More Praise for The Warren Buffett Way, First Edition

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Great investment opportunities come around when excellent
companies are surrounded by unusual circumstances that cause
the stock to be misappraised.
10
W
ARREN
B
UFFETT
, 1988

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C A S E I N P O I N T
L
A R S O N
- J
U H L
, 2 0 0 1
Late in 2001, Warren Buffett made a handshake deal to buy
Larson-Juhl, wholesale supplier of custom picture-framing
materials, for $223 million in cash. It was Buffett’s favorite
scenario: a solid company, with good economics, strong man-
agement, and an excellent reputation in its industry, but expe-
riencing a short-term slump that created an attractive price.
The business was owned 100 percent by Craig Ponzio, a
talented designer with an equal talent for business. While in
college, he worked for one of the manufacturing facilities of
Larson Picture Frame, then ended up buying the company in
1981. Seven years later, he bought competitor Juhl-Pacif ic, cre-
ating the company now known as Larson-Juhl. When Ponzio
bought Larson in 1981, its annual sales were $3 million; in
2001, Larson-Juhl’s sales were more than $300 million.
That is the kind of performance that Buffett admires.
He also admires the company’s operating structure. Larson-
Juhl manufactures and sells the materials that custom framing
shops use: fancy moldings for frames, matboard, glass, and as-
sorted hardware. The local shops display samples of all the
frame moldings available, but keep almost none of it in inven-
tory. When a customer picks out a frame style, the shop must
order the molding stock. And this is where Larson-Juhl shines.
Through its network of twenty-three manufacturing and dis-
tribution facilities scattered across the United States, it is able
to f ill orders in record time. In the great majority of cases—in-
dustry analysts say as much as 95 percent of the time—materi-
als are received the next day.
With that extraordinary level of service, very few shops are
going to change suppliers, even if the prices are higher. And
that gives Larson-Juhl what Buffett calls a moat—a clear and
sustainable edge over competitors.

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Further 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 finishes 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 fiscal 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
1999. Knowing Buffett’s general approach to calculating value,
we can make a good guess at his financial 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