Berkshire Hathaway’s Third-Quarter Operating Profit Falls 29% — The Motley Fool

Berkshire Hathaway‘s (NYSE:BRK-A)(NYSE:BRK-B) third-quarter working earnings declined to $three.44 billion, down from $four.85 billion within the year-ago interval, due primarily to giant insurance coverage underwriting losses from pure disasters. Third-quarter climate occasions had been significantly troublesome for Berkshire Hathaway Reinsurance, which posted a large $1.three billion pre-tax underwriting loss within the third quarter.

Here’s a glance into Berkshire’s third-quarter outcomes, section by section.

Insurance — $395 million internet loss

Hurricanes Harvey, Irma, Maria and an earthquake in Mexico exacted a excessive value from Berkshire Hathaway’s insurers. In all, the corporate reported that these 4 climate occasions generated $three billion of losses throughout its insurance coverage corporations.

The affect was widespread, as all however certainly one of its insurance coverage items posted an underwriting loss. In the third quarter of 2016, the scenario was reversed, as all however one insurer posted an underwriting revenue.

Insurer

Pre-tax underwriting revenue (loss)

GEICO

($416 million)

General Re

($504 million)

Berkshire Hathaway Reinsurance Group

($1.34 billion)

Berkshire Hathaway Primary Group

$52 million

Source: Berkshire Hathaway’s quarterly SEC submitting.

Berkshire Hathaway Reinsurance Group was the largest loser. An insurer for insurance coverage corporations, BH Reinsurance pays the worth for catastrophic climate and outsized insurance-industry losses. This quarter, BH Reinsurance reported a $927 million loss from property and casualty insurance policies. In all, the reinsurance firm incurred $1.45 billion of losses from the three hurricanes and earthquake in Mexico.

GEICO was additionally hit exhausting by Hurricanes Harvey and Irma, estimating it incurred losses of roughly $500 million — 6.6% of premiums earned — from the 2 storms. That stated, GEICO does have one factor to boast about: Its premium development has been nothing in need of outstanding. Earned premiums grew 16.5% yr over yr, to $7.5 billion, an unbelievable achievement given it is already the second-largest automobile insurer within the United States.

In whole, Berkshire Hathaway’s insurers posted a $1.four billion loss from underwriting through the third quarter, partially offset by roughly $1 billion in funding income, thus leading to a $395 million loss for the quarter. The occasional giant underwriting loss is solely the worth Berkshire pays for the rights to the funding income on its $113 billion of mixed insurance coverage float. It’s a value value paying, as in most years, Berkshire earns a revenue on its underwriting, which solely provides to the billions it earns from investing the float.

Photo of four rolled up dollar bills

Image supply: Getty Images.

Manufacturing, service, and retailing — $1.7 billion revenue

Berkshire’s badortment of badorted working companies from Precision Castparts to Dairy Queen do a lot of the heavy lifting in every earnings report, and is now Berkshire’s largest section when it comes to revenue. Berkshire’s industrial-products corporations are probably the most worthwhile, producing pre-tax income of $1.25 billion on $6.7 billion of income this quarter. Revenue for this group improved by $257 million, or about four% yr over yr, with Marmon and IMC producing the most important income will increase on a proportion foundation.

In providers, NetJets was named as a contributor to income development, as the corporate noticed greater plane gross sales and a 5% year-to-date improve in flight hours. Berkshire’s retailers skilled a mixed zero.6% income improve within the third quarter and a 22% improve in pre-tax income. Note that income within the retail section is usually pushed by Berkshire Hathaway Automotive, previously often called Van Tuyl, which made up 64% of retail income this quarter.

BNSF railroad hauls it in — $1 billion revenue

Berkshire’s BNSF railroad noticed its income and revenue rise within the third quarter. Revenue grew to $5.three billion within the third quarter, a 2.eight% enchancment from the year-ago interval. Net earnings rose to $1.04 billion, up solely modestly from the $1.02 billion BNSF earned within the third quarter of 2016.

Higher quantity and pricing drove income and revenue development. Notably, freight income from client merchandise jumped by 7.6% yr over yr, helped by a 7.four% improve in quantity and a smaller improve in pricing. Freight income from industrial merchandise rose four%, and income from coal jumped 5.9% within the third quarter. Agricultural income was the one clbad to indicate a income decline (9.four% drop), which Berkshire attributed to decrease grain exports.

Utilities and vitality — $963 million revenue

Operating underneath the Berkshire Hathaway Energy umbrella, the utility and vitality companies are probably the most reliable revenue mills. The bulk of income and revenue at Berkshire Hathaway Energy comes from regulated utility property, which get pleasure from secure demand and government-regulated costs that make sure the utility earns an affordable return on capital invested in energy crops.

Combined earnings earlier than curiosity and taxes at PacificCorp, MidAmerican Energy, and NV Energy, which personal regulated utility property and are the most important items of the utilities and vitality group, rose to $986 million through the third quarter, up three.6% from the year-ago interval. Net earnings from Berkshire Hathaway’s vitality portfolio tallied to $963 million this quarter, a three.three% enchancment yr over yr. 

Finance and monetary merchandise — $341 million revenue

The star right here is Berkshire Hathaway’s Clayton Homes, an organization that produces, sells, and funds manufactured houses. Clayton Homes’ income rose 20%, and pre-tax income elevated 5%, resulting from greater residence gross sales and a better mixture of site-built houses. (Site-built houses have decrease margins, as land is included within the gross sales value.)

Berkshire’s income from leasing transportation tools and furnishings, and its share of earnings from a industrial mortgage-servicing enterprise, declined within the third quarter. Berkshire famous that “industry railcar capacity available for lease exceeds demand,” explaining that it is seeing decrease lease charges for railcars. CORT Furniture’s decrease earnings had been solely partially offset from greater Berkadia earnings, the three way partnership with Leucadia National that providers industrial mortgages.

Berkshire money pile — $109 billion

Berkshire is flush with money, ending the quarter with $109 billion of money and money equivalents. Warren Buffett has stated that he is struggling to place the conglomerate’s extra money to work, as the corporate generates money quicker than he can spend it on new acquisitions.

With the money pile rising, many have speculated Berkshire could quickly embark on its greatest acquisition ever, or be compelled to start out repeatedly returning money to shareholders. At the annual shareholders badembly, Charlie Munger instructed he’d be snug with an acquisition as giant as $150 billion, partially financed by debt. Buffett laughed at Munger’s reply, suggesting he’d be snug with a smaller quantity, however the fact is that there are only a few companies Berkshire could not afford to purchase.


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