Berkshire Hathaway Inc.
) reported its fourth quarter 2011 operating earnings of $1.08 per
share, which marks a year-over-year decline of 11%. The
underwriting losses suffered by the company's Insurance business,
on account of the catastrophes, resulted in the decline in
However, the results were aided by strong performance from other
business units - BNSF, Iscar, Lubrizol, Marmon Group and
However, on a GAAP basis, net income came in at $4.14 per share,
down 22% year over year. The drop in net income was due to a
decline in investment and derivative related gains.
Total revenue grew 5.5% year over year to $143.7 billion,
primarily led by higher, premium earned, sales and service
revenues, railroad utilities and energy businesses, partly offset
by investment and derivative related loss of $830 million compared
with a gain of $2.3 billion last year.
segment reported revenue of $110.7 billion, up 5.1% year over year.
Revenues were boosted by an increase of 4.6% in net premium earned,
partly offset by lower net investment income.
The segment reported net insurance underwriting profit of $154
million, down eight times from $1.3 billion last year, due to huge
underwriting losses from Berkshire Hathaway Reinsurance Group,
which suffered from significant catastrophe losses. The company's
insurance investment income was down 8% year over year to $3.6
billion as a result of the drop in the value of the company's
Railroad, Utilities and Energy
segment's total revenue increased 9.2% year over year to $30.8
billion. Of the total segment's revenue, approximately 60% came
from Burlington Northern Santa Fe, the railroad company, which was
acquired in February 2010. An increase in industrial and
agricultural activity has automatically revived the demand for rail
services and this translates into greater consumer demand for the
The trend is likely to continue in the coming years. Revenue
from MidAmerican, which comprises other businesses of the segment,
remained almost unchanged at $11.3 billion.
Total revenue of the
Manufacturing, Service and Retailing
segment climbed up 8.7% year over year to $742.4 billion, on the
back of an increase in all the sub-businesses. Marmon's revenue
improved 16%, McLane's revenue increased 1.8% and other
manufacturing, servicing and retailing, which includes a wide array
of businesses, saw a 15% increase in revenue.
Finance & Financial Products
segment's total revenue declined 6% year over year to $4.0 billion.
The decline was the result of a 10% drop in revenue from the
manufactured housing business, Clayton Homes, which continues to be
adversely affected by the soft housing market and the surplus of
traditional single-family homes for sale. However, the drop was
partly mitigated by a 13% increase in revenues from the
furniture/transportation equipment leasing segment.
Omaha-based Berkshire continues to grow its balance sheet.
Consolidated shareholders' equity or net worth, as of December 31,
2011, was $164.8 billion, up 4.6% from December 31, 2010.
Book value, a measure of assets minus liabilities, gained 4.6%
year over year and was $66.6 per share, as of December 31,
Berkshire ended the quarter with $37.3 billion of cash in hand,
up from $34.8 billion at the end of September 30, 2011. During the
quarter, Berkshire made a small ticket buy, Omaha World-Herald,
publishers of daily and Sunday newspapers.
Given the significant amount of cash generated by the company
consistently over the quarters, Warren Buffett announced his
intention of further acquisitions. These will benefit the company
when the economy recovers completely.
During the quarter, Buffett also shed light on his succession
plan. Though the name of the new CEO is yet to be disclosed, he
announced that a decision has already been taken.
Berkshire is a conglomerate which houses over 80 different
businesses, along with equity investments in many companies. The
company has seen its earnings fluctuate from one quarter to another
due to heavy exposure to stock option derivatives. However, most of
these gains/losses are unrealized.
Other than the derivatives related earnings fluctuation, looking
closely, we see that most of Berkshire's businesses - Insurance,
Railroad, Utilities and Energy, Manufacturing, Service and
Retailing have performed well throughout the year. However,
itsFinance and Financial products continue to pose challenges,
given ongoing soft housing markets and the surplus of traditional
single- family homes for sale, which will continue to negatively
affect the results.
However, unless the economy weakens in 2012, eachof the
company's businesses should again set a record, with aggregate
earnings comfortably topping $10 billion.
We maintain our Outperform recommendation on the shares of
Berkshire Hathaway. The stock, however, retains a Zacks #3 Rank,
which translates into a short-term Hold rating.
BERKSHIRE HTH-A (BRK.A): Free Stock Analysis
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