10-QPeriod: Q3 FY2016

BERKSHIRE HATHAWAY INC Quarterly Report for Q3 Ended Sep 30, 2016

Filed November 4, 2016For Securities:BRK-BBRK-A

Summary

Berkshire Hathaway Inc.'s third quarter 2016 report shows continued strength, driven by significant growth in its manufacturing, service, and retailing segments, largely due to the acquisitions of Precision Castparts (PCC) and Duracell. While net earnings attributable to shareholders saw a decrease compared to the prior year's third quarter, this was primarily influenced by a substantial non-cash gain recognized in the third quarter of 2015 related to the Kraft Heinz investment, alongside significant investment and derivative gains in that period. Excluding these one-time items, the underlying operational performance remains robust. The company's insurance segment continues to be a core contributor, generating solid investment income and stable underwriting results, although it experienced lower underwriting gains year-over-year. The railroad, utilities, and energy segments demonstrated resilience, with the energy segment showing improved earnings. Berkshire Hathaway maintained a strong liquidity position, with substantial cash and cash equivalents, reinforcing its financial stability. Overall, the report indicates a company successfully integrating major acquisitions while continuing to generate significant operating earnings across its diverse portfolio. Investors can find comfort in the company's robust financial health, diversified revenue streams, and continued strategic investments.

Financial Highlights

27 data points
Beta

Revenue

$58.84B

Net Income

$7.20B

12.2% Net Margin

Total Assets

$604.04B

Cash & Equivalents

$29.27B

Free Cash Flow

$6.55B

Financial Statements
Beta
Revenue$58.84B
Operating Expenses$48.54B
Net Income$7.20B

Key Highlights

  • 1Net earnings attributable to Berkshire Hathaway shareholders for the third quarter of 2016 were $7.20 billion, a decrease from $9.43 billion in the third quarter of 2015, primarily due to lower investment and derivative gains compared to the prior year's period which included a significant non-cash gain from Kraft Heinz.
  • 2Revenues from the Manufacturing, Service, and Retailing segments increased significantly, driven by the acquisitions of Precision Castparts Corp. (PCC) and Duracell, contributing to a substantial rise in pre-tax earnings for these combined segments.
  • 3Insurance underwriting earnings saw a decline to $272 million from $414 million in the prior year's quarter, influenced by mixed results across GEICO, General Re, and the Reinsurance and Primary Groups.
  • 4The Railroad, Utilities, and Energy segments (BNSF and Berkshire Hathaway Energy) showed mixed performance, with BNSF revenues and earnings declining due to lower volumes, while Berkshire Hathaway Energy's earnings increased, benefiting from improved gross margins in its utility operations.
  • 5The company maintained a strong financial position with total shareholders' equity increasing to $272.6 billion as of September 30, 2016, and significant cash and cash equivalents of $84.8 billion across all segments.
  • 6Investment and derivative gains/losses contributed $2.35 billion to net earnings in the third quarter of 2016, down from $4.88 billion in the same period of 2015, highlighting the volatility of these income sources.
  • 7The company continues to deploy capital strategically, evidenced by the acquisition of PCC for approximately $32.7 billion in early 2016 and the redemption of its Kraft Heinz Preferred Stock for $8.32 billion in June 2016.

Frequently Asked Questions

The decrease in net earnings was primarily due to a significant drop in investment and derivative gains. The third quarter of 2015 included a large non-cash holding gain of approximately $6.8 billion related to the Kraft Heinz common stock investment and other substantial investment gains, which were not replicated in the same magnitude in the third quarter of 2016.

The acquisitions of PCC and Duracell significantly boosted the Manufacturing, Service, and Retailing segments. These acquisitions contributed to higher revenues and pre-tax earnings in these segments, offsetting some of the declines seen in other areas and demonstrating successful integration of these large businesses.

The insurance underwriting segment experienced lower earnings in Q3 2016 compared to Q3 2015, with mixed results across its sub-segments. However, investment income from the insurance segment remained strong. The company continues to emphasize capital strength and selective underwriting, suggesting a stable but potentially less growth-oriented outlook for the underwriting side, while investment income remains a consistent contributor.

No, the report indicates that there were no share repurchases under the company's common stock repurchase program during the first nine months of 2016. Repurchases are contingent on maintaining at least $20 billion in cash and cash equivalents and when shares trade at a discount to book value.