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Berkshire Hathaway Q3 Earnings Hurt by Low Underwriting

Berkshire Hathaway Inc . BRK.B reported third-quarter 2015 operating earnings of $1.85 per share that missed the Zacks Consensus Estimate by 2.3% and decreased 3.2% year over year due to lower insurance underwriting income.

Net earnings more than doubled year over year driven by investment gain from a stake in Kraft Heinz Co.

Revenues in the reported quarter came in at $59 billion, up 15.2% year over year.

Segment Results

Berkshire Hathaway's huge and consistently growing insurance operation has been maintaining its streak of underwriting profit for over 12 years. The operation also saw an increase in its float. Insurance Group revenues for the reported quarter grew 28.8% year over year to $47.4 billion, primarily led by an increase in contribution from Berkshire Hathaway Primary Group. The float generated by the company's insurance segment has been customarily used by Warren Buffett to make investments. These investments are made in the form of equity as well as acquisitions, which in turn, has made the company a conglomerate of over 90 big and small subsidiaries. However, the segment's operating profit of $414 million, decreased 34.2% year over year due to lower reinsurance written and a $44-million loss related to an explosion in Tianjin, China.

Railroad, Utilities and Energy operating revenues were $10.5 billion, flat year over year. Operating earnings of $1.9 billion increased 11.8% year over year attributable to better performance by the railroad business, as well as Utilities and Energy.

Total revenue at Manufacturing, Service and Retailing increased 9.6% year over year to $27.6 billion. Operating earnings decreased 3.8% year over year to $1.2 billion.

Revenues from Berkshire Hathaway's Finance & Financial Products - including Clayton Homes (manufactured housing and finance), CORT Business Services (furniture rental), Marmon (rail car and other transportation equipment manufacturing, repair, and leasing) and XTRA (over-the-road trailer leasing) - increased 15.2% year over year to $59million. Operating earnings were up 2% year over year to $303 billion.

Financial Position

Consolidated shareholders' equity as of Sep 30, 2015 was $248.3 billion, reflecting an increase of 3.4% since Dec 31, 2014. Consolidated cash approximated $56.2 billion at quarter end, down 3.1% from the Dec 31, 2014 level. With its huge cash hoard, we believe that Berkshire Hathaway will continue with its acquisitions. As of Sep 30, 2015, Berkshire Hathaway's book value was $302.17 per share, up from $99.80 per share as of Jun 30, 2015.

Cash from operating activities were $24.2 million in the first none months of 2015, flat year over year

Zacks Rank

Berkshire Hathaway carries a Zacks Rank #3 (Hold).

Performance of other P&C Insurers

The bottom line at RLI Corporation RLI , The Travelers Companies Inc. TRV and Progressive Corp. PGR outperformed their respective Zacks Consensus Estimate in the third quarter.

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RLI CORP (RLI): Free Stock Analysis Report

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BERKSHIRE HTH-B (BRK.B): Free Stock Analysis Report

PROGRESSIVE COR (PGR): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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