The US Jollibee brand shows exceptional unit economics with $13,300 average daily sales, nearly triple KFC's and double Popeyes' performance, supporting the March 2025 franchising program launch. Management's focus on achieving 20% ROIC by fiscal 2028 demonstrates capital discipline and operational improvement commitment. Additional growth drivers include Coffee Bean & Tea Leaf franchising expansion beyond Malaysia and Singapore. The investment thesis centers on the strong domestic foundation, superior US unit economics, and management's proactive approach to addressing underperforming international operations while maintaining ROIC discipline.

Pitch Summary:
Becle - Global beverage company Becle was a detractor for the quarter. Industry trends remained weak, and while the company gave guidance that it can get back to growth this year, the market is skeptical. Last quarter, we wrote: "While it remains to be seen what Trump will do, Becle is trading dramatically below its private market value and below where it has traded before on all metrics as a public company, including the first time we successfully invested in the company when Trump was President. 2025 will be an important year for the company to demonstrate its path to growth and prudent capital allocation." Throughout most of the first quarter, the situation looked precarious as Trump initially focused his tariffs on Canada and Mexico. However, after quarter end the tequila industry received a reprieve as we wrote above. We continue to believe that Becle has multiple factors within its control to realize value per share and look forward to continuing our dialog with management.

BSD Analysis:
Longleaf maintains a bullish stance on Becle despite near-term industry weakness and market skepticism about the company's growth guidance. The firm emphasizes that Becle trades dramatically below its private market value and historical public market metrics, including levels during the previous Trump presidency when Longleaf successfully invested. The tariff concerns that weighed on the stock during Q1 have been partially alleviated with tequila receiving reprieve under the USMCA agreement. Longleaf views 2025 as a critical year for management to demonstrate operational execution and prudent capital allocation. The investment thesis centers on Becle's ability to control multiple value realization levers independent of external trade policy uncertainties. While industry trends remain challenging and the market remains skeptical of the company's return to growth, Longleaf believes the current valuation provides significant upside potential. The firm continues active dialogue with management to ensure focus on shareholder value creation through operational improvements and strategic capital allocation decisions.

Pitch Summary:
Glanbia - Irish sports nutrition and ingredients company Glanbia was a top detractor in the quarter. The shares had already performed poorly in H2 2024, as the price of their key input cost for their performance nutrition brands, whey protein isolate (WPI), rose above historic peaks. There is a shortage of WPI supply, but with new capacity due to come online later this year, the company expected prices to remain rational and ultimately to reduce. That did not happen, and through December and into January, prices rose further, forcing Glanbia to forward-purchase at prices far above their budgeted costs. Glanbia is simultaneously the largest consumer of WPI and the largest producer, giving them the best insight into this commodity market, and even they were caught out given the unprecedented nature of the price move. Despite finding mitigations that allowed them to offset 75% of the extra $200 million cost headwind for this year, it still resulted in a $50 million downgrade to guidance for 2025 at the FY results. That is a 9% downgrade to consensus expectations, with the share price falling over 3x that. An aggravating factor has been concerns about increased competition. Costco is an important channel for Glanbia, accounting for a mid-teen percentage of sales, but being more substantial as a growth driver. Costco introduced a competitor product under their Kirkland brand in Q3 last year, which has caused a headwind to growth for Glanbia's key Optimum Nutrition (ON) protein powder. Performance so far has been stable, impacting ON volumes but not showing progressive deterioration, yet it introduces a further concern to an already nervous market. Glanbia's other division, Nutritional Solutions, is the largest producer of WPI and therefore benefits from the current high prices, but the market has historically focused solely on the consumer branded division, and that has continued to be the case. Looking at the value of its assets, Glanbia now on 9x price-to-earnings (PE), trades well below comparators for each of their divisions: Sports Nutrition Brands, Supplements & Ingredients, and Dairy/Cheese producers. We have impressed upon the Board and Management their vulnerability at the current share price and the need to respond with affirmative action. That would include enlarging and accelerating share buybacks and exploring a strategic process to separate and sell certain divisions. We believe the company is considering such a strategy, having already announced the reorganisation into three divisions, which would be a necessary precursor to a sale of the new Dairy Protein division. We believe that business alone is worth approximately 50% of the company enterprise value (EV) today, with the more valuable consumer brands (GPN) and ingredients (Health & Nutrition) also being potential sale targets. We continue to like the structural drivers of growth in Glanbia's health-focused businesses and are working with management to ensure a higher degree of urgency in crystalising value.

BSD Analysis:
Despite near-term headwinds, Longleaf maintains a bullish long-term view on Glanbia based on compelling valuation and potential value realization catalysts. The company faces significant cost pressures from unprecedented whey protein isolate (WPI) price increases, resulting in a $50 million guidance downgrade despite offsetting 75% of the $200 million headwind. Competition from Costco's Kirkland brand has impacted Optimum Nutrition volumes, though performance has stabilized without progressive deterioration. However, Glanbia trades at only 9x P/E, well below comparators across all divisions, creating significant value opportunity. The company's dual position as both largest WPI consumer and producer provides unique market insight and partial offset through its Nutritional Solutions division. Longleaf is actively engaging management on value crystallization strategies, including accelerated share buybacks and potential divisional separations. The recent reorganization into three divisions enables potential asset sales, with the Dairy Protein division alone worth approximately 50% of current enterprise value. The structural growth drivers in health-focused nutrition remain intact, supporting the long-term investment thesis despite temporary margin pressures.

Pitch Summary:
Richemont - Swiss jewellery and watch producer Richemont was another top performer in the quarter. Their fiscal Q3 results (calendar Q4) released in mid-January again demonstrated the brand strength which enables pricing power and market share gains. Like-for-like sales growth of 10% substantially outperformed expectations, with the US being the standout geography, but with strength across the board except for China. With the prospect for YoY comparisons easing further through the year (and in January at least, consumer prospects seemingly strong) the share price strongly outperformed our value growth. This reduced our IRR expectation, and we started to trim the position as the price to value approached 100%. We ultimately exited our position fully in the quarter, which proved to be the right decision as the market became more concerned about consumer weakness and the impact of tariffs in the US, seeing the share price pull back. We continue to like Richemont, as owner of the strongest brands in the hard-luxury industry, Cartier and Van Cleef & Arpels. We have long-held a preference for hard luxury (jewellery and watches) over soft luxury (bags, clothes) given the long-term store-of-wealth characteristics and occasion-linked purchasing (engagements, birthdays, anniversaries, etc.) Hard luxury globally has significantly lower penetration of brands than soft luxury, with many emerging markets still being precious metal/stone dependent rather than brand/design dependent. We continue to expect brands to win market share, disproportionately favouring the most desirable brands, providing Richemont with a long-term structural tailwind. We will continue to follow the company closely.

BSD Analysis:
Longleaf maintains a positive long-term view on Richemont despite exiting the position during the quarter due to valuation concerns. The company demonstrated strong brand power with 10% like-for-like sales growth that substantially beat expectations, driven by US strength and broad-based performance excluding China. Richemont owns premier hard luxury brands Cartier and Van Cleef & Arpels, which Longleaf prefers over soft luxury due to store-of-wealth characteristics and occasion-linked purchasing patterns. The structural opportunity lies in hard luxury's lower brand penetration globally compared to soft luxury, particularly in emerging markets that remain precious metal/stone dependent rather than brand/design focused. This dynamic should drive market share gains toward the most desirable brands, providing Richemont with long-term tailwinds. However, the strong share price performance reduced expected IRR, prompting the full exit as price-to-value approached 100%. The decision proved prescient as concerns about consumer weakness and US tariff impacts subsequently pressured the stock. Longleaf continues monitoring for re-entry opportunities.

Pitch Summary:
Lanxess – Global specialty chemical company Lanxess was one of the top performers in the quarter, being a clear beneficiary of both macro drivers and internal initiatives. We have argued for some time that Lanxess was undervalued in relation to the quality of its assets and the actions management was taking to allow for significantly improved performance and returns once the end-demand environment started to show signs of improvement. Yet ironically it was the macro prospect of an ending of the war in Ukraine, followed by the expectation of renewed investment into German industrial capabilities, which saw Lanxess shares perform strongly this quarter. Lanxess has approximately 25% production exposure to Germany and a mid-teen demand exposure. Lower gas prices in Germany would certainly help with input costs, but we remain cautious about just how much Russian gas will be allowed to flow through Ukraine and how much Germany will want to tie itself back into a Russian supply network. The €500 billion infrastructure blitz proposed by new Chancellor Merz would certainly help the domestic construction market, but again, we need to see evidence of this on the ground. We prefer to rely on levers within the company's control, and Lanxess made further progress through the quarter. The sale of the Urethanes division completed as expected with gross proceeds of €500 million, which will be used to reduce debt back to an approximate 3x leverage ratio. Q4 results were good, with cost savings on track and more to be delivered this year. Guidance for 2025 was conservative at +10% earnings before interest, taxes, depreciation and amortization (EBITDA), but prudent given the end-market environment has remained weaker for longer than they would normally expect. There is significant upside margin potential in the coming years as demand feeds directly through to utilization improvements with a very high incremental margin. We are also getting closer to the sale of their stake in the Envalior JV (put option from Apr 2026). This asset and its shareholder loan are worth over 35% of Lanxess's market cap today, yet analysts and the market largely ignore it or have written it down to a very low valuation. This reflects the fact Lanxess is strictly limited in what they are allowed to disclose about Envalior, and markets abhor a vacuum. Yet the debt agency reports (S&P Global, 13 Dec 2024 publicly available online) make it clear what this asset is worth if one cares to look. With a fixed exit-multiple of 12x EBITDA guaranteed in the put option, we are confident a strong cash inflow will be achieved on the sale, allowing for significant further debt reduction and finally opening the possibility of accretive buybacks.

BSD Analysis:
Longleaf presents a compelling bull case for Lanxess based on both company-specific initiatives and potential macro tailwinds. The firm argues Lanxess has been undervalued relative to asset quality and management's operational improvements, with the company completing the €500 million Urethanes division sale to reduce leverage to approximately 3x. Q4 results demonstrated progress with cost savings on track and conservative 2025 EBITDA guidance of +10%, providing significant upside potential as demand recovery drives high incremental margins through improved utilization. The hidden value catalyst lies in the Envalior joint venture stake, worth over 35% of current market cap but largely ignored by analysts due to disclosure limitations. The put option from April 2026 guarantees a 12x EBITDA exit multiple, which Longleaf believes will generate substantial cash for debt reduction and potential share buybacks. While macro factors like German infrastructure spending and lower gas prices could provide additional tailwinds, Longleaf focuses on controllable levers within management's execution. The investment thesis centers on operational leverage, hidden asset value realization, and strong cash generation potential.

Pitch Summary:
Prosus - Global consumer internet group Prosus was among top contributors for the quarter, continuing its strong performance from 2024. Tencent, which represents close to 80% of net asset value (NAV) for Prosus, delivered better than expected results in Q4. The company reported YoY revenue growth of 11% and adjusted net profit increase of 30%, benefiting from improved operational leverage. Tencent is stepping up its investment in AI and is adopting a multi-model strategy (including DeepSeek) to provide the best user experience. Its internally developed Hunyuan model is helping boost ad targeting, content creation and operational efficiency. We remain optimistic about Tencent's investments in AI yielding a high return on investment at the application layer, particularly given the vast amount of data generated by their WeChat super app and its 1.3 billion monthly active users. Prosus continued its open-ended share buyback program and announced two reasonably priced acquisitions (Just Eat Takeaway in food delivery and Despegar in online travel) for a total of $6 billion (~3% of its NAV).

BSD Analysis:
Longleaf maintains a bullish stance on Prosus, driven primarily by the strong performance of Tencent, which comprises nearly 80% of Prosus's net asset value. Tencent delivered impressive Q4 results with 11% revenue growth and 30% adjusted net profit increase, demonstrating improved operational leverage. The company's AI strategy appears well-positioned, with its multi-model approach including DeepSeek and internally developed Hunyuan model enhancing ad targeting and operational efficiency. Tencent's competitive advantage lies in its massive data ecosystem from WeChat's 1.3 billion monthly active users, providing significant potential for AI monetization. Prosus continues executing shareholder-friendly capital allocation through its open-ended share buyback program. The company made strategic acquisitions totaling $6 billion for Just Eat Takeaway and Despegar, representing approximately 3% of NAV at reasonable valuations. The investment thesis centers on Tencent's AI investments generating high returns at the application layer, supported by unparalleled user data and engagement.

Pitch Summary:
Millicom – Latin American telecommunications operator Millicom extended its standout 2024 performance into the first quarter of this year. The share price reflects exceptional operational delivery, driving an inflection in equity free cash flow growth, on which the new management team, supported by its largest shareholder, Iliad Group (Atlas) with a 40% stake, has relentlessly focused since 2023. This progress became more visible starting in the second quarter of 2024, and we expect it to continue from here. We were confident the market would eventually recognize the material year-on-year (YoY) and sequential free cash flow growth profile that Millicom's results would gradually reveal. Indeed, the company exceeded its already twice-raised 2024 equity free cash flow guidance of approximately $650 million, ultimately delivering $728 million for the year. Looking ahead, Millicom has guided further growth to the $750 million range for 2025. Our conversations with management bolster our confidence in the sustainability of this strong cash flow generation, underpinned by efficiency gains across both OPEX and CAPEX initiatives. The restart of the company's dividend policy followed the achievement of its steady-state leverage target of 2.5x in December. This capital allocation move makes cash flow improvements very tangible to us as shareholders today, thanks to the ongoing $150 million share buyback program and a well-supported dividend of $3 per share in hard currency. At current prices, this represents a yield above 10%, limiting downside risk in today's highly volatile markets and significantly improving the risk/reward of our investment in Millicom. In the meantime, we continue to partner with management while they drive operational improvements to full fruition over 2025. In addition to this compelling fundamental setup, we continue to see multiple ways to win in what promises to be a catalyst-rich year for Millicom. The delisting of its Swedish shares was completed at the end of March 2025, leaving a single US listing that should enhance liquidity and attract greater institutional investor interest—further facilitating the closure of Millicom's price-to-value gap. Meanwhile, progress on the $1 billion acquisition of Telefonica's operations and Millicom's minority interests in Colombia remains on track. Management recently confirmed that they expect regulatory approval by year-end, and they remain excited about the prospect of generating value on these assets via operational turnaround and cost synergies.

BSD Analysis:
Longleaf presents a compelling bull case for Millicom based on exceptional operational execution and cash flow inflection. The company exceeded its 2024 equity free cash flow guidance by $78 million, delivering $728 million versus the $650 million target, with further growth guided to $750 million for 2025. Management's relentless focus on operational efficiency across both OPEX and CAPEX has driven sustainable cash generation improvements. The capital allocation strategy is shareholder-friendly, featuring a $150 million share buyback program and a $3 per share dividend yielding over 10% at current prices. Multiple catalysts support the investment thesis, including the completed delisting of Swedish shares to enhance US liquidity, and the pending $1 billion acquisition of Telefonica's Colombian operations expected to close by year-end. The company achieved its target leverage ratio of 2.5x, enabling the dividend restart and providing financial flexibility. Longleaf views this as a catalyst-rich year with multiple pathways to value realization through operational improvements and strategic initiatives.

Pitch Summary:
PVH – Global apparel brand PVH was a detractor for the quarter. Two key factors weighed on the stock price. First, consumer discretionary spending faced broad pressure, and PVH was no exception. Second, China placed PVH on its restricted list as trade tensions and tariff rhetoric between the US and China escalated throughout the quarter. PVH has done nothing wrong but was unfortunately selected instead of other companies in its industry. After the end of the quarter, PVH reported solid, flattish results in this tough environment and a new accelerated share repurchase authorization that led to the stock reacting nicely. The company still trades at a mid-single-digit multiple of FCF that can grow, and our great partner Stefan Larsson is focused on closing this price to value gap.

BSD Analysis:
Longleaf Partners maintains strong conviction in PVH despite geopolitical headwinds and consumer discretionary weakness. The fund emphasizes that China's restricted list placement was arbitrary rather than performance-related, creating temporary pressure unrelated to business fundamentals. PVH's solid operational performance in a challenging consumer environment demonstrates management's execution capabilities. The company's accelerated share repurchase program signals confidence in the business outlook and commitment to shareholder returns. CEO Stefan Larsson's leadership provides confidence in strategic execution and value creation initiatives. PVH trades at an attractive mid-single-digit free cash flow multiple with growth potential. The fund views current valuation as compelling given the company's brand portfolio strength and operational improvements. Longleaf sees significant upside as geopolitical tensions ease and consumer spending normalizes. The position reflects confidence in management's ability to navigate challenges while creating long-term shareholder value.

Pitch Summary:
PayPal – Digital payments platform PayPal was a detractor for the quarter. The stock price declined significantly more than the few percentage points decline in our appraisal value after mildly disappointing results. Growth was in the mid-single-digit range when the market was hoping for high-single-digits. While we trimmed part of our position early in the quarter, in hindsight a larger reduction would have been prudent. However, we continue to see a compelling path forward for this high-quality business, which is still not optimized under relatively new CEO Alex Chriss.

BSD Analysis:
Longleaf Partners maintains a bullish long-term view on PayPal despite recent disappointments and acknowledges tactical positioning errors. The fund believes the market overreacted to mildly disappointing growth results, with mid-single-digit growth falling short of high-single-digit expectations. PayPal represents a high-quality digital payments platform with significant optimization potential under CEO Alex Chriss's leadership. The fund's intrinsic value assessment declined only modestly while the stock price fell significantly more, indicating market overreaction. Management's relatively recent tenure suggests substantial operational improvements remain ahead. PayPal's dominant position in digital payments provides multiple avenues for growth acceleration and margin expansion. The fund sees compelling value in the current valuation despite near-term growth challenges. Longleaf's continued conviction reflects confidence in the platform's competitive advantages and management's ability to unlock value through operational optimization.

Pitch Summary:
FedEx – Global logistics company FedEx was a detractor for the quarter. The company faced macro headwinds, including tariff threats and ongoing demand weakness in the US. The company is growing market share and margins in its formerly challenged European business, and this was a driver for the Express business to report low-single-digit topline growth that turned into double-digit cash flow growth. The Freight business saw a decline like its peers who are also wrestling with weak industrial conditions. FedEx remains on track to separate into two entities: Express and Freight. This split should provide both companies with greater financial flexibility and accountability, allowing them to be run more efficiently. The market has consistently undervalued FedEx's Freight operations, and a large discount to UPS is no longer warranted for the Express business. Tariff headwinds will be challenging to navigate, but we are glad the company is more on offense now than it has been in previous downturns.

BSD Analysis:
Longleaf Partners maintains a bullish view on FedEx despite macro headwinds from tariff threats and weak US demand. The fund highlights significant operational improvements in the European Express business, with market share gains and margin expansion driving strong cash flow growth. The planned separation into Express and Freight entities represents a key catalyst for value creation through improved operational focus and accountability. Management's more aggressive strategic approach during this downturn contrasts favorably with previous cycles. The fund believes FedEx Freight operations are significantly undervalued by the market relative to peers. The Express business trades at an unjustified discount to UPS despite operational improvements. FedEx's enhanced operational efficiency and strategic repositioning should drive margin expansion and cash flow growth. Longleaf sees the current valuation as attractive given the company's improved competitive position and upcoming corporate restructuring benefits.

Pitch Summary:
CNX Resources – Natural gas company CNX Resources was a detractor for the quarter. While CNX was one of our stronger performers in 2024, it started the year with a disappointing outcome regarding government incentives for its coal mine methane gas capture program. The incentives were below our unrisked upside case that could have helped our value by $10-20/share+. While this was a disappointing few dollars per share hit to our risked value, the silver lining is that both we and CNX were able to buy more shares at a price that, in our view, does not fully appreciate all the other good things going on at the company. CNX remains focused on what is within its control, leveraging its low-cost structure and disciplined hedging strategy to generate FCF in a variety of price environments.

BSD Analysis:
Longleaf Partners maintains conviction in CNX Resources despite disappointment over reduced government incentives for coal mine methane capture programs. The fund views the incentive shortfall as a temporary setback that created attractive buying opportunities for both the company and investors. CNX's low-cost operational structure provides competitive advantages in various natural gas price environments. The company's disciplined hedging strategy helps generate consistent free cash flow regardless of commodity price volatility. Management's focus on controllable factors rather than external variables demonstrates operational discipline. The fund believes the market undervalues CNX's operational excellence and financial flexibility beyond the methane capture opportunity. Recent share purchases at attractive prices reflect confidence in the underlying business fundamentals. Longleaf sees significant value in CNX's Appalachian Basin assets and efficient capital allocation approach. The position benefits from both operational improvements and potential upside from future regulatory or commodity price developments.

Pitch Summary:
Bio-Rad – Life sciences company Bio-Rad detracted for the quarter. The company remains a stable business with growth potential. The quarter was a story of two halves. Early on, industry trends showed improvement after a period of normalization post-Covid, prompting us to trim on the back of price appreciation. However, later in the quarter, news of government funding cuts and a disappointing quarter of results weighed on the stock price. Despite this, we remain optimistic about Bio-Rad's outlook. Academic and government spending in the US accounts for only a low-single-digit percentage of this company's revenue, even though public perception suggests otherwise. Meanwhile, the company has a net cash balance sheet, a large hidden asset in its Sartorius stake and a proven history of smart capital allocation.

BSD Analysis:
Longleaf Partners maintains a bullish long-term view on Bio-Rad despite short-term headwinds from government funding concerns and disappointing quarterly results. The fund emphasizes that academic and government spending represents only a small percentage of revenue, contrary to market perception. Bio-Rad's strong balance sheet with net cash provides financial flexibility and downside protection. The company's significant stake in Sartorius represents a substantial hidden asset not fully reflected in the stock price. Management's proven track record of intelligent capital allocation supports the investment thesis. The fund views recent weakness as temporary, driven by misunderstood revenue exposure and cyclical factors. Bio-Rad's diversified life sciences platform provides multiple growth avenues beyond government-dependent segments. Longleaf sees the current valuation as attractive given the company's stable business model, strong balance sheet, and hidden asset value. The position reflects confidence in the long-term growth potential of life sciences tools and services.

Pitch Summary:
RTX – Aerospace and defense company RTX was a contributor this quarter. We purchased RTX at a significant discount in 2023 when concerns over Pratt & Whitney's Geared Turbofan (GTF) issues reached what turned out to be a point of max pessimism. We also were able to partner with great leaders in Greg Hayes & Chris Calio, who took advantage of this opportunity to repurchase a material amount of stock while improving operations. Just last quarter, we wrote how strong industry tailwinds, prudent capital allocation and a solid balance sheet provide a foundation for sustained growth and eventual full value recognition. That thesis played out this quarter, as the stock price traded through our value, and we exited our position at a gain.

BSD Analysis:
Longleaf Partners executed a successful contrarian investment in RTX, purchasing at maximum pessimism during the Pratt & Whitney GTF engine issues in 2023. The fund partnered with strong management leadership in Greg Hayes and Chris Calio, who demonstrated excellent capital allocation through aggressive share repurchases during the crisis. The investment thesis centered on strong aerospace industry tailwinds, prudent capital allocation, and a solid balance sheet supporting long-term growth. Management's operational improvements and strategic share buybacks during the downturn created significant value for shareholders. The fund's patience was rewarded as the stock price reached their intrinsic value estimate, prompting a profitable exit. This represents a classic value investing success story of buying quality assets during temporary distress. The position demonstrates Longleaf's ability to identify and capitalize on market overreactions to operational challenges. The successful exit validates their contrarian approach and disciplined valuation framework.

Pitch Summary:
Mattel – Global toy and media company Mattel contributed for the quarter, reporting solid results for the all-important 4Q, with 2% revenue growth and 6% growth in earnings before interest, taxes, depreciation and amortization (EBITDA). We were also pleased to see management repurchase a material amount of shares at great prices and commit to repurchasing at a high-single-digit percentage of shares outstanding in 2025 if the share price remains attractive. Mattel provided a relatively straightforward and growing outlook for 2025, even taking into account tariff risk at the time. Although conditions have deteriorated since then, CEO Ynon Kreiz's foresight in diversifying the company's supply chain years ago will pay dividends. The market continues to price in little future growth for the existing business or further success in media and gaming.

BSD Analysis:
Longleaf Partners views Mattel as an undervalued toy and media company with strong operational momentum and disciplined capital allocation. The fund highlights solid Q4 performance with revenue growth and margin expansion, demonstrating the company's resilience. Management's aggressive share repurchase program at attractive valuations signals confidence in the business outlook. CEO Ynon Kreiz's proactive supply chain diversification provides competitive advantages amid tariff uncertainties. The fund believes the market undervalues Mattel's growth potential in both traditional toy operations and expanding media/gaming initiatives. The company's commitment to returning capital through buybacks while maintaining growth investments reflects balanced capital allocation. Longleaf sees significant upside as the market recognizes the transformation beyond traditional toy manufacturing. The position benefits from both operational improvements and multiple expansion potential as growth initiatives gain traction.

Pitch Summary:
IAC – Digital holding company IAC was another solid contributor for the quarter. In January, the company announced that former CEO Joey Levin would be shifting his focus to become Executive Chairman at IAC portfolio business Angi. Barry Diller is taking on a larger role at IAC while continuing to be its Chairman. Initially, the market reacted cautiously, but as the quarter went on, the potential benefits became clearer, especially in conjunction with the recently completed spin-off of Angi. During the quarter, we published our first Research Perspectives note that provides more details on our investment case for IAC.

BSD Analysis:
Longleaf Partners maintains a bullish stance on IAC following management changes and the Angi spin-off completion. The fund views the leadership transition, with Joey Levin focusing on Angi and Barry Diller taking a larger operational role, as strategically beneficial for value creation. The market's initial cautious reaction provided an attractive entry point as the benefits of the restructuring became apparent. The Angi spin-off represents a key catalyst for unlocking value within the digital holding company structure. Longleaf has sufficient conviction in the investment to publish detailed research on their thesis. The position reflects their confidence in management's ability to optimize the portfolio of digital assets. IAC's diversified digital platform provides multiple avenues for growth and value realization. The fund sees significant upside potential as the market recognizes the benefits of the recent corporate actions.

Pitch Summary:
Albertsons – US grocery retailer Albertsons was a contributor for the quarter. Albertsons was a new purchase in 2024, after we had followed the company and its predecessors for years. In an otherwise turbulent quarter, Albertsons stands out as a stable business that remains undervalued because it had fallen off the radar during a protracted deal process with Kroger that ultimately failed. The company should grow at a moderate pace and has plenty of financial firepower to repurchase shares, all while it has multiple strategic options (such as unlocking its real estate value and/or selling non-core markets) to realize value per share.

BSD Analysis:
Longleaf Partners views Albertsons as an undervalued grocery retailer that has been overlooked following the failed Kroger merger. The fund emphasizes the company's stability in volatile markets and its strong financial position with significant cash generation capabilities. Management highlights multiple value creation levers including share repurchases, real estate monetization, and potential divestiture of non-core markets. The investment thesis centers on moderate organic growth combined with disciplined capital allocation. The fund believes the market has not fully recognized the company's intrinsic value following the merger uncertainty. Albertsons represents a defensive play with multiple paths to value realization through both operational improvements and strategic alternatives. The position reflects Longleaf's preference for stable, cash-generative businesses trading at attractive valuations.

Pitch Summary:
Park Hotels – Hotel owner and operator Park Hotels was a detractor for the quarter. As a stock that is sensitive to the macroeconomic environment, it traded lower as travel demand slowed even though the company reported solid results with 3%+ revenue per available room (RevPAR) growth. Park remains in a much better financial position than in recent years and will soon see debt related to former assets in San Francisco come off the books. The other positive is that we are finally beginning to see an uptick in hotel transaction activity, and we believe Park could be a compelling target.

Pitch Summary:
CNX Resources – Natural gas company CNX Resources was a detractor for the quarter. While CNX was one of our stronger performers in 2024, the company started the year with a disappointing outcome regarding government incentives for its coal mine methane gas capture program. The incentives were below our unrisked upside case that could have helped our value by $10-20+/share. While this was a disappointing few dollars per share hit to our risked value, the silver lining to the market's overreaction to this news is that both we and CNX were able to buy more shares at a price that, in our view, does not fully appreciate all the other good things going on at the company. CNX remains focused on what is within its control, leveraging its low-cost structure and disciplined hedging strategy to generate free cash flow (FCF) in a variety of price environments.

BSD Analysis:
The manager maintains strong conviction in CNX Resources despite recent disappointment regarding government incentives for the coal mine methane gas capture program. While the reduced incentives represented a $10-20+ per share hit to the unrisked upside case, the manager views the market's reaction as excessive relative to the actual impact on risked valuation. This market overreaction created an attractive buying opportunity, with both the fund and company management adding shares at depressed prices. The manager emphasizes CNX's strong operational fundamentals, including a low-cost structure that provides competitive advantages in the natural gas sector. The company's disciplined hedging strategy demonstrates prudent risk management and helps ensure consistent free cash flow generation across various commodity price environments. CNX's focus on controllable factors rather than external variables like government policy shows management discipline and operational excellence. The combination of strong 2024 performance, attractive valuation following the recent selloff, and solid operational execution makes CNX an compelling energy holding. The company's ability to generate free cash flow in multiple price scenarios provides downside protection while maintaining upside potential.

Pitch Summary:
Boston Beer Company – US beverage company Boston Beer detracted in the quarter. The stock price has been under pressure due to macro concerns around declining alcohol consumption trends, combined with concerns on the Truly brand's continued declines and overall company margins. Both we and the company believe these headwinds can be overcome, and the company has multiple drivers to grow in the next twelve months. Management is taking action to increase value per share in the meantime by being one of our larger share repurchasers in the portfolio currently. Expectations for growth have been reset to a flattish level, and from this lower base, we remain optimistic in the long-term opportunity.

BSD Analysis:
Despite recent underperformance, the manager maintains a bullish long-term view on Boston Beer Company, viewing current challenges as temporary headwinds rather than structural problems. The fund acknowledges legitimate near-term concerns including declining alcohol consumption trends and weakness in the Truly hard seltzer brand, which have pressured margins and stock performance. However, the manager expresses confidence that both the fund and company management believe these issues can be overcome through operational improvements and strategic initiatives. A key positive catalyst is management's aggressive share repurchase program, making Boston Beer one of the portfolio's largest share buyers, which should drive value per share accretion. The reset of growth expectations to flat levels provides a lower base from which the company can potentially exceed expectations going forward. The manager identifies multiple growth drivers expected to materialize over the next twelve months, though specific details aren't provided. The combination of depressed valuation, active capital allocation, and potential operational turnaround creates an attractive risk-reward opportunity for patient investors.

Pitch Summary:
PotlatchDeltic – Timberland and mill company PotlatchDeltic was a contributor for the quarter. The company performed fine in the quarter even though housing demand remains below trend. We slightly trimmed our position as the company was viewed as a potential tariff winner. While not the most exciting company, PotlatchDeltic remains an undervalued, reliable dividend payer with a disciplined management team.

BSD Analysis:
The manager maintains a cautiously bullish view on PotlatchDeltic, recognizing it as an undervalued timberland and mill operator with attractive defensive characteristics. Despite challenging housing market conditions with demand below trend levels, the company demonstrated resilience and delivered solid quarterly performance. The fund's decision to trim the position reflects tactical portfolio management as the stock gained recognition as a potential tariff beneficiary, suggesting the manager is taking profits at higher valuations. PotlatchDeltic's appeal lies in its reliable dividend payments and disciplined management team, providing steady income generation for the portfolio. The company's timberland assets offer inflation protection and long-term value appreciation potential, while the mill operations provide current cash flow generation. Although the manager acknowledges it's not the most exciting investment, the combination of undervaluation, dividend reliability, and quality management makes it a solid portfolio holding. The tariff tailwinds could provide additional upside as trade policies potentially benefit domestic timber and lumber producers.