Berkshire Hathaway operating profit doubles in Q3 – The Motley Fool

Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B) reported operating income doubled to $ 6.88 billion in the third quarter from $ 3.44 billion for the same period last year. Berkshire has had the benefit of closing a sad quarter of 2017, during which its insurance companies have suffered heavy losses as a result of catastrophic weather events.

Here's how the quarter staged one by one for Berkshire's largest operating companies.

Berkshire's handbag posts $ 2.1 billion

The largest companies in terms of profits are classified as "manufacturing, services and retail" activities. In this category, some giants are responsible for most of its profits.

Industrial activities, such as Precision Castparts, Lubrizol, IMC and Marmon, generated pre-tax income of approximately $ 1.3 billion, about half of the $ 2.68 billion generated by all segment operations. MSR. The four companies' sales grew at a healthy single-digit rate and IMC led the pack with an 11.7% year-over-year increase.

Data Source: Berkshire Hathaway Quarterly Report.

Berkshire explained in its quarterly report that the pre-tax earnings of the consumer products group were negatively impacted by a 24% decline in profits for the recreational vehicle manufacturer Forest River. The profits from its clothing and footwear business increased 5%, while those from Duracell grew 8%, partially offsetting the decline at Forest River.

The insurance realizes a profit of 1.68 billion dollars

The Berkshire insurance companies were almost certain to have a better third quarter in 2018 than last year, when three major hurricanes and an earthquake erased $ 3 billion of pre-tax profit of its insurance companies.

Importantly, the insurance group generated a profit from the subscription and investment income. Its insurers earned $ 441 million in combined technical income, up from a loss of $ 1.44 billion on the same basis last year. Investment income of $ 1.23 billion exceeded the $ 1.04 billion generated by last year's investments, mainly due to higher short-term interest rates.

Geico had a great third quarter. The company earned $ 627 million before interest and taxes, which is significantly better than its $ 416 million loss on the same basis for the same period last year. Insurance losses were the main factor as its combined ratio fell to 92.6% from 105.5% in the same period last year. When the sun shines, Berkshire insurers earn money.

BNSF earns $ 1.39 billion

Profits on the Berkshire Railway rose in the third quarter, largely due to lower tax rates. Before taxes, profits increased by about 9.9% compared to the same period of the previous year. Net income increased by almost 34%.

The railway has benefited from a significant increase in its volume, with coal being the only product for which the volume has decreased from one year to the next.

Data Source: Berkshire Hathaway Quarterly Report.

In general, railways tend to earn more when commodity prices rise, and BNSF is no exception. Railways benefit not only from the shipping materials needed to transport oil and gas on the ground, but also from the increased demand for cars to transport energy products produced in the country. Rising natural gas prices generally raise coal demand because they are used interchangeably in some plants.

A profit of $ 1.09 billion in power

The Berkshire Hathaway utility and energy sector holds one of the largest regulated utility businesses in the United States and around the world. Third quarter net income increased 14.6% over the same period last year, mainly due to the tax credits it receives for renewables.

The wind power tax credits helped the energy unit record a negative tax rate in the third quarter. Before tax, the unit earned $ 1.17 billion, down 6.2% from $ 1.24 billion the year before.

For Berkshire, the power plants are an asset almost similar to a bond, generating recurring revenues from the sale of electricity on regulated markets. Over time, what matters most to investors is the size this unit can become, as it is one of the few places where Berkshire can invest billions of dollars and generate attractive returns.

Berkshire cash on hand stands at $ 103.6 billion

Berkshire put money into work this quarter, deploying about $ 14.4 billion in its public equity portfolio, based on increased investments at cost. His quarterly filing also reveals that Buffett used a relaxed buyback program to spend about $ 928 million in stocks from Aug. 7-24. In total, cash on hand decreased by approximately $ 7.5 billion compared to the sequential quarter.

Investors should not count on a buyout boom yet. On an equivalent basis, the number of shares outstanding decreased by approximately 0.2% in one quarter. For better or for worse, $ 1 billion buybacks make little difference to Berkshire.