Berkshire Hathaway’s Operating Earnings Decline 11% During Second Quarter 2017

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After the market closed today, Berkshire Hathaway released its second quarter earnings report for 2017.  Its operating earnings declined by 11%  primarily as a result of a loss of $22 million in its insurance businesses as compared to a profit of $337 million during the second quarter of 2016.  In addition, there was a negative $407 million for corporate interest expense vs. a positive $32 million in the corresponding quarter last year. Berkshire’s earnings from its railroad, utilities, and energy businesses increased by 18% compared to last year.

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Net income, including investment and derivative gains and losses, declined by 15%.

As of June 30, 2017, Berkshire had $100 billion in cash and its book value, which increased by 6.2% since yearend 2016, equaled $182,816 per Class A equivalent share.  At its record closing price today of $270,000 per Class A share, Berkshire’s price to book value ratio equals 1.48, which is below its 30 year average of 1.58.  Warren Buffett has previously stated that he would buy back shares of Berkshire if the price to book value ratio dips below 1.2.

At today’s closing price of $270,000 per Class A share, Berkshire has a market capitalization of $444 billion, which is the sixth largest company behind only Apple ($815 billion), Alphabet (Google) ($655 billion), Microsoft ($561 billion), Facebook ($493 billion) and Amazon ($474 billion).

(Note:  After-tax corporate interest expense included foreign currency exchange rate losses in the second quarter and first six months of 2017 of $342 million and $399 million, respectively, with respect to the revaluation of the Euro denominated debt. In 2016, after-tax corporate interest included foreign currency exchange rate gains of $101 million in the second quarter and losses of $60 million in the first six months. Excluding these foreign currency gains and losses, after-tax corporate interest expense in the first six months of 2017 and 2016 was $131 million and $121 million, respectively. The increase was attributable to increased average outstanding borrowings.)

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