Berkshire Hathaway Inc. BRK.B reported second-quarter 2015 operating earnings of $1.58 per share that missed the Zacks Consensus Estimate by 26% and declined 9.7% year over year due to a decline in investment and derivative gains.
Revenues in the reported quarter came in at $44.5 billion, up 8.4% year over year. However, the result came in below the Zacks Consensus Estimate of $51.4 billion.
Segment Results
Berkshire Hathaway’s huge and consistently growing insurance operation has been maintaining its streak of underwriting profit for over 12 years. The operation also saw an increase in its float. Insurance Group revenues for the reported quarter increased 11.5% year over year to $10.4 billion, primarily led by a 25% increase in contribution from Berkshire Hathaway Primary Group as well as Berkshire Hathaway Reinsurance Group. The float generated by the company’s insurance segment has been customarily used by Warren Buffett to make investments. These investments are made in the form of equity as well as acquisitions, which in turn, made the company a conglomerate of over 80 big and small subsidiaries. However, the segment reported an operating loss of $48 million in the reported quarter compared to a gain of $637 million in the year ago quarter.
Railroad, Utilities and Energy operating revenues declined 0.08% year over year to $9.9 billion. Operating earnings of $2.2 billion increased 6.6% year over year primarily from the railroad business, which in turn, benefited from improved service levels and lower fuel and other operating expenses.
Total revenue at Manufacturing, Service and Retailing increased 12.7% year over year to $28.1 billion. Operating earnings increased 4.6% year over year to $2.0 billion due to the impact of business acquisitions and earnings growth in certain operations.
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 9.5% year over year to $1.8 billion. Operating earnings decreased 7.6% year over year to $6.1 billion.
Financial Position
Consolidated shareholders’ equity as of Jun 30, 2015 was $249.2 billion, thereby reflecting an increase of 2.5% since Dec 31, 2014. Consolidated cash approximated $66.6 billion at quarter end, up 5.2% from the Dec 31, 2014 level. With its huge cash hoard, we believe that Berkshire Hathaway will continue its acquisition spree. As of Jun 30, 2015, Berkshire Hathaway’s book value was $99.8 per share, up 2.4% since year-end 2014.
Business Update
On Aug 8, the company announced that it is in talks to buy Precision Castparts Corp. PCP, which makes equipment for the aerospace and energy industries. This deal, worth $30 billion, marks the biggest one by Berkshire Hathaway and will be financed by using half of the company’s cash holdings. As of Mar 31, the company owned 3.1% in Precision Castparts.
On Jul 1, 2015, Berkshire Hathaway acquired 262.9 million shares of newly issued common stock of The Kraft Heinz Company KHC for $5.26 billion.
Zacks Rank
Berkshire Hathaway carries a Zacks Rank #3 (Hold).
Performance of Another Industry Player
The Travelers Companies Inc. TRV posted operating earnings of $2.52 per share in the second quarter, which beat the Zacks Consensus Estimate by 18.9%. Earnings improved 31% year over year.
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