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March 31, 2015
Investment Style: Small- to Mid-Cap Value

Top Quarterly Contributors

Interval Leisure Group is a provider of non-traditional lodging, encompassing a portfolio of leisure businesses from exchange and vacation rental to vacation ownership. Interval’s stock rebounded after the company posted solid quarterly results and issued encouraging 2015 guidance. Revenue per member is rising again as the company anniversaries the four large contract re-pricings from early last year. Management also better articulated plans for its recent timeshare acquisition, raised the dividend and increased its share repurchase authorization.
Martin Marietta Materials is a producer of granite, limestone, sand, gravel and aggregates products for the construction industry. In February, management reported strong aggregates volume growth and price increases across each of its geographic markets and issued robust 2015 guidance. In addition, Martin increased its synergy target for the Texas Industries acquisition from $70 million to $100 million annually and announced a new share buyback plan. If the plan is completed it would represent approximately 30% of the company’s outstanding shares.
World Fuel Services is a fuel logistics, transaction management and payment processing company. The Company is engaged in the distribution of fuel and related products and services in the aviation, marine and land transportation industries. World Fuel’s stock has appreciated as investors anticipate the company will gain market share in the Marine business following the bankruptcy filing of its largest competitor. Additionally, recent fuel price volatility should create additional demand for higher margins services such as hedging strategies.

Top Quarterly Detractors

Cumulus Media is a radio broadcasting company. Cumulus reported lower than expected revenue and earnings, as political advertising revenues were weaker than the company’s expectation. Sales of non-core real estate appear to be taking longer to close than anticipated, though the company believes they remain on track. Furthermore, Cumulus declined to offer first quarter 2015 guidance, adding additional uncertainty to the mix.
Ascent Capital Group is a public holding company whose primary subsidiary, Monitronics International, Inc., provides security alarm monitoring and related services to residential and business subscribers in the United States and parts of Canada. Ascent’s Security Networks acquisition took focus away from evaluating potential bulk purchases of monitored security accounts, resulting in slow new account generation. This, combined with rising prices paid to Ascent’s network of affiliate dealers tempered account growth and led to slightly soggier results than anticipated.
Redwood Trust operates as a real estate investment trust. The Company, together with its subsidiaries, invests in mortgage- and other real estate-related assets and is engaged in residential and commercial mortgage banking activities. Redwood Trust’s fourth quarter earnings fell short of expectations due in part to lower commercial mortgage banking income and decreased valuations for mortgage servicing rights (MSR’s). The company’s 2015 volume expectations for jumbo residential, conforming residential and commercial lending point to increased earnings potential this year. In the meantime, Redwood pays a healthy dividend that yields more than 6% at the current stock price.

Top Fiscal Year Contributors

XO Group is a life stage media company. It serves its audience with information, products, and services during critical life stages: planning a wedding, sharing life as a couple for the first time, and planning for the birth of a first child. In early 2014 new management announced a period of heightened infrastructure investment. Since then, management has clearly articulated the company’s intended path and investors have shown confidence in their plan.
ADT Corporation is engaged in providing monitored security, interactive home and business automation and related monitoring services in the United States and Canada. After reporting disappointing earnings for the quarter ended December 31, 2013 (in January 2014) results have slowly but steadily improved as management’s actions to improve the quality of its new customers and lower overall costs have gained traction.
TransDigm Group is a designer, producer and supplier of engineered aircraft components for use on commercial and military aircraft in service. TransDigm enjoyed a strong year, capped by the acquisition of Telair Cargo Group from AAR Corp. The company’s core commercial aftermarket business generated healthy double-digit organic sales growth, fueling the cash flow engine that has proven to be a valuable shareholder wealth creator over time. The Telair deal looks tailor made for TransDigm, boasting a high percentage of proprietary, sole source aerospace components and systems with significant and reliable replacement demand.

Top Fiscal Year Detractors

Avon Products is a manufacturer and marketer of beauty and related products. Last year, investors became quite concerned by worse-than-expected results in the company’s North American business as well as missteps in Brazil, which is Avon’s top market. Later in the year Avon demonstrated some progress in its long turnaround, but worries over the transactional impact of the rapid rise of the U.S. dollar against the Brazilian Real and the Russian Ruble erased the positives from the operational improvement.
Cumulus Media In addition to the political advertising challenges, Cumulus has seen declining ratings in four of its larger markets as these stations undergo generational transitions in on air talent. Such transitions are inevitable and management has successfully handled such changes in the past. Additionally, as advertisers have flocked toward digital and online platforms, investors fear that radio will disproportionately lose wallet share. Overall listening hours, however, have remained stable and we believe radio will continue to be a cost effective advertising medium, particularly for local businesses.
Angie’s List operates a national local services consumer review service and marketplace. Angie’s List’s shares kept on a downward track for much of the 2014 as the lack of current earnings has increasingly tested investors’ resolve. Management has continued to invest in the acquisition of new consumer and corporate relationships. We continue to see a path to sustainably higher margins and positive reported earnings as a result.

New Positions This Quarter

No new positions were added in the first quarter of 2015.

Positions Eliminated This Quarter

No positions were eliminated in the first quarter of 2015.
As of 3/31/2015: Interval Leisure Group comprised 2.8% of the Weitz Hickory Fund's net assets; Martin Marietta Materials 3.5%; World Fuel Services 2.6%; Cumulus Media 0.7%; Ascent Capital Group 1.3%; Redwood Trust 3.1%; XO Group 2.9%, ADT Corporation 4.2%; TransDigm Group 3.2%; Avon Products 2.0%; Angie’s List 2.0%.
Investors should consider carefully the investment objectives, risks, and charges and expenses of the Fund before investing. The Fund's Prospectus contains this and other information about the Fund and should be read carefully before investing. Portfolio composition is subject to change at any time and references to specific securities, industries, and sectors referenced in this letter are not recommendations to purchase or sell any particular security. Current and future portfolio holdings are subject to risk.
Weitz Securities, Inc. is the distributor of the Weitz Funds.