Berkshire Hathaway Q4 Earnings Miss Estimates, Grow YoY

Berkshire Hathaway Inc. BRK.B reported fourth-quarter 2014 operating earnings of $1.61 per share, missing the Zacks Consensus Estimate of $1.80. Earnings, however, were up a good 53% year over year. While the bottom line miss can be traced back to a decline in investment and derivative gains, the year-over-year growth can be attributed to higher revenues.

Berkshire Hathaway's Revenues in the reported quarter came in at $45.5 billion, up 3.6% year over year.

For full-year 2014, earnings per share increased 8% year over year to $6.71. Total revenue of $194.7 billion was up 6.9% year over year. The increase was led by higher top lines from all the segments.

Berkshire Hathaway’s huge and growing insurance operation continued its streak of underwriting profit, 2014 being the twelfth successive year, and saw an increase in its float. Insurance Group revenues for the year increased 10.1% year over year to $45.6 billion, primarily led by a 30% increase in contribution from Berkshire Hathaway Primary Group. The company’s insurance segment, which is customarily used by Warren Buffett to make investments, is the biggest generator of float. These investments come in the form of equity as well as acquisitions and have made the company a conglomerate of over 80 big and small subsidiaries.

Railroad, Utilities and Energy operating revenues increased 17.5% year over year to $40.8 billion. Of the total segment revenue, more than half came from Burlington Northern Santa Fe, the railroad company, which was acquired in Feb 2010. Income from the segment before taxes increased 15.6% year over year to $8.9 billion, led by 50% higher operating earnings from Berkshire Hathaway Energy Company. If the U.S. economy continues to improve this year, Berkshire Hathaway expects earnings from this segment to increase further.

Total revenue at Manufacturing, Service and Retailing increased 4.5% year over year to $97.7 billion. Income from the segment before taxes increased 9.7% year over year to $6.8 billion led by higher contribution from manufacturing and service, and the retailing business.

Revenues from Berkshire Hathaway's Finance & Financial Products – including Clayton Homes (manufactured housing and finance), CORT Business Services (furniture rental), Marmon (rail car and other transportation equipment manufacturing, repair, and leasing) and XTRA (over-the-road trailer leasing) – increased 6.8% year over year to $6.5 billion.

Consolidated shareholders’ equity at Dec 31, 2014 was $243.0 billion, reflecting an increase of 8.3% since Dec 31, 2013. Consolidated cash approximated $63.3 billion at quarter end, up 31.2% from the Dec 31, 2013 level. With a huge cash hoard we believe that the company will continue its acquisition story. Last year, the company made 31 bolt-on acquisitions for an aggregate $7.8 billion.

At Dec 31, 2014, the company’s book value was up 8.3% since year-end 2013 to $97.5 per share.

In its annual report, Warren Buffett – Berkshire Hathaway's chairman and CEO – disclosed that his successor has finally been decided on and will be someone from within the company. Investors have long been in doubt as to how the company, which is growing by scale and size, will be managed by the new CEO.

Berkshire Hathaway carries a Zacks Rank # 3 (Hold). Other players such as Allied World Assurance Company Holdings, AG AWH, Endurance Specialty Holdings Ltd. ENH and Arch Capital Group Ltd. ACGL reported favorable fourth-quarter earnings, beating the respective Zacks Consensus Estimate by 109.7%, 9.4% and 8.5%. All these stocks also sport a Zacks Rank # 1(Strong Buy).