116 THE WARREN BUFFETT WAY
that have similar earnings but 10 percent corporate expenses; sharehold-
ers lose 9 percent in the value of their holdings simply because of corpo-
rate overhead.
The Pampered Chef
As mentioned, Doris Christopher founded her company with $3,000
borrowed against her family’s life insurance policy and she never took
on further debt. Today her company has over $700 million in sales.
Customers pay for products before delivery so the company is a cash-
positive business. Alan Luce, president of Luce & Associates in Orlando,
Florida, a direct selling consulting f irm, has estimated pretax prof it mar-
gins at above 25 percent.
Coca-Cola
In 1980, Coca-Cola’s pretax prof it margins were a low 12.9 percent.
Margins had been falling for f ive straight years and were substantially
below the company’s 1973 margins of 18 percent. In Goizueta’s f irst
year, pretax margins rose to 13.7 percent; by 1988, when Buffett bought
his Coca-Cola shares, margins had climbed to a record 19 percent.
The Washington Post Company
Six months after the Post Company went public in 1971, Katherine
Graham met with Wall Street security analysts. The f irst order of busi-
ness, she told them, was to maximize prof its from the company’s exist-
ing operations. Prof its continued to rise at the television stations and
Newsweek,but prof itability at the newspaper was leveling off. The pri-
mary reason, she said, was high production costs, namely wages.
After the Post purchased the Times-Herald,prof its at the company
had surged. Each time the unions struck the paper (1949, 1958, 1966,
1968, 1969), management had opted to pay their demands rather than
risk a shutdown. During this time, Washington, DC, was still a three-
newspaper town. Throughout the 1950s and 1960s, increasing wage costs
dampened prof its. This problem, Mrs. Graham told the analysts, was
going to be solved.
As union contracts began to expire in the 1970s, Mrs. Graham en-
listed labor negotiators who took a hard line with the unions. In 1974,