Berkshire Hathaway Third Quarter Earnings

Warren Buffett's Berkshire Hathaway (BRK.A) has reported lower than expected results for the second time in the row. However, Berkshire Hathaway results were boosted in the third quarter thanks to gains from Kraft-Heinz. The company also made a $1 billion acquisition that went unnoticed by the market in the third quarter. Warren Buffett's acquisition of Kraft-Heinz is beginning to pay off for Berkshire Hathaway's earnings. Also, Berkshire in the third quarter announced it would acquire Precision Castparts Corp. for $32 billion. Clearly Berkshire Hathaway had a very productive third quarter.

In the third quarter, Berkshire Hathaway saw their operating earnings decline 3.7% compared to the same quarter last year.
While operating earnings declined, book value increased by 0.9% from the previous quarter last year. The result is a 110% increase in net earnings. Even after Buffett's recent acquisition of non-insurance companies, insurance still makes up 80% of operating revenues.  The company earned $9.4 billion or $5,734 per A share and $3.84 per B share, thanks to a $5.5 billion gain in their investments. Berkshire's massive gains in investments were largely driven by a $4.4 billion gain in their holdings of Kraft. The company also saw their operating profits for their army of smaller companies fall by 4% to $4.55 billion from $4.7 billion the previous quarter last year.

The company quarterly results are notorious for being highly volatile. Nobody should be shocked by Berkshire's volatile quarterly results since they are driven by the company's larger equity portfolio and their insurance unit which by nature are volatile. The company's 12-figure equity portfolio is driven by the public market which sometime results in Berkshire reporting large paper losses. On the other hand, insurance has always been volatile and goes through cycles of profitability and  being unprofitable.

In the third quarter, Berkshire's insurance unit produced an underwriting profit of $414 million, compared to last years underwriting loss of $33 million, and the year before's underwriting profit of $629 million. One of Berkshire's great insurance purchases, GEICO, reported premium growth of 11.2%, compared to a year ago. The growth in premiums for GEICO was driven by a 6.1% growth in policies. However, like other national car insurance providers, GEICO reported higher claims which weighted on their underwriting profit.

Berkshire's other insurance units General Re, Berkshire Hathaway Reinsurance, and Berkshire Hathaway Primary all reported mixed results for the third quarter. The company's reinsurance unit saw lower underwriting profits thanks to higher losses in the third quarter. Berkshire's Primary insurance unit, like the other insurance units, reported underwriting profits for the quarter. However, on the other hand Berkshire's insurance companies earned $840 million from investments in the third quarter. During the third quarter, Berkshire saw their insurance float increase from $82.3 billion to $86.2 billion.

Berkshire's rail subsidiary BNSF produced net earning of $1.16 billion in the third quarter. This was an improvement from the same quarter of last year when it reported net earnings of $1.04 billion. However, lower oil and gas prices negatively affected volume, which grew by only 1% year to date. Even though lower oil and gas prices affected BNSF volumes negatively, its was offset by lower gas prices and an increase in agriculture car loads.

Berkshire's utility unit reported net earnings of $786 million, up from $697 million the previous quarter last year. The company's utility unit continues to be a great investment for Berkshire Hathaway. In the third quarter, Berkshire invested $8.3 billion in its utility, rail, and energy units, with $3.3 billion in additional capital for the remainder of the year.

Warren Buffett continues to add to Berkshire Hathaway's businesses with a recent $32 billion acquisition. However, Buffett's equity portfolio has recently taken a hit. Multiple positions in Berkshire's portfolio including American Express,  Walmart, and IBM have been under performing. IBM has been one of the worse performers in Berkshire Hathaway portfolio with a $2 billion paper loss currently. Over the long-term, Berkshire's portfolio will rise in value and in the short-term, Buffett will add to under performing position.
Published on Nov 18, 2015
By Cody Eustice
Cody is a freelance writer who has been writing financial articles for various sites for over a year now. He is a value investor looking for companies that sell for far less than their estimated business value.

Copyrighted 2016. Content published with author's permission.

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