The “Oracle of Omaha” Strikes Again
Berkshire Hathaway Inc. reported higher revenues on Friday as its manufacturing, utilities, and energy businesses outperformed expectations.
Despite having investing legend Warren Buffett at the helm, Berkshire saw its net income fall on lower investment returns. Some analysts have noted that the year-over-year decline was particularly sharp because Berkshire recorded outsize profits in the fall of 2015.
Advertisement
The company had just recouped $4.4 billion from its investment in Kraft Heinz Foods Co (NYSE:HNZ), which led to correspondingly higher net incomes in that quarter. (Source: “Berkshire Hathaway Reports Higher Revenue,” The Wall Street Journal, November 4, 2016.)
However, the conglomerate typically draws its income from subsidiaries that operate railroads, utilities, insurance companies, industrial manufacturing plants, constructions firms, branded-food sellers, or even auto dealerships.
Consequently, revenues for the quarter came in at $59.1 billion, up slightly from $58.99 billion in the same period last year. Operating income growth was similarly positive, moving from $4.55 billion to $4.85 billion year-to-year.
Berkshire Hathaway’s Class B shares fluctuated in the minutes after the results were announced, but the net result was nothing to write home about. By roughly 4 p.m. the shares had closed 0.45% down, a negligible move for a fast-moving stock like Berkshire.
Investors are still waiting for Berkshire to validate its enormous acquisition of Precision Castparts Corp. (NYSE:PCP), a maker of high quality aircraft parts. It has become a major earner for the conglomerate, but not big enough to divest the company away from its insurance arm.
Premiums from Berkshire’s insurance companies, known as the “float,” rose to $91.0 billion in the most recent period, keeping Buffett’s businesses cash rich. At 86 years of age, the “Oracle of Omaha” proved he can still outwit most of the market.
“Since the beginning of the year, Berkshire’s shareholders’ equity has increased $13.7 billion and our book value per Class A equivalent share has increased by 5.3% to $163,783,” read the third-quarter earnings release, citing a metric which shows the value of a company’s net assets relative to its share price. “Cash and cash equivalents at September 30, 2016 was $85 billion.” (Source: Ibid.)
