133Further strengthening that moat, Larson-Juhl is widely
known as the class act in molding. Frame shop operators order
molding material in one-foot increments, and then cut it to the
exact size needed for the customer’s project. If the molding
splits or does not cut cleanly, they cannot achieve the tight cor-
ners that they pride themselves on. Larson-Juhl molding, they
say, makes perfect corners every time. That reputation for
quality has made Larson-Juhl not only the largest but also the
most prestigious company in its industry.
Larson-Juhl sells thousands of framing styles and f inishes to
its more than 18,000 customers. The leading supplier in the
United States, it also operates thirty-three facilities in Europe,
Asia, and Australia.
In sum, Larson-Juhl has many of the qualities Buffett looks
for. The business is simple and understandable, and the com-
pany has a long and consistent history; one of the original com-
ponent companies dates back 100 years. It also has a predictable
future, with favorable long-term prospects. The ingredients of
custom framing—molding, glass, mats—are not likely to be
made obsolete by changes in technology, nor is customer de-
mand for special treatment of favorite art likely to disappear.
What piqued Buffett’s interest at this particular time, how-
ever, was the opportunity to acquire the company at an attrac-
tive price, triggered by a dip in prof itability that he believed
was temporary.
In f iscal 2001 (which ended in August), Larson-Juhl had
$314 million in net sales and $30.8 million in cash from opera-
tions. That was down somewhat from prior years: $361 million
sales and $39.1 million cash in 2000; $386 million in sales in
- Knowing Buffett’s general approach to calculating value,
we can make a good guess at his f inancial analysis of Larson-
Juhl. Using his standard 10 percent dividend discount rate, ad-
justed for a very reasonable 3 percent growth rate, the company
would have had a value of $440 million in 2001 ($30.8 million
(Continued)