Berkshire Hathaway’s Operating Earnings Increase 18% in Second Quarter

After the market closed on August 5, Berkshire Hathaway reported its financial results for the second quarter of 2016.   

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Operating earnings (Warren Buffett’s preferred measure of profits) rose by 18% during the second quarter as compared to the corresponding period last year.  This represents a turnaround from the first quarter when operating profits declined by 12%.  This increase was helped out by an improved performance at Geico, where premiums written rose by 11% resulting from growth in new policies and rate increases.  There were also positive contributions in manufacturing from the additions of Precision Castparts and Duracell.  However, net earnings declined by 20% at Burlington Northern Santa Fe Railroad, as unit volume dropped by 7.5%.  Profits also declined by 4% at Berkshire Hathaway Energy.

Overall, net income rose by 25%.  However, this result which includes investment and derivative gains/losses, is largely ignored by Buffett “because the amounts of these in any given quarter or year are usually meaningless“.

 

Berkshire Hathaway decentralization

Chart via Larry Cunningham

Berkshire’s cash totaled $73 billion as of June 30, which included an $8 billion addition resulting from the redemption of the preferred shares of Kraft Heinz.  Since Buffett sets aside $20 billion in cash at all times, approximately $50 billion is available for one or more large acquisitions.

Berkshire’s book value rose to $160,000 on June 30.  At Berkshire’s closing price of 218,000 on August 5, its shares are now valued at 1.36 times book value.  Buffett has previously announced his intention to buy back shares when the price to book value drops below 1.2.



About the Author

Dr. David Kass
David I Kass Clinical Associate Professor, Department of Finance Ph.D., Harvard University Robert H. Smith School of Business 4412 Van Munching Hall University of Maryland College Park, MD 20742-1815 Phone: 301-405-9683 Email: dkass@rhsmith.umd.edu (link sends e-mail) Dr. David Kass has published articles in corporate finance, industrial organization, and health economics. He currently teaches Advanced Financial Management and Business Finance, and is the Faculty Champion for the Accelerated Finance Fellows. Prior to joining the faculty of the Smith School in 2004, he held senior positions with the Federal Government (Federal Trade Commission, General Accounting Office, Department of Defense, and the Bureau of Economic Analysis). Dr. Kass has recently appeared on Bloomberg TV, CNBC, PBS Nightly Business Report, Maryland Public Television, Business News Network TV (Canada), Fox TV, American Public Media's Marketplace Radio, and WYPR Radio (Baltimore), and has been quoted on numerous occasions by Bloomberg News and The Wall Street Journal, where he has primarily discussed Warren Buffett and Berkshire Hathaway. He has also launched a Smith School “Warren Buffett” blog. Dr. Kass has accompanied MBA students on trips to Omaha for private meetings with Warren Buffett, and Finance Fellows to Berkshire Hathaway’s annual meetings. He is an officer of the Harvard Business School Club of Washington, DC, and is a member of the investment and budget committees of a local nonprofit organization. Dr. Kass received a Smith School “Top 15% Teaching Award” for the 2009-2010 academic year.