Berkshire’s Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) 3Q operating earnings declined 11% y/y, reflecting last year’s non-recurring gains in the Insurance unit, while non-insurance earnings generated strong y/y earnings growth. Linked-quarter book value growth of 4% to $74.48 per equivalent B share is driven partly by higher equity markets. Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) is well positioned to benefit from improving earnings in its non-insurance businesses as the  economy recovers and a robust balance sheet shows strong returns. Berkshire Hathaway will repurchase tens of billions of dollars of stock, if valuation the falls below 1.1x book value.

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Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) reported 3Q12 operating EPS of $1.37 per equivalent B share (below $1.50 outlook), driven by lumpy Insurance underwriting income, and a modest y/y decline in net investment income. Insurance underwriting income was lower than Barclays analysts expected at Berkshire Hathaway Re, largely driven by FX losses vs. a large year ago gain. Meanwhile, GEICO and GenRe’s earnings exceeded expectations.

Berkshire’s Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) non-insurance earnings in 3Q12 were above expectations, reflecting higher than forecasted Burlington Northern, MidAmerican, and Financial Products earnings, which were offset by slightly lower than expected earnings in Manufacturing, Service, and Retail. Burlington Northern’s earnings benefited from higher volumes, despite reduced demand for coal. Manufacturing, Service, and Retail pre-tax earnings were slightly below estimates, although pre-tax earnings growth was still strong at 21% up y/y (+5% y/y excluding the Lubrizol acquisition).

Linked-quarter book value grew +4% to $74.47 per B share, due in part to mark-to market investment gains. Book value could grow to $83 per B share by Fiscal Year end 2013. Berkshire now has $42 billion in cash as of 3Q12—well above its $20bn minimum requirement. Previously, Warren Buffett said Berkshire could pursue acquisitions funded by cash on hand, as large as $30bn, as of YE12.

Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) is a bellwether for the economy, since the conglomerate owns companies in various industries. Below we breakdown the results by segment.

Investments

Berkshire’s investment operations generated better-than-anticipated 3Q results. Reflecting strong equity market performance in 3Q12, pre-tax unrealized net investment gains were $5.0bn, above  a loss of $7.3bn a year ago. Total cash and investments in insurance and other operations rose 5%, to $175bn, from $167bn in the prior quarter. Cash and cash equivalents in insurance are $42bn, as of 3Q12 (versus Buffett’s internal minimum requirement of $20bn and up from $37bn at the end of 2Q12). Float from insurance operations available for investing is $72bn at the end of 3Q12, up from $71bn at 2Q12.

Energy and Utilites

The Utilities and Energy (MidAmerican) segment (excluding BNSF) results exceeded forecasts. Revenues increased +7% y/y to $3.1bn, and pre-tax income increased 12% y/y to $542mn. The PacifiCorp unit’s revenues and earnings benefited from rate increases and higher customer load in Utah, due to hot weather.

Insurance

The Insurance segment operating earnings were $1.1bn after-tax in 3Q12, down from $1.9bn a year ago. This decline largely reflects: 1) difficult comparisons related to FX ($118mn loss in current quarter vs a $434mn gain a year ago), and 2) a year-ago-time pre-tax gain of $875mn related to a reduction of liabilities for retroactive reinsurance contracts. The impact from catastrophe losses was $15mn in the most recent quarter, down from $235mn a year ago.

Finance

The Finance and Financial Products segment (mostly Clayton Homes) earnings increased 19% y/y. Revenues for this segment increased 1% y/y to $1bn. Revenues from home sales were unchanged y/y reflecting a 5% increase in units sold, offset by lower average selling prices. Clayton Homes continues to be negatively impacted by low demand for manufactured homes. That being said, Berkshire still expects to operate Clayton Homes profitably, even under existing market conditions. So far in 2012, volumes of manufactured homes sold were higher than in 2011.

Manufacturing, Service and Retail

The Manufacturing, Service, and Retailing segment results increased y/y in 3Q, and were mostly in line with forecasts. Revenue growth of 14% up y/y boosted to to $21bn.. Pre-tax earnings increased 21% year-over-year to $1.6bn  due largely to the acquisition of Lubrizol, with Other Manufacturing (includes Lubrizol), McLane, Marmon and Retailing showing y/y improvement. Marmon’s earnings increased y/y due to growth in higher margin segments that focus on niche markets. Pre-tax earnings from the Other Manufacturing unit, which includes Lubrizol, Cooper Tire & Rubber Company (NYSE:CTB), and IMC Metalworking, improved 41% y/y (+8% excluding the impact of Lubrizol). These increases are primarily attributed to increased earnings from the building products businesses, apparel, and Forest River, partially offset by lower earnings from ISCAR (metalworking), Cooper Tire & Rubber Company (NYSE:CTB), and Scott Fetzer. McLane’s increased 5% y/y. This positive change is encouraging, given lower gross margins and higher personnel and depreciation expenses experienced earlier in the year. Other service earnings declined 9% y/y, driven by a reduced contribution from NetJets.

Burlington Northern Santa Fe

The Burlington Northern (Railroad) operation results were higher than anticipated, partially due to volume increases across consumer products, industrial products, coal, and agricultural products. Revenue growth of 7% y/y to $5.3bn was driven by increased volumes and increased average revenue per car/unit. In 3Q12, average revenues per car/unit increased 2% and volumes of cars handled increased 5%. Pre-tax operating earnings in this operation rose 22% y/y to $1.5bn in 3Q12.

Discsloure: I have a long position in Berkshire Hathaway