Biglari Holdings Inc. (BH-A) is a diversified holding company with a unique business model that spans various industries, including restaurants, insurance, oil and gas, and brand licensing. Founded in 1934 and led by Chairman and CEO Sardar Biglari, the company has evolved over the decades, leveraging a decentralized management approach and Biglari’s strategic vision to build a portfolio of subsidiaries and investments.
Business Overview and History Biglari Holdings’ origins trace back to 1934 when it was founded as a holding company in San Antonio, Texas. The company initially owned subsidiaries engaged in various business activities. In 2008, Sardar Biglari took control of the company and implemented a decentralized management approach, with operating decisions made by subsidiary managers and major investment and capital allocation decisions made by Biglari himself. This shift in strategy helped the company navigate the challenging economic environment during the Great Recession.
One of Biglari’s major acquisitions was the purchase of Steak n Shake, a struggling restaurant chain, in 2008. Under Biglari’s leadership, Steak n Shake was able to turn around its operations and become a key contributor to the company’s overall performance. In 2013, Biglari also acquired Western Sizzlin, another restaurant chain, further expanding the company’s presence in the food service industry.
Biglari Holdings has also made strategic investments in the insurance and oil and gas sectors. The company acquired First Guard Insurance Company, a commercial truck insurer, in 2010 and Southern Pioneer Property & Casualty Insurance Company in 2014, diversifying its revenue streams. In the oil and gas business, Biglari acquired Abraxas Petroleum Corporation in 2016, providing exposure to the energy market.
Under Biglari’s leadership, the company has evolved into a diversified holding company with a portfolio that includes Steak ‘n Shake, Western Sizzlin (a steakhouse chain), First Guard (a commercial truck insurance provider), Southern Pioneer (a property and casualty insurer), Abraxas Petroleum (an oil and gas exploration and production company), and Maxim (a men’s lifestyle magazine and media brand).
Biglari Holdings’ unique management approach emphasizes decentralized operations, with each subsidiary operating autonomously under the guidance of its own management team. At the same time, Sardar Biglari maintains a centralized role in strategic decision-making and capital allocation, leveraging his extensive experience and investment acumen to guide the overall direction of the company.
Financial Performance and Ratios Over the past few years, Biglari Holdings has faced a mix of challenges and opportunities across its diverse business segments. In the latest fiscal year ended December 31, 2023, the company reported total revenue of $365.32 million and a net income of $54.95 million, translating to an earnings per share of $189.50. The company’s operating cash flow for the fiscal year 2023 was $73.00 million, with a free cash flow of $49.60 million.
For the most recent quarter (Q3 2024), Biglari Holdings reported revenue of $90.41 million, representing a slight increase of 0.5% from $90.94 million in Q3 2023. However, net income for Q3 2024 decreased by 43.2% to $32.13 million, compared to $56.51 million in the same quarter of the previous year. This decrease in net income was primarily attributed to lower investment gains during the quarter. The company’s operating cash flow for Q3 2024 was $10.76 million, with a free cash flow of $3.69 million.
The company’s financial ratios paint a nuanced picture of its performance. As of September 30, 2024, Biglari Holdings had a current ratio of 1.47 and a quick ratio of 1.44, indicating a solid liquidity position. The debt-to-equity ratio stood at 0.015, suggesting a conservative capital structure. The company’s return on assets (ROA) and return on equity (ROE) stood at 5.91% and 8.57%, respectively, as of the same date.
Segment Performance and Diversification Biglari Holdings’ diversified business model is both a strength and a challenge. The company operates through several diverse business segments, including restaurants, insurance, oil and gas, and brand licensing.
Restaurants As of September 30, 2024, Biglari Holdings had 468 total restaurant locations, including 143 company-operated Steak n Shake stores, 177 Steak n Shake franchise partner locations, 116 Steak n Shake traditional franchise locations, and 32 Western Sizzlin locations.
During the third quarter of 2024, restaurant operations generated $62.38 million in total revenue, an increase of 0.79% compared to the prior year period. This growth was driven by a 1.18% increase in Steak n Shake’s same-store sales. Franchise partner fees, which include rental income, were $17.16 million, down slightly from $17.62 million in the third quarter of 2023, primarily due to higher food and labor expenses at the franchise partner locations.
Restaurant cost of sales, including food, labor, and occupancy costs, improved to 58.03% of net sales in the third quarter of 2024, compared to 59.40% in the prior year period. However, labor costs as a percentage of net sales increased to 33.20% from 31.10% due to higher store-level manager headcount at Steak n Shake.
Selling, general, and administrative expenses for the restaurant segment decreased to $11.56 million in the third quarter, or 18.50% of total revenue, compared to $12.52 million, or 20.20% of revenue, in the same period of 2023. This improvement was primarily driven by lower general and administrative costs.
Insurance Biglari Holdings’ insurance operations, comprising First Guard Insurance Company and Southern Pioneer Property & Casualty Insurance Company, generated $18.25 million in revenue during the third quarter of 2024, up from $16.62 million in the prior year period. Underwriting gain increased slightly to $2.28 million, compared to $2.20 million in the third quarter of 2023, mainly due to higher premiums written and a favorable loss ratio at Southern Pioneer.
Investment income for the insurance operations was $816,000 in the third quarter of 2024, down slightly from $832,000 in the same quarter of 2023. The company considers investment income as part of the aggregate insurance operating results, while investment gains and losses are treated as non-operating.
Oil and Gas Biglari Holdings’ oil and gas segment, consisting of Abraxas Petroleum and Southern Oil, generated $9.57 million in revenue during the third quarter of 2024, down from $12.16 million in the prior year period. This decrease was largely due to lower natural gas prices and production volumes. Earnings before income taxes for the oil and gas segment were $712,000, down significantly from $18.95 million in the third quarter of 2023. The decline was driven by lower revenues and a smaller gain on the sale of oil and gas properties compared to the prior year.
Brand Licensing The brand licensing and media segment, which includes Maxim, reported $202,000 in revenue for the third quarter of 2024, down from $268,000 in the same period of 2023, due to fewer licensing events. Earnings before income taxes were $267,000, compared to $239,000 in the prior year quarter.
Risks and Challenges Biglari Holdings’ diversified business model exposes the company to a range of risks and challenges, including:
Regulatory Scrutiny: The company’s insurance and oil and gas operations are subject to extensive regulatory oversight, which can impact their operations and financial performance.
Market Volatility: The company’s investment partnerships and securities holdings are vulnerable to market fluctuations, which can significantly impact its overall financial results.
Brand and Reputational Risks: Maintaining the integrity and relevance of its brands, such as Steak ‘n Shake and Maxim, is crucial as consumer preferences and market conditions evolve.
Succession Planning: The long-term success of Biglari Holdings is closely tied to the leadership of Sardar Biglari, and the company must carefully plan for eventual leadership transitions.
Financials Biglari Holdings’ financial performance reflects the diverse nature of its business segments. The company’s total revenue of $365.32 million in the latest fiscal year demonstrates its ability to generate income across various industries. However, the fluctuations in operating cash flow and free cash flow highlight the need for careful financial management and strategic capital allocation.
Liquidity With a current ratio of 1.47 and a quick ratio of 1.44, Biglari Holdings maintains a solid liquidity position, indicating its ability to meet short-term obligations. The company’s conservative capital structure, as evidenced by its low debt-to-equity ratio of 0.015, provides financial flexibility and reduces exposure to interest rate risks.
As of September 30, 2024, Biglari Holdings had cash and cash equivalents of $29.89 million. The company also has access to a line of credit with an aggregate principal amount of up to $35 million, with a balance of $9 million as of the same date. This additional financial flexibility enhances the company’s ability to respond to potential opportunities or challenges across its diverse business segments.
Outlook and Conclusion Biglari Holdings’ diversified business model and Sardar Biglari’s strategic vision have allowed the company to navigate various industry challenges and capitalize on emerging opportunities. However, the company faces the ongoing task of optimizing its operational efficiency, managing regulatory and market risks, and adapting its brands and business models to changing consumer preferences and industry dynamics.
The company’s performance across its various segments demonstrates both strengths and challenges. The restaurant operations have shown resilience with modest growth in same-store sales, while the insurance segment has maintained steady performance. However, the oil and gas segment has faced headwinds due to market conditions, and the brand licensing segment continues to adapt to a changing media landscape.
Biglari Holdings’ financial position remains solid, with significant liquidity and a manageable debt structure. The company’s ability to generate positive cash flow across its diverse operations provides a foundation for future growth and investment opportunities.
As Biglari Holdings continues to evolve, its ability to leverage its decentralized management approach, make prudent capital allocation decisions, and strengthen the performance of its diverse subsidiaries will be critical in driving long-term shareholder value. Investors interested in Biglari Holdings should closely monitor the company’s financial and operational progress, as well as its ability to navigate the complex landscape of its diversified business portfolio.
The company’s primary focus on the United States market provides a degree of stability but also limits its exposure to international growth opportunities. As Biglari Holdings moves forward, balancing the performance of its established businesses with potential new ventures or acquisitions will be crucial to its long-term success and value creation for shareholders.
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