Berkshire Hathaway Inc. (BRK.A)(BRK.B) reported its first quarter 2012 operating earnings of $1.08 per share, lagging the Zacks Consensus Estimate of $1.35 per share. Reported operating earnings marked a significant increase from 64 cents per share reported in the year-ago quarter.
However, net income (a GAAP measure) which includes a number of one-time items, came in at $1.31 per share, significantly up from 61 cents per share earned in the year-ago quarter.
Total revenue grew 10.2% year over year to $38.1 billion, led by higher revenues across all its business segments.
Segment Results
The Insurance Group segment reported revenue of $9.1 billion, up 4.6% year over year. Revenues were boosted by an increase in net premium earned, partly offset by lower net investment income. The segment reported net insurance underwriting profit of $54 million, in sharp contrast to an underwriting loss of $821 million in the year-ago quarter, a period which was marked by significant catastrophe loss. The company's insurance investment income was down 17% year over year to $791 million, as a result of its investment in Goldman Sachs and General Electric being redeemed in 2011.
The Railroad, Utilities and Energy segment’s total revenue increased 6.5% year over year to $7.9 billion. Of the total segment’s revenue, approximately 63% came from Burlington Northern Santa Fe, the railroad company, which was acquired in February 2010. An increase in industrial and agricultural activity has automatically revived the demand for rail services and this translates into greater consumer demand for the segment. The trend is likely to continue in the coming years. Revenue from MidAmerican, which comprises other businesses of the segment, remained almost unchanged at $2.9 billion.
Total revenue of the Manufacturing, Service and Retailing segment climbed up 15.7% year over year to $19.2 billion, on the back of an increase in all the sub-businesses – Marmon, McLane Company, Other manufacturing and service and Retailing. Marmon’s revenue improved 7.1%, Mc Lane’s revenue increased 3.9% and other manufacturing, servicing and retailing, which includes a wide array of businesses, saw a 29% increase in revenue.
The Finance & Financial Products segment’s total revenue increased 5.0% year over year to $959 million. The increase was led by a 7% and 4% rise in revenue from the segment’s manufactured housing & finance and furniture /transportation equipment leasing businesses, respectively.
Omaha-based Berkshire continues to boost its balance sheet. Consolidated shareholders’ equity or net worth, as of March 31, 2012, was $180.3 billion, up 6.8% from December 31, 2011.
Book value, a measure of net worth, gained 6.6% year over year and was $71.1 per share, as of March 31, 2012.
Berkshire ended the quarter with $37.8 billion of cash, up from $37.3 billion at the end of December 31, 2011.
Recently, Buffett announced that he has been diagnosed with prostrate cancer. The news sparked speculation among investors regarding the company’s succession plan, which has been kept under wraps. Berkshire’s succession plan has been a cause of concern for its shareholders, as they believe that it is practically impossible for another individual to run the conglomerate as successfully as Buffett had done so far.
Berkshire is a conglomerate, which houses over 80 different businesses, along with equity investments in many companies. The company has seen its earnings fluctuate from one quarter to another due to heavy exposure to stock option derivatives. However, most of these gains/losses are unrealized.
Other than the derivatives related earnings fluctuation, we see that most of Berkshire’s businesses – Insurance, Railroad, Utilities and Energy, Manufacturing, Service and Retailing performed well. Its Finance and Financial products segment, which had suffered as a result of a soft housing market is also recovering gradually. Going forward, we expect the company to perform favorably.
We maintain our Outperform recommendation on the shares of Berkshire Hathaway. The stock retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
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